Coinbase has launched a liquid token for its users who staked their Ethereum (ETH) on its platform called cbETH, according to an August 24 announcement.
Coinbase will add support for Coinbase Wrapped Staked ETH (cbETH) on the Ethereum network (ERC-20 token). Do not send this asset over other networks or your funds will be lost.
What is cbETH? Let’s dive in ?? pic.twitter.com/n3Dp4OA6HO
— Coinbase Assets (@CoinbaseAssets) August 24, 2022
The exchange revealed that the Coinbase wrapped staked ETH will be a “utility” ERC-20 token.
“Coinbase Wrapped Staked ETH (cbETH) is a utility token that represents ETH2, which is ETH staked through Coinbase. cbETH can be sold or sent off-platform, while ETH2 will remain locked-up until a future protocol upgrade.”
According to the announcement, only staking fees will apply, and there will be no fees for wrapping and unwrapping the tokens.
Coinbase continued that the price of cbEth doesn’t track the ETH value at a 1:1 ratio as it only represents the staked ETH and accrued staking interest.
With the Ethereum Merge only a few weeks away, interest in staking has increased. However, staked ETH withdrawals will not be enabled until the Shanghai update, scheduled for 2023.
Competing against “Lido”
The exchange’s whitepaper noted that Ethereum’s liquid staking market is dominated by a “solution that is on the verge of breaching (the) 33% network penetration” —a reference to Lido (LDO).
Coinbase believes that it would be able to compete against this solution because it is a trusted brand within the community, thereby “keeping Ethereum decentralized and secured.”
According to Dune analytics data, Lido presently accounts for 31% of staked Ethereum, while Coinbase accounts for 14% of staked Ethereum.
Community remains concerned about centralized staking providers
There are still concerns about what centralized staking providers could mean for Ethereum’s transition to a proof-of-stake network.
Several industry players have expressed concern that Ethereum could be prone to censorship from these entities, which might give in to regulatory pressures.
However, Coinbase CEO Brian Armstrong said the firm will not comply with any request from regulators to censor transactions. Instead, it will shut down its staking service if there are no alternatives.