Aaron Schnarch, Vp of Product, Custody at Coinbase (NASDAQ:COIN), explains that Coinbase Prime provides institutions “with an end-to-end staking experience.”
Clients can “create a wallet, decide how much to stake, and initiate staking from the ETH asset page on their Coinbase Prime account.”
Securing client funds is Coinbase‘s “highest priority,” the company claims.
“We hold withdrawal keys in our cold storage custody vault at all times, meaning staked ETH and accumulated yield are always safe. To further ensure the security of client accounts, staking transactions must first complete consensus before they are executed.”
ETH vs ETH2
As noted in a blog post, the term eth2 “has been used frequently to describe an upgrade to the Ethereum network that aims to improve the network’s security and scalability.” This upgrade involves “a shift in Ethereum’s security model from mining (Proof-of-Work) to staking (Proof-of-Stake).”
Once a client stakes their ETH, their system “uses the ticker ETH2 to represent those staked ETH tokens.” Note that there is “no separate/new ‘eth2’ token or asset.”
The price of ETH and ETH2 “is identical.” Once the upgrade to the Ethereum network is complete, the tickers ETH and ETH2 will “merge into a single ticker: ETH.” The merge is currently “expected to occur in September 2022, so moving forward you likely will see the term ETH2 fall into disuse.”
As explained by Coinbase, staking can “offer passive income on assets already held in custody by providing useful work in the form of security to the underlying blockchain.”
The Ethereum blockchain “rewards stakers that do a good job, but also punishes those that fail in their duties, for example by having downtime.” This is why it’s important “to stake with a reputable and effective provider to earn maximal rewards while minimizing risk.”
Staking rewards for most assets “can be thought of similarly to compound interest, not unlike in traditional markets when dividends are reinvested.”
Because staking rewards are paid in the token being staked, users may “reinvest” those tokens “to receive a higher payout at the next period.”
Furthermore, staked tokens “are typically stored within their respective wallets, meaning that users earn yield without rehypothecation.”
With Coinbase Prime, institutional customers “have the ability to stake their ETH and a number of other assets to begin generating yield.”
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