Institutional clients of Coinbase Prime based in the US will now be able to stake ETH on the platform, with funds secured in the firm’s cold storage vault.
“Clients can create a wallet, decide how much to stake, and initiate staking from the ETH asset page on their Coinbase Prime account,” a blog post published today by the firm said.
Staking allows investors to earn a yield on their cryptocurrencies by committing them to a pool of assets, which helps support the liquidity and operations of a blockchain ecosystem. Often compared to a high-yield savings account, investors can earn upwards of 20% in annual yield on some platforms.
But the practice isn’t without risks. Staking often requires investors to store their funds with a third party known as a “custodian,” who, in some cases, technically owns the funds while they are being staked. Earlier this year, investors saw billions wiped away as custodians like Voyager and Celsius went bankrupt in response to the collapse of TerraUSD.
The blog post said that “securing client funds is our highest priority.” It added that all withdrawal keys are held in the firm’s cold storage vault and that staking transactions have to complete consensus before they are executed. This means they have to be added to a blockchain before the transaction is considered valid.
Staking is only possible on blockchains using the proof-of-stake consensus mechanism, which forces network participants – known as validators or “stakers” – to “lock up” a certain amount of their tokens. By forcing validators to maintain a financial stake, they are disincentivized from behavior that may compromise the network and consequently drive down the price.
At present, Ethereum is transitioning from a proof-of-work to a proof-of-stake blockchain system, meaning that both validation processes are running concurrently. Known as “The Merge”, the transition is expected to happen in September, at which point Ethereum mining will be phased out.
Coinbase Prime also staking for cryptocurrencies such as Solana, Polkadot, Cosmos, Tezos, Celo, and others.