Coinbase will launch its own liquid staking token, called cbETH, which users can get in exchange for ETH that Coinbase will stake on the proof-of-stake version of Ethereum.
The exchange revealed cbETH, which stands for Coinbase Wrapped Staked ETH, in a tweet on Wednesday and released a detailed white paper explaining the rationale. Users will be able to transfer for cbETH as early as August 25 at 12:00 p.m. EST, provided that necessary liquidity conditions are met.
Ethereum’s switch from proof-of-work to proof-of-stake consensus, known as The Merge, is on track to begin September 6.
The new token will let Coinbase users engage in so-called liquid staking. On Ethereum, staking requires users to lock their ETH. That staked ETH is then utilized for establishing consensus, validating transactions, and securing the network. While those tokens are locked up, they cannot be traded. Liquid staking is a way around this.
Since it is already possible to stake ETH, services like Lido have arisen to let users exchange ETH for a derivative token that can be used in DeFi protocols. Lido’s version is called stETH.
Coinbase's white paper for cbETH highlighted current issues in the liquid staking market that it says may pose a danger to Ethereum. Thus far, liquid staking has been dominated by Lido, which maintains approximately a 90% market share.
A byproduct of dominating the liquid staking market is that Lido also now accounts for more than 30% of the staked ETH. One protocol having such a large share “is untenable when it comes to consensus-bearing systems like Ethereum,” the Coinbase white paper said. It added that “there are consensus thresholds that should act as soft limits to any one solution.”
A breach of a consensus threshold would introduce significant risks to Ethereum’s security.
“Today the liquid staking market on Ethereum is dominated by a single solution that is on the verge of breaching 33% network penetration (the first consensus threshold),” Coinbase wrote in the white paper. “Therefore, it is necessary for the liquid staking market to have strong, competing solutions with differentiated qualities.”
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