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. 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. The offering allows another avenue for financial institutions who wish to enter the crypto space but are unsure of how to do it.
Aaron Schnarch, Vice President of Product, Custody, stated in a blog post, “We’re launching Ethereum staking to US domestic institutional clients on Coinbase Prime. Using our industry-leading cold storage, clients can now generate yield by staking ETH.”
Coinbase Prime aims to provide an end-to-end staking experience to its clients. They can create a wallet and make decisions on how much they want to stake. Also, they can initiate staking from the ETH asset page from their Coinbase prime account.
In order to secure users’ staked ETH and yield, Coinbase Prime will lock withdrawal keys in their cold storage custody vault during the entire staking process.
Furthermore, the transactions will first go through a consensus, and only then and then it will be executed. The reason behind this is to provide an additional layer of security to client accounts.
That said, 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.
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.