Is Coinbase exchange Doing Right by Your Staked Ethereum?
The Merge is here, but do not celebrate yet
Its fair to say that Ethereum (ETH) highly anticipated Merge, whereby the cryptocurrency migrated from the resources-draining proof-of-work (PoW) mining protocol to the more efficient proof of stake (PoS), went fairly smoothly. The engineers nailed the transition process, but investors are not exactly celebrating right now.
The worlds second-most-valuable Cryptocurrency initially sold off following the Merge. An investment losing value after a widely anticipated bullish event is not a surprise. The "buy the rumor, sell the news" adage is old hat to longtime investors. However, with Ethereum having plummeted by about 60% in value so far in 2022, its not as if we can say that there was a lot of bullish sentiment heading into the Merge. Sell the rumor, sell the news more?
If you think that holding Ethereum has been rough through this punishing bear market for digital currencies, it could be worse. You could have staked your Ethereum last year through Coinbase Global (COIN).
A stake through the heart
The worlds most popular Cryptocurrency trading exchange is a master of many things, but it seems to have fumbled the ball when it comes to its staking platform for Ethereum. Ahead of the Merge, Coinbase Exchange began promoting a way for users holding Ethereum in their accounts to make some passive income, paid out in Ethereum, by allowing the Cryptocurrency trading exchange to stake on their behalf. Users would convert their cryptocurrency to Ethereum 2.0 in exchange for rewards as Coinbase global participated in transaction validation (aka staking) on their behalf.
It was quite evident that traders were locking up their Ethereum in the process, unlike with most income-generating offerings, where investors can withdraw at any time. Participants were not able to trade, send, or sell their Ethereum 2.0. No one is arguing that folks were not aware that they were locking up their original Ethereum and handing Coinbase Exchange the key. The problem came when the goalposts started to move.
Coinbase Exchange initially expected to enable liquidity by the end of 2021, but as the year came to a close, new language pushed that milestone out to 2022. Unfortunately, this weeks migration to proof of stake isn't the event that unlocks the staked Cryptocurrency. It's not until the next phase of the migration process, which Coinbase Exchange expects to take place in another six to 12 months, that Coinbase Exchange will allow withdrawals.
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Coinbase Exchange did recently offer an escape plan, but it was not exactly what traders were hoping to see. It is now allowing those with staked Ethereum 2.0 to swap it for a new wrapped Ethereum utility token being minted by Coinbase Exchange itself. Its the only way out right now, but unfortunately, its not a fair exchange. Ethereum was trading for $1,460 on 9th August morning. The new wrapped Ethereum (ETH), was fetching $1,382, a 5% discount.
Adding salt to the wound, the same program that was offering those willing to stake their Ethereum an initial annualized rewards rate of 6% in exchange for locking up their cryptocurrency is a lot lower. Staked Ethereum on Coinbase Exchange is now yielding just 3.77%. Traders were told that rates would change and could move lower, but its a cruel passing-ships moment, as liquid yields on more conservative income-generating banking vehicles have moved sharply higher in that time.
Also Read: Crypto Exchange Coinbase Enlists Broadridge Financial To Improve Liquidity
It could be worse, of course. We have seen a few cryptocurrency platforms offering more generous rewards rates buckle this year. Coinbase Exchange is a survivor, backed by a cash-rich balance sheet to weather this Cryptocurrency winter. However, you may want to check out the Coinbase Exchange page for Ethereum 2.0 and the wrapped cbETH. The reviews have been brutal, and its just a matter of time before Coinbase Exchange eliminates the feature where accounts can publicly post their thoughts. Coinbase Exchange does many things well, but the staked Ethereum system is certainly not one of them.
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