Dissecting COIN: Why you should probably be bullish on Coinbase (Staking Services)

TLDR at the bottom

Intro

Coinbase is one of those early adopter companies, that has a chance to make an absolutely absurd amount of revenue in the next 10-15 years. I think it knows where this market is going, and is preparing a strategy that will make it a trillion dollar company in just a few years, potentially in the next bull market. There are a few narratives that could actually send Coinbase to unbelievable heights as a crypto company, but in this post, I want to talk about the litany of staking services that Coinbase will employ.

Staking services, Liquid Staking and Restaking

General Overview

Coinbase has a validator system that includes Ethereum, Cosmos, Tezos, Algorand, Cardano, Solana and Polkadot. This opportunity gives Coinbase the ability to build a validator business that extends out to other proof of stake ecosystems. This gives Coinbase a few new options for Coinbase to provide sticky services for their users and marketing yields that can remain relatively consistent.

Sticky services such as, the ability to purchase crypto, and immediately earn new yield on that asset as soon as you purchase. No need to send it to a hot or cold wallet to stake natively (although, this is the best way to do it), only the need to purchase and stake on Coinbase. Another sticky service they may be able to provide, could be leveraged staking, where they offer you the ability to leverage or take out a loan, on a portion of your stake, to use in other investments or to hold cash while still earning yield (or utilize the yield on your stake to pay off the loan) on your stake.

Liquid Staking

Coinbase has already released their liquid staking derivative for ETH, cbETH. As institutional investors begin to accelerate their investments into ETH and wish to participate in some Defi, they may opt out of using a LS service like Lido or Rocketpool to liquid stake. These institutions may feel more secure, utilizing coinbase for their liquid staking service. If they have an issue they want to discuss, they can call Coinbase. Utilizing Coinbase, rather than decentralized protocols, just feels more secure to these institutions that need someone to sue, if things go wrong.

With that being said, staking services and liquid staking services come at a cost for the end user. Staked assets have a commission rate of 35%. As Coinbase gains more users and retains more capital that users wish to keep on Coinbase, rather than in self custody. As this capital staked grows and as the value of these tokens go grow, this revenue will increase by significant margins.

Restaking

One of the newest protocols to make waves in Ethereum staking, is EigenLayer. EigenLayer allows for Ethereum validators to spin up additional nodes in order to run new, deprecate blockchains. These blockchains retain a level of Ethereum security, by utilizing these Validators staked ETH.

This ETH is staked, with the withdrawal address being in control by the EigenLayer smart contract, which is then able to be slashed. This slashing would take place, in the event of a malicious act by one of the validators, such as a double sign.

In return for this additional slashing risk, these Validators are compensated by the new blockchain. This compensation will be through things such as fees paid, token inflation or a combination of the two.

That’s where Coinbase, and it’s validator system as well as it’s liquid staking model come in. As Coinbase decides to Restake parts of its Ethereum stake, it can potentially gain significant amounts of revenue from the validation of these additional blockchains.

Conclusion TLDR

Coinbase is positioning itself to become an extremely large and important player in the future of blockchain. It holds a vast validator system, validating many of the major proof of stake blockchains. It provides these services at a universal commission rate of 35%.

With this system of validators, it can capture value from not only its own stake, but from the stake of users and institutions who wish to stake within the Coinbase platform.

One of the new innovations, EigenLayer, which allows for Ethereum validators to Restake their ETH, to contribute to the economic security of another separate blockchain. This new stake in another chain, provides a new slashing for the validator in question, however it also provides a new avenue for Validators to earn additional revenue.

With staking services as revenue generators, such as Liquid staking and Restaking, there is an opportunity for Coinbase to receive significant revenue. In a period of 10-15 years, who knows how many chains could be utilizing EigenLayer as a way to secure their chains. With Coinbase having the potential to earn significant revenue for a variety of these chains