Coinbase announced yesterday yet another upgrade to its platform, offering staking ability for Tezos, with MakerDAO governance coming in the weeks ahead. The service, only for Coinbase Custody customers, will allow institutions to participate in these networks, and thereby earn passive income.
The move highlights the company’s new business trajectory of adding a host of various coins and services. With new coin support and services coming online nearly every week, the once-slow moving exchange has seemingly come to embrace everything crypto.
Stake N’ Bake
Staking is the term used by Delegated Proof of Stake (DPoS) blockchain networks to describe participants delegating their digital tokens to a block validating node. Those who stake their assets then have a chance to receive a percentage return of the fees received for block validation.
Tezos uses a modified DPoS system called Liquid PoS (LPoS), which makes staking optional. This allows token holders to choose, therefore increasing the decentralization of the network, as opposed to traditional DPoS networks like Tron.
The obvious issue is that staking tokens with another node puts those tokens at risk. Most large-scale holders have been unwilling to stake client tokens for fear of loss. However, Coinbase hopes that their track record of strong security will create enough trust to boost staking. According to the post:
‘No other staking provider has our track record of security and regulatory compliance, nor our comprehensive, best-in-class insurance coverage.’
Demons of Delegation
The question then, of course, is how does Coinbase use LPoS to provide that necessary security?
The choice of Tezos as the first staking token being offered, per the announcement, is due to its Liquid PoS (LPoS) protocol. This allows the exchange to keep the tokens in separate cold storage wallets. At that point, the risk is reduced to that of non-PoS coins like Bitcoin. Additionally, Coinbase offers insurance on the staked tokens as well.
And the Vote Goes to…
Coinbase also plans to offer voting privileges for institutions with staked tokens. This will begin with Tezos and MakerDAO in the second quarter of 2019. The exact methodology for achieving this is not clear. However, according to the company:
‘Coinbase Custody will provide an essential service by providing a way for institutional holders to participate in the system and vote with their MKR.’
With staking and voting services now available, Coinbase is moving toward greater participation in the crypto community. As developments continue, BeInCrypto will keep readers up to date on the changes.
Do you think Coinbase is moving in the right direction by offering staking services, or are they just diluting their value proposition even further? Let us know your thoughts in the comments below!