Staking on Blockchain Protocols for Rewards
Staking has emerged as a popular concept that involves locking up a crypto asset to act as a validator to secure a blockchain network. Validators are then rewarded with new cryptocurrencies as an incentive for securing the network.
Several popular blockchain protocols like Cardano, Tezos, Cosmos, Ethereum 2.0, and Polkadot implement the proof of stake consensus.
As more projects move to the energy-efficient PoS consensus algorithm, more opportunities have emerged for the average user to stake and earn. However, becoming a validator for most blockchain platforms requires technical know-how and significant capital to lock within smart contracts.
This has created a rise in staking services led by crypto exchanges like Binance and Coinbase. These exchanges act as validators and enable their clients to stake varying amounts for a cut of rewards. However, this service does not come without its cons, as rewards can be subject to different factors and are usually lower than what is available when staking directly.
Coinbase History of Reducing Staking Rewards
Coinbase, for example, is known for its high rewards and supports five tokens within its staking services: Ethereum, Algorand, Cosmos, Tezos, DAI, and USDC. However, the exchange has been reducing staking rewards for supported crypto assets in recent years.
In the first half of 2020, Coinbase lowered the staking reward of Tezos from 5.5% to 4.9%, and the rate has continued to reduce. According to Tezos staking reward tracker, Coinbase offers the lowest staking rewards among all the staking service providers on Tezos at 4.42% compared to the average reward of 5% elsewhere.
The disparity has caused debates within the Tezos community with many stating their preference of staking using wallets like Ledger and Trust Wallet. A similar trend is experienced with the Coinbase Algorand staking service. The exchange in June reduced staking rewards to 4% when the average reward offered by other services is about 5.7%.
This is also the case with Cosmos staking, as Coinbase offers 5% APY compared to the 8% APY provided by other Cosmos staking services.
Coinbase continues to generate more users that stake their crypto assets in their pools despite the continued reduction in staking rewards. The crypto space is fraught with dangers, and many see Coinbase as a platform that guarantees that funds will not be lost or stolen. Its recent IPO has also made the exchange stand out as the premier staking platform for newbies testing their hands in the crypto investment space.
Competition Growing for Coinbase Staking Services
Coinbase could face major competition from crypto wallet providers like Trezor, Ledger, and Trust Wallet. These wallets have easy-to-use interfaces and allow users to access staking pools that generate higher rewards than Coinbase offers.
Users also have greater control of their funds and can decide to remove their liquidity with the minimal fuss or KYC checks. Ledger, for example, integrates staking pools that allow users to delegate their coins to validators for staking rewards. There are also more tokens to stake compared to what Coinbase offers to users.
Trezor wallet users can also link their wallets directly to popular staking pools and begin staking their crypto assets. While Trust Wallet has a dedicated dApp explorer where users can search for validators and staking pools to delegate their tokens. Trust Wallet users can also stake their tokens within decentralized protocols for rewards and earning opportunities. These options mean that stakers can leverage the opportunities available to stake crypto assets for premium returns.
Coinbase reduced rewards for its staking services will be a continued trend based on the history of the exchange. As a result, users will have to choose between the safety of the exchange platform or the lure of higher profits on other staking services. However, crypto wallet services like Trezor and Ledger provide an excellent alternative for stakers to maximize their capital and are considered much safer than Coinbase.