Coinbase Backs First Enterprise-grade Liquid Staking Protocol

Coinbase, America’s largest crypto exchange, is venturing deeper into the realm of digital asset staking with its latest pledge of support.

The exchange published a company blog post stating that its cloud division would be supporting the development of the first-ever enterprise-grade liquid staking protocol.  

Coinbase Cloud is collaborating with staking platform Figment and software development firm Alluvial Finance to support a group of experienced founders and operators building the institutional-grade protocol.

Alluvial already operates a staking platform that it intends to expand and become decentralized through DAO governance.

Coinbase says liquid staking is growing  

Coinbase stated that liquid staking is a niche market and an “industry gap.” While there are already existing platforms such as Lido offering Ethereum staking, one for financial institutions has yet to be launched.

Traditional staking methods require tokens to be locked up or bonded for a set period in order to be eligible for yields. This is the case with the Ethereum consensus layer which began staking operations in December 2020, with ETH remaining locked in the smart contract. It will not be released until several months after the Merge which is slated for this summer.

Liquid staking opens up opportunities to efficiently utilize staked assets as collateral to trade, lend, and provision quickly and strategically, the blog post stated. Stakers receive equivalent tokens representing their collateral that can be used elsewhere.

“They can stake their tokens, receive back receipt tokens that evidence ownership of their staked tokens and use those receipt tokens to participate in the broader Web3 economy,” says the company.

According to Dune Analytics, liquid staking penetration has gone from less than 1% penetration in January 2020 to more than 35% today. Dune also reports that Lido staking represents almost a third of all ETH staked on the Beacon Chain with 4.1 million ETH staked.

Coinbase stated that these staking solutions do not meet the needs of institutions or mature regulated businesses which require enterprise-grade reliability, security, and KYC/AML processes.

“As part of the initial…