Coinbase staking is a way to earn a return on your digital assets. Both the Coinbase exchange and Coinbase Wallet allow you to send your crypto to be staked for which you receive successive rewards in return. In this article, I will tell you all you need to know about staking on the Coinbase platform: what it is, how it works, and how you can use it.
- What is staking?
- How does Coinbase staking work?
- Steps to stake on Coinbase
- Which regions are not eligible to stake with Coinbase?
- Coinbase staking fees
- How much can you earn from staking on Coinbase
- Pros and cons of staking on coinbase
- Alternatives to staking on Coinbase
- Other ways to earn a yield on your crypto
- How does the staking process work on Coinbase Wallet?
What is staking?
First a reminder about how crypto works
Cryptocurrencies live on blockchains which are massive digital ledgers containing all the transaction history of their native coin.
On the Bitcoin blockchain, you can see Bitcoin transactions. On the Ethereum Network, you can see ETH transactions. And so on.
There are two core systems blockchains use to verify those transactions.
1. Proof of work
The first was developed by Bitcoin’s pseudonymous founder, Satoshi Nakamoto, and is called Proof of Work.
A Proof-of-work consensus mechanism needs people with powerful computers to solve cryptographic puzzles.
These devices guzzle a lot of electricity to do this.
2. Proof-of-Stake model
As an alternative to proof of work a second and alternative consensus mechanism came about. This one was thought to be more scalable and more environmentally friendly.
This algorithm consumes hardly any energy.
Instead of energy, the main input here is capital.
This system is called Proof of Stake (PoS).
In a proof-of-stake consensus mechanism, validators who check transactions are required to put up a minimum amount of the blockchain’s native currency as collateral.
For example on Ethereum validators need to have at least 32 ETH.
How PoS aligns incentives
If validators try to do anything dodgy or don’t do a good job they will lose the whole or part of their collateral.
As a result, their collateral and their reputation are “at stake”.
The validator who adds the next block of transactions is rewarded with transaction fees and newly minted native cryptocurrency coins.
Your chances of being selected to add a new block are proportional to the size of your stake.
So here you have a system that aligns incentives well:
If you cheat you lose money. Hence, you don’t want to cheat.
On the other hand, the more you stake the more rewards you get.
But then as you increase your stake the more you have to lose from cheating.
So everyone is incentivized to lock in as much native currency as possible and not cheat.
How validators solicit staking
In order to increase their stake size validators can solicit funds from people like you and me.
Most blockchains have a system that allows you to delegate your crypto to be staked with a validator in their staking pool.
In return for doing so, the validator will share part of the rewards with you.
Pretty cool huh?
If you have crypto lying around in a wallet or an exchange you can earn a return on it by staking it.
To stake your crypto you send it to a staking platform where you lock up your crypto for a period of time.
Usually, there is some unbonding period for you to get your staked crypto back.
Some blockchains allow you to unbond instantly while others have a lock-up period of 30 days or more.
It varies by blockchain.
To stake crypto you can manage the process on your own or you can ask a crypto exchange to do it for you.
If you choose the latter, the exchange will take a cut of the rewards in return.
Let’s take a close look at how it all works on Coinbase
How does Coinbase staking work?
Coinbase facilitates staking multiple cryptocurrencies without you needing to go through the trouble of figuring it out for yourself.
Coinbase currently supports staking for the following cryptocurrencies:
Assets available to stake on Coinbase
|Asset||Est. Reward Rate|
|Ethereum ETH||3.08% APY|
|Solana SOL||4.35% APY|
|Cardano ADA||2.00% APY|
|Polkadot DOT||9.77% APY|
|Cosmos ATOM||10.34% APY|
|Tezos XTZ||4.62% APY|
Steps to stake on Coinbase
To stake on Coinbase follow these steps
- Log into Coinbase’s mobile app or website using your password and two-factor authentication. If you do not have an account you need to sign up for one and verify your ID and perhaps your address depending on your jurisdiction.
- Locate the Earn tab and click on it
- On the Earn tab, you will be able to see which types of assets you can earn a return on. You will need to have a verified profile to be able to see anything here.
- Scroll down and select a cryptocurrency to stake.
- Review the terms and click on confirm.
- Perfecto you are now staking your crypto and earning frequent rewards on it.
Which regions are not eligible to stake with Coinbase?
If you live in Hawaii or New York you won’t be allowed to stake ETH.
Moreover, on June 6th, 2023 a number of US states imposed restrictions on staking.
- New Jersey
- South Carolina
If you live in one of these jurisdictions you can visit Coinbase’s page on staking eligibility for more details.
If you live outside the United States you are a Coinbase global customer which means you can stake pretty much anywhere except from Norway.
However, to be 100% certain you will need to cross-check local securities laws.
Coinbase staking fees
As you can see Coinbase makes it pretty easy to stake via their platform.
The drawback to using them is that they take a sizeable proportion of the fees.
“Our standard commission is 35% for ADA, ATOM, DOT, SOL and XTZ (26.3% for eligible Coinbase One members) and 25% for ETH.”Coinbase.com
For example, at the time of writing the staking rewards for Ethereum on Coinbase are 3.08% in Annual Percentage Yield (APY) whereas a validator receives 3.8% APY.
To compare, Lido, an alternative platform where you can stake your crypto pays out 3.6% APY.
So Coinbase is charging you a whole 0.58% percentage points more.
Check the column that says reward rate.
How much can you earn from staking on Coinbase
You need to check the reward rate on each website.
This means that if you stake 1,000 ATOM for example you can expect to earn 100 ATOM over a year.
Pros and cons of staking on coinbase
- It’s easy and simple. Shifting to an alternative platform to stake isn’t hard but there is a small learning curve you need to climb. Pressing a button to stake on Coinbase makes things easier especially if you want to manage your crypto in one place.
- You earn passive income. If you’re holding a crypto for the long term then you might as well stake it to earn a return. This is equivalent to putting your dollars into US Treasuries or a fixed deposit savings account to earn interest while it sits around in your bank account. Of course, doing anything in crypto is much riskier.
- Your crypto is locked. If the market is moving down you may not have time to cut your losses.
- You need to report staking rewards as income to tax authorities. Plus you need to report any capital gains if you sell your staking rewards. This might be time-consuming and annoying to calculate when the time comes. But there are solutions. Check out What Is Cost Basis in Crypto for more details.
Alternatives to staking on Coinbase
If you have a sizeable amount of crypto that you are holding for the long term you should consider staking your crypto with a provider that can give you a higher reward.
An extra 15% is a significant margin that will make a difference in the long run.
You don’t need much technical knowledge to do this but you will need to do your own research for each of these platforms.
I have written about some of them on Elementalcrypto (see the links below).
You will also need to understand what a crypto address is and how to manage a wallet.
- Ethereum (ETH) – If you are staking ETH you will earn a higher return if you liquid stake on a protocol such as Lido. Liquid staking allows you to stake your ETH with a validator but you get another crypto token called stETH in return. Think of it like a voucher. The cool thing is that you can invest stETH in a DeFi protocol to earn further rewards. Read up more on what Lido is here.
- Polkadot (DOT). Check out how to stake Polkadot for more.
- Solana (SOL). You can stake directly with validators by visiting solanabeach.io and choosing one of the validators there. You will need to hook up your wallet once you select a validator.
- Cardano (ADA): you stake directly with operators who pool funds via wallets such as daedalus.io
- Tezos (XTZ): Simila to Cardano you stake via wallet such as Trust Wallet, Atomic Wallet, etc.
- Cosmos (ATOM): Done through wallets
- TRON (TRX): Again through wallets
The other option is to shop around and choose another centralized exchange instead.
Other ways to earn a yield on your crypto
Staking on Coinbase or elsewhere is not the only way to earn a return in crypto.
Staking really is the tip of the iceberg.
There are way more options to choose from.
Two other major ways to earn a yield are lending and joining a liquidity pool
Just like with a bank, the crypto ecosystem has evolved to allow lending and borrowing.
There are countless Decentralized Finance (DeFi) platforms where you can lend your crypto to others in return for a yield.
2. Joining a liquidity pool
This is another form of lending where you provide liquidity to decentralized exchanges and receive rewards in fees.
To understand liquidity pools check out my tutorials on Uniswap.
How does the staking process work on Coinbase Wallet?
What is confusing to many people is that Coinbase has a separate wallet called Coinbase Wallet.
This is separate from the exchange.
You do not need to have an account with the coinbase exchange to have a Coinbase wallet.
Instead, you can think of Coinbase Wallet as a competitor to the likes of Trust Wallet and MetaMask.
You can find out more about the differences between Coinbase and Coibase Wallet here.
People use wallets to store their crypto and plug into DeFi and Coinbase Wallet is no different.
On the Coinbase Wallet, you can choose which validator nodes you want to delegate your crypto to.
In the case of ETH, Coinbase operates its own node and offers its own liquid staking.
Like with Lido, your staked ETH on Coinbase is swapped with a wrapped version of ETH called CBETH in return.
CBETH token holders can in turn lend or invest their CBETH to increase their yield.
However, Coinbase’s fees are still higher if you choose this option than if you choose, say, Lido staking.
Should I stake on Binance or Coinbase?
Binance charges 20% on staking rewards which less than Coinbase's 25%. One dimension to consider for those using Binance.us is that Binance.us is under intense scrutiny from the U.S. Securities Exchange Commission.
What is the minimum staking on Coinbase?
It depends on the coin but the minimums are sufficiently small and close to zero that you can pretty much stake any amount. More specifically for ETH and DOT there is no minimum, for Cosmos (ATOM) and Tezos (TEZOS) it is 0.0001 and for Cardano (ADA) and Solana (SOL) is it 1 dollar's worth.
Is crypto staking worth it?
If you plan to hold on to your crypto assets over the long term then yes staking is worth it. For example, a 3% return on $1,000 over 20 years results in $1,806. A 10% return would result in $6,727. Of course you need to factor in that the price of your crypto asset will have moved. Always keep in mind that there are risks entailed in staking.
How much can you make staking on Coinbase?
Here are some ballpark figures: Staking rewards range from 3 - 10% at the time of writing. On a $10,000 investment your reward would range from $3,00 to $1,000 per year assuming constant prices. In reality your earnings will vary a lot in fiat currency terms as crypto prices are very volatile.
Is staking through Coinbase safe?
Coinbase operate their own validator node and claim they have 99% uptime guaranteed subject to SLAs. Given their reputation they are pretty sound. However staking with any provider is always subject to risk. You should also be aware that the verdict is not out for most staking tokens on wether they are considered unregistered securities or not.
Is staking better than holding?
If you plan to hold you might as well stake. Staking will increase the yield of your assets. Some cryptocurrencies like ETH inflate at a lower rate that the staking rate. So if you do not stake you are letting your crypto lose value. However there is always risk when you delegate your crypto to others.
Is Coinbase staking taxable?
Yes, staking is subject to taxation in the US. Staking rewards are considered personal income and are taxed as such. In addition if you sell your staking rewards during the tax year you will be liable for capital gains tax.
The Coinbase Earn program is a crypto rewards system targeted at eligible Coinbase Account holders who are willing to learn and earn. It incentivizes learning by rewarding those eligible Coinbase users for their effort in the study and mastery of lessons gained from the educational content provided by the program. Read more.
Staking Ethereum on Coinbase is pretty straightforward. In this quick guide, I will walk you through all you need to know. Read more.
Disclaimer: none of this is investment advice. Please make sure to do your own research when deciding where and whether to stake your crypto with third-party sites.