A new liquid staking protocol comes to Coinbase & other exchanges

Published: Mar 8, 2023
Written By:
Katie Canales
Katie Canales
Staff Writer

There’s a new way for crypto services to offer liquid staking for customers.

Liquid Collective is a protocol that will let the likes of institutional players like Binance offer liquid staking to users. It launched Tuesday and is governed by a group of crypto leaders, including Coinbase, Acala, Alluvial, and Bitcoin Suisse.

Why is this a big deal? Because liquid staking is about to be the next biggest thing since sliced bread. When the Ethereum network’s so-called Shanghai upgrade goes into effect in April, it’ll be the first time since 2020 that those with staked ETH can unstake it.

And those holders are going to want to deploy their newly unstaked assets into projects that let them make more money…like liquid staking.

Let’s do a quick refresh on what that is. Liquid staking derivative tokens are a way to stake your crypto (which people do to help secure/validate blocks on the Ethereum blockchain as an alternative to mining) without having to lock it up.

So, let’s say you stake your ETH on Lido Finance (liquid staking market leader.) Lido will then give you its stETH token that represents your staked crypto. You can move your stETH token around anywhere, including staking it somewhere else and not only earning yield there but also on the original ETH staked on Lido.

Who doesn’t want extra yield? We love the “Y” word around here.

Coinbase and Kraken have offered their own staking services for a while now, though the SEC just shut the latter’s down. So why would they and other exchanges want to use Liquid Collective?

  1. It’s a lot easier to join versus setting up their own liquid staking offering
  2. They’re gonna miss out big time if they don’t offer liquid staking to customers moving forward
  3. It’ll open a nice revenue stream; they’ll get a cut of the fees that Liquid Collective charges to stake ETH
  4. If they teamed up with Lido instead, they wouldn’t earn those cuts
  5. Liquid Collective looks good from a regulatory standpoint; it meets Know-Your-Customer and anti-money laundering requirements
  6. Coinbase may have its own liquid staking product (cbETH,) but this is an opp for it and others to join in via a decentralized initiative

Liquid Collective is also offering insured protection in case of a network malfunction or code vulnerability and is charging a 15% commission on staking rewards; Lido charges 10%.

So any downsides to all this?

Well there is some risk, of course. This is the crypto space we’re talking about.

If there’s a hack on Liquid Collective, that could have a far-reaching effect. And if validators don’t do their job correctly, that could also pose problems.

Plus, this may be a decentralized endeavor, but it’ll still be comprised of centralized players like Coinbase and Kraken.

“If institutions and other regulated entities become the dominant ETH stakers through these liquid staking protocols, there could be a risk of centralization and censorship on the network, similar to the concerns expressed about Lido Finance,” Matt Maximo, research analyst at Grayscale, told Milk Road, referring to Lido’s dominance in the liquid staking market.

Katie Canales
Katie Canales
Staff Writer
Katie joined Milk Road in December 2022 as a writer for its daily newsletter. She previously was a founding member of Morning Brew's crypto newsletter, Incrypto. She covered the technology sector at Business Insider for four years prior to that.