Coinbase allows cryptocurrency users to stake ETH and receive a passive cryptocurrency income of 4.5% APR. Although staking ETH on Coinbase is an easy process, it does come with risks, and the staked ETH will be locked into Coinbase until ETH 2.0 goes live. In this post, I’ll show you how to stake ETH on Coinbase, explain some of the risks of staking ETH on Coinbase, and give my final thoughts on whether it's worth it to stake ETH or not.
Risks of Staking ETH
As always, I think its important to point out that nothing I ever write about should be taken as financial advice, and although its important to do your own research prior to staking/investing in any crypto, it is especially important to do thorough research before staking ETH on Coinbase. From my perspective staking ETH on Coinbase carries additional risks that aren't present with traditional staking. For example when you stake ETH on Coinbase, your ETH will be locked until ETH 2.0 rolls out. In contrast to other staking systems which allow you to unstake at anytime (subject to a gradual "unstaking period) ETH staked on Coinbase will be locked indefinitely. With some experts predicting that ETH 2.0 won't go live till 2024, the thought of locking up crypto for several years can be a daunting thought for many investors.
Additionally, staking ETH is a bit of a gamble because the underlying ETH 2.0 upgrade still hasn't been completely rolled out. Because your ETH is locked into Coinbase, you won't be able to unstake and trade out of ETH if something goes horribly wrong with the upgrade or if there is a massive ETH dump. In that situation, you'll likely be sitting there watching your losses mount as you sit there powerless to trade into a better position. Lastly, staking on Coinbase means staking on a centralized system. In contrast to staking directly onto a blockchain, staking to Coinbase means you will need to complete KYC, and it also means that you encounter all of the traditional drawbacks of centralized exchanges such as the potential for hacks. According to Coinbase, you do earn interest on your staked ETH, but staked ETH does NOT compound.
Advantages of Staking ETH
Although I do like to get the potential disadvantages out of the way, I do think that the 4.5% APR will be attractive enough to interest many crypto investors. According to CoinGecko, ETH is up almost 1000% for the year, so getting more ETH from staking means more rewards. Essentially, staking ETH allows you to benefit from the underlying price increase of the asset while simultaneously getting MORE of the asset itself. Imagine not only holding an asset that has went up 1,000% in price, but also holding 5% more of that asset. As long as everything works properly, its a win-win. Further, there is something nice about logging into Coinbase and seeing your balances increase in real time. Although I did previously mention that staked ETH can't be unstaked, I do want to point out that Coinbase does intend to provide a way for users to be able to trade staked ETH for other assets by the end of the year.
Summary / Why I'm Staking
Although there are clearly some risks associated with staking ETH on Coinbase (risk is inherent in life in general), I did decide to stake a portion of my ETH, and I'd like to explain why. First, I want to point out that the only ETH that I staked was ETH that I already had on Coinbase. Although a 4.5% APR is nice, I didn't want to transfer in ETH from other platforms because it would take a long time just to break even on the gas fees.
Although there are risks for staking ETH, I felt that the 4.5% APR justified this risk. I think the biggest risk of staking ETH is that the proposed 2.0 upgrade will flop causing the price of ETH to dump. If the price of ETH is crashing, it doesn't really matter whether I'm holding regular ETH or staked ETH. Either way, it's not going to be a fun time. This is especially true considering that I'm long on ETH and quite bullish. If I was more of a trader, then I probably wouldn't be staking. given that I'm long on ETH and will probably hold for years to come, I decided that it was best for me personally to stake and at least earn a bit of passive income on my ETH. Obviously, everyone will have a different risk tolerance and make their own decisions. I will also say that although we can't trade staked ETH yet, it does make me feel a bit more comfortable knowing that Coinbase has planned a way to allow staked ETH to be traded.
I also decided to stake because it is still relatively early on in the ETH 2.0 launch. As you can see from this graph, the more ETH that is staked, the lower the staking reward goes. I wanted to jump in as early as possible to try and capture as much of the high interest rate as I could before more ETH was staked and the rewards dropped.
As always, thanks for reading, and feel free to leave your thoughts below. Are you staking ETH, holding ETH, or do you have your sights set on another coin all together?
References
https://www.coingecko.com/en/coins/ethereum