Today, we’re announcing Tezos (XTZ) baking for Coinbase Custody clients. We’re proud to be the first full-service, regulated, comprehensively-insured, and 100% offline staking provider in crypto. In the coming weeks, we will add governance support for the Maker (MKR) protocol.
We launched Coinbase Custody with a simple thesis: institutions need a regulated and trusted partner to help them store their crypto assets. That approach has helped us scale to more than 60 clients and $600 million in assets under custody.
Today we’re taking the next step of our journey — from helping our customers store their assets to enabling them to actively, safely and easily participate in crypto networks.
Crypto-native passive income from offline assets
Proof-of-Stake (“POS”) assets incentivize participants to help secure the blockchain by “staking”, or “delegating”, their assets to someone running the blockchain software. If you delegate to a trusted node (also known as a validator), you can share in the rewards that the validator receives for mining blocks. Anyone holding the blockchain’s token can participate in this process, making POS networks one of the first crypto-native ways to earn passive income on crypto assets.
Most Coinbase Custody clients are fund managers who act as fiduciaries to their investors. Participating in POS networks has raised an interesting tension for them: to stake or not to stake? Staking avoids deflation, but products to date increased risk. Prior to today, the risk necessary to actively participate in staking has mostly outweighed the return. As a result, many institutional investors have elected to sit on the sidelines.
Coinbase Custody changes this calculus. No other staking provider has our track record of security and regulatory compliance, nor our comprehensive, best-in-class insurance coverage.
“The launch of Tezos staking through Coinbase Custody serves an acute need that existed up until now: a way for institutional participants who rely on a secure, offline custodian to take an active role in the network,” offered Kathleen Breitman, co-founder of Tezos. “Achieving our mission of creating a ‘digital commonwealth’ means facilitating participation for all, and that includes the institutional customers that Coinbase Custody brings to the space.”
How network participation and governance will work
We spent months thinking through how best to offer staking and governance services to our clients. We chose Tezos as our first staking asset because of its DPOS architecture coupled with high demand from current clients. The Tezos design was thoughtful from the start about protecting delegated funds. The result is that we can keep client assets in segregated cold storage, where they’re never subject to more risk than non-DPOS assets (e.g., BTC). Coinbase Custody’s customers’ staked assets are always protected by insurance policies underwritten by some of the largest insurance providers in the world.
For Tezos, and all future chains we support, Coinbase Custody runs its own nodes and validators and subjects them to the same security and infrastructure standards that have safely stored the tens of billions of dollars in crypto that we’ve held over the past seven years. Coinbase Custody is the first all-in-one, truly institutional-grade staking service.
- 100% offline, segregated storage for all client funds: Coinbase Custody posts all bond requirements for its bakers.
- Staking fiduciary and Qualified Custodian: Coinbase Custody is a fiduciary and offers staking services as a non-discretionary fiduciary activity to its clients.
- Ease of use: clients enjoy the same simple deposit, withdrawal, reporting and consensus features as with any other asset on Coinbase Custody.
Governance on Coinbase Custody
Staking is one side of the active participation coin; governance is the other. In addition to Tezos baking, we’re launching Maker and Tezos voting in Q2–19, pending approval per our internal evaluation process. MakerDAO is one of the fastest growing projects on Ethereum. More than 200 projects are integrating their Dai stablecoin, making it one of the most used decentralized stablecoins and a core element in the #DeFi movement. The Maker community is known for its passionate commitment to decentralized governance. Until now, institutional investors who used custodians to store their MKR (the governance token for the Maker system) were unable to participate.
That changes with Coinbase Custody.
We’re working directly with the MakerDAO team to ensure our offline storage works seamlessly with their VoteProxy smart contract. And we’re excited about all of the interesting ways we’ll be able to start surfacing governance opportunities direct to our clients in-app.
“Decentralized governance is fundamental to the success of the Maker project,” said Rune Christensen, Founder and CEO of MakerDAO. “Coinbase Custody will provide an essential service by providing a way for institutional holders to participate in the system and vote with their MKR.”
The recent successes of Tezos and Cosmos is the start of a more open and engaging era in crypto: one where all participants can actively help secure blockchains and influence their development. We plan to offer secure, regulated staking services for any chains our clients invest in. In Q2–19, Coinbase Custody clients will be voting on Maker proposals and Tezos amendments as well as validating Cosmos and more.
Coinbase Custody is building the world’s leading crypto-native custodian. If you’re interested in helping to build the utility phase of crypto, the team is hiring.