cbETH is a representation of ETH staked through Coinbase.
cbETH is a mid-cap, fully collateralized asset. This asset depends on a centralized entity for custody services. This asset is exposed to the underlying risks of Coinbase Liquid Staking, a protocol rated as Average.
cbETH has an uncapped supply but has inflation control or burn mechanisms in place. cbETH is backed 1:1 by ETH staked on the Ethereum blockchain. The asset accrues staking rewards automatically. cbETH can trade at a discount to 1 ETH as it is less liquid, has less utility (cannot be used to pay for gas fees), can be blacklisted, and has more technical risk (Coinbase smart contract bugs).
cbETH is highly correlated to the overall market. cbETH can trade at a discount to 1 ETH as it is less liquid, has less utility (cannot be used to pay for gas fees), can be blacklisted, and has more technical risk (eg Coinbase smart contract bugs).
Coinbase Liquid Staking
Coinbase is a top US exchange that holds custody of user assets. It has built its own liquid staking platform for Proof-of-Stake blockchain assets that allows users to stake their assets without needing to lock assets or maintain the required infrastructure. This enables users to continue participating in DeFi activities related to lending and market making, while Coinbase acts as the staking provider and token issuer.
Users receive cbETH tokens when staking their ETH through Coinbase. cbETH follows Compound's cToken model and can be minted or burned based on a floating conversion rate. The conversion rate tracks the underlying staked ETH to account for staking/unstaking activity, rewards, penalties and fees. This means ETH and cbETH are not pegged or interchangeable at a 1:1 ratio. As the underlying staked ETH continues to accrue rewards, cbETH is expected to represent more staked ETH, which should lead to a divergence in prices over time. There are no lock-up or minimum deposit requirements when staking with Coinbase. Coinbase charges a 25% fee on all generated rewards.
ETH deposited Coinbase are subsequently locked into the Ethereum PoS deposit contract. The staked ETH is now withdrawable following the Shanghai upgrade. Users must go through an exit queue in order to withdraw their underlying ETH. Users can always exchange their cbETH for ETH through exchanges that offer liquidity like Uniswap's cbETH-ETH pool. Please note, the price of cbETH is determined by the market and is not pegged or maintained by Coinbase.