The launch, a first for the company and the cryptocurrency ecosystem, likely bodes a future where other large crypto custody enterprises, e.g. BitGo and Fidelity Digital Assets, also move toward staking-as-a-service offerings.
Staking, or “baking” as the mechanism is known in Tezos jargon, was previously only possibly for XTZ holders through community-run bakers. Coinbase’s entrance to the staking arena makes it the first enterprise-grade option for XTZ baking.
Speculation had been mounting that such a foray was inevitable after the U.S. crypto exchange powerhouse had recently hired Luke Youngblood, the architect of Tezos’s liquid proof-of-stake (LPoS) staking system. PoS-based projects use staked crypto in specialized wallets to secure their blockchains as opposed to the mining used in proof-of-work (PoW) systems.
In their baking announcement, Coinbase noted that Tezos’s design made it uniquely suited for the exchange’s custody operations:
“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.”
The exchange’s custody arm also highlighted that it was directly running its own validators and staking nodes on behalf of its clients.
Coinbase Custody runs its own staking nodes and validators, subjecting them to the same security standards that have safely stored the tens of billions of dollars in crypto Coinbase has held over the past seven years.
— Coinbase Institutional ????️???? (@CoinbaseInsto) March 29, 2019
Tezos co-founder Kathleen Breitman called the Coinbase embrace a significant step forward for the XTZ ecosystem as a whole:
“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. 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.”
But it won’t be all about Tezos going forward. Coinbase noted it had committed to running validators for “all future chains we support,” indicating the exchange will eventually unfurl staking services for further coins.
On that front, the company projected launching validation services for the recently launched Cosmos Network in the second quarter of 2019.
Coinbase Has More Than Just Staking on the Brain
In their staking service announcement, Coinbase Custody declared that facilitating network governance participation for its customers was also a high priority.
Accordingly, the company declared that it was launching governance support for the Tezos and Maker (MKR) projects by the end of Q2 2019.
Users of @CoinbaseCustody will soon have governance support, allowing them to vote with their MKR directly from the Coinbase Custody interface! This means institutional MKR holders will be able to participate in governance ???? https://t.co/8hxMGYlFIo
— Maker (@MakerDAO) March 29, 2019
That rollout couldn’t come at a more interesting time for either project, as both have respectively been contending with important governance proposals as of late.
With that said, the specter of governance is growing in the cryptoeconomy, and its profile should rise that much more now that a major crypto player like Coinbase has joined the fray as a facilitator.
The development will undoubtedly mark a step forward for the Maker ecosystem, insofar as institutional MKR holders previously didn’t have an avenue to participate in Maker governance votes. As such, Coinbase said they’ve strived to make the process as easy as possible:
“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.”
Altogether, Coinbase Custody’s pivot has seemingly given a tangible boon to the prospects of staking and governance projects in the space.