Coinbase Custody, the institutional arm of Coinbase Exchange with around 60 clients and $600 million in its care, began staking Tezos (XTZ) this week with first the rumour and then the subsequent confirmation spurring the price of the token to rise just over 40%.
— Coinbase Custody (@CoinbaseCustody) March 29, 2019
Staking, or baking as Tezos have deemed to name it, allows users who lock up their tokens to benefit from the minting of new blocks – in a similar fashion to how interest used to be earned on fiat bank accounts before near-negative interest rates rendered that particular model redundant.
Passive Income on Crypto
Delegated-Proof-of-Stake (DPOS) assets like Tezos can thus be assigned by their owner to a node operator who in turn shares their rewards for mining blocks. These rewards do fluctuate, averaging around 5-6% for each node operator, but an approximate return from the available validators can be found by using the calculator at the MyTezosBaker website.
Earning passive income on crypto assets is an appealing concept to many investors including institutionals who, according to Tezos co-founder Kathleen Breitman, have to “…rely on a secure, offline custodian to take an active role in the network.”
Security is one area where Coinbase Custody believe they excel and confidently predict they can protect delegated funds by keeping assets in “…segregated cold storage, where they’re never subject to more risk than non-DPOS assets (e.g. BTC),” and as an added layer of assurance “staked assets are always protected by insurance policies underwritten by some for the largest insurance providers in the world.”
The integration of Tezos into the Coinbase Custody stable is welcome news for Tezos holders who have had to endure not just the general crypto downturn but also in-house legal wrangles since the project was launched in an ICO in July 2017.