The booming ether (ETH) staking business has seen a shift in market share, with popular crypto exchange Coinbase experiencing a slip to 9.7%, its lowest level since May 2021, according to Dune analytics by digital asset investment product-issuer 21Shares. This decline from 13.6% on April 12 coincides with mounting pressure from U.S. regulators and raises concerns over Coinbase’s staking services.
While the demand for ETH staking, which involves locking up tokens to participate in securing the blockchain and earning a passive income on holdings, has been soaring, Coinbase has suffered a net outflow of $517 million (272,315 ETH) during the same period. Such a significant drop suggests that investors may be wary of the potential regulatory risks associated with utilizing the exchange’s staking services.
A possible contributing factor to this decline is the legal action taken against Coinbase by the U.S. Securities and Exchange Commission (SEC) earlier this year. The company was sued for allegedly violating federal securities laws, including offering unregistered securities to users via its staking service. In the aftermath of the lawsuit, Coinbase withdrew 149,300 ETH from Ethereum’s proof-of-stake network, while depositing only 52,992 tokens.
This $183 million net outflow implies that users have been unstaking tokens and migrating away from the exchange, likely indicating concerns over regulatory implications. Meanwhile, competitors like Kraken have faced similar legal issues, with the exchange shuttering its staking services for U.S. customers after being sued by the SEC.
While Coinbase remains committed to its staking service, the company’s decreasing market share could have negative ramifications on revenue, as the exchange takes a 25% commission on user rewards earned by staking. With less staked tokens, the company is set to generate less income from this service.
Despite Coinbase maintaining its position as the second-largest staking service provider, fast-growing rivals such as Figment, RocketPool, and Kiln have been closing the gap. As it stands, the exchange’s market share may continue to dwindle as more investors opt for alternative platforms in light of regulatory concerns.
In conclusion, the slipping market share of Coinbase in the ETH staking business highlights the challenges faced by crypto platforms subject to increasing regulatory scrutiny. While the long-term effects of this development remain unclear, the potential implications on revenues and user confidence are of consequence for both Coinbase and the wider crypto industry. As regulations evolve, stakeholders within the ecosystem will need to adapt and strategize accordingly to maintain growth and investor trust.
Source: Coindesk
