August 31, 2022 | Issue #234

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Coinbase Announces Liquid Staking Token

Coinbase made a big splash last Wednesday as they officially announced the release of their liquid ETH staking token, cbETH.
Coinbase’s entry into this very lucrative sector carries potentially enormous implications for Coinbase, its staking competitors, and Ethereum.
What is Staking?
Staking is the process of locking tokens to secure the blockchain in exchange for a yield. Staked tokens are usually completely locked during the process, meaning that investors are unable to access them or trade them while they are staked. Although Investors generally accept this drawback because they are earning a yield, it is not ideal.
What Is Liquid Staking?
Liquid staking solves this by issuing stakers a, you guessed it, liquid version of the staked token. A liquid staked token is simply a tradeable representation of the staked token. This allows investors to maintain control of their assets while continuing to earn a staking yield.
Liquid staking is especially popular for ETH because staked ETH can’t be unlocked until 6-12 months after The Merge. Investors therefore often want to hold a liquid staking token to maintain flexibility until the unlock.
Decentralized platform Lido currently dominates the liquid staking market with a whopping 31% share of all staked ETH. However, they now have some real competition for maybe the first time.
cbETH
Coinbase Wrapped Staked ETH, better known as cbETH, is Coinbase’s ETH liquid staking token.
As explained in the whitepaper, cbETH is a tradeable version of staked ETH. This means that not only does cbETH earn staking rewards but it can also be bought, sold, and used in other DeFi protocols as collateral.
It’s an excellent idea for Coinbase, but is it beneficial for crypto?
Consequences
There are three parties that cbETH affects: Coinbase, Lido and other liquid staking providers, and Ethereum.

cbETH’s impact on Ethereum is a bit more ambiguous. Ethereum is strongest when it is decentralized. Lido and their massive 33% share of staked ETH does not aid decentralization. Thus, in the short term, Coinbase entering the liquid staking game brings some much-needed competition.
However, in the long term, Coinbase amassing a massive share of staked ETH themselves could be catastrophic for Ethereum. We have seen with Tornado Cash that the government is willing to attack crypto. Who’s to say that they won’t put pressure on Coinbase to censor transactions?
CEO Brian Armstrong has said that Coinbase will shut down its staking program if the government pushes them to censor transactions. It’s anybody’s guess if he will hold true to that when push comes to shove with staking such a big part of Coinbase’s revenue. What is certain, however, is that the risk rises as Coinbase’s share of staked ETH rises.
cbETH is indisputably great news for Coinbase and $COIN investors, but we can’t ignore its potential dark consequences on Ethereum. Hopefully, we never have to see those consequences become a reality.

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REGULATORY FRONT

Another Scandal: Ava Labs, Cryptoleaks, and Lawsuits

A few weeks ago, we declared the faked Solana TVL story the strangest story of the year.
Well, it appears their reign atop the leaderboard was short-lived…
This week Crypto Leaks, a crypto whistleblower, alleged that Ava Labs, the company behind the fourth largest layer-1 blockchain Avalanche (AVAX), used litigation to damage competitors and draw regulatory attention away from themselves.
There’s a lot to unpack here, so let’s get into it.
The Leak
In the investigation, Crypto Leaks claims that Ava Labs and law firm Roche Freedman made a dirty deal to sue competitors and use regulation as a way to gain market share.
Basically, Crypto Leaks alleges that Roche Freedman founding partner Kyle Roche was given 1% of the AVAX token supply in exchange for:

These are serious allegations, and nobody would take them seriously if they were just words on the screen. But, unfortunately for Ava Labs, the article contains videos of Kyle Roche admitting to everything that Crypto Leaks accuses him of doing.
Talk is cheap, but video is pretty damning evidence. Right?
The Response
Maybe not.
Both Emin Gün Sirer and Kyle Roche released responses on Monday that pretty much amounted to calling the exposé fake news.
Emin’s statement claims that the article was all lies, Crypto Leaks itself is disreputable, and that not only is there no secret pact with Roche, but there is no legal arrangement with Roche period.
Roche, in his response, does not deny that the videos are real, just that they are highly edited, misleading, and illegally obtained. To him, this whole thing is nothing more than a hit job.
So, Who's Telling The Truth?
It’s a cop-out answer, but we genuinely have no clue which side is telling the truth.
On the one hand, as Twitter personality Cobie eloquently pointed out, pretty much everything about the story is fishy. The story’s tone, the questionable integrity of Crypto Leaks, and the apparent conflict of interest between Crypto Leaks and Internet Computer are all major red flags.
On the other hand, the videos exist, and they definitely don’t look great. We have no way of knowing if the videos are edited. All we know for sure is what we see, and what we see are tapes of Roche admitting to everything Crypto Leaks alleges. That’s hard to ignore.
In any case, it seems AVAX investors are not too happy with the token trading ~11% down from where it was before the story dropped, and that number will likely increase should more evidence be released.

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