Due to increasing pressure from U.S. regulators on its staking service, cryptocurrency exchange Coinbase has seen a decline in market share in the expanding ether (ETH) staking industry.
According to a Dune analytics data created by digital asset investment product-issuer 21Shares, the exchange’s percentage of ETH staking dropped to 9.7%, its lowest level since May 2021. This is a sharp decline from the 13.6% observed on April 12, when Ethereum’s Shanghai upgrade initially permitted withdrawals. While the demand for ETH staking, which involves locking up tokens to help secure the blockchain while generating a passive income on holdings, was surging, the market experienced a slump. The Shanghai upgrade triggered a rush of deposits for staking, with inflows exceeding withdrawals by about 3.5 million ETH, or $7.3 billion at today’s values. However, during the same time period, Coinbase experienced a net outflow of $517 million (272,315 ETH), which was second only to rival crypto exchange Kraken in size.
According to Tom Wan, an analyst at 21Shares, “a potential reason could be that investors do not want to be exposed to regulatory risk by using Coinbase’s staking services.”
As part of a settlement, Kraken shut down its staking service for consumers in the United States after being sued by the U.S. Securities and Exchange Commission (SEC) earlier this year.
The SEC also filed a lawsuit against Coinbase on June 6 for allegedly breaking federal securities laws, notably by providing customers with unregistered securities through its staking program. But the exchange insisted that it will continue to offer its staking service
According to blockchain statistics provided by 21Shares, Coinbase has only deposited 52,992 tokens while withdrawing over 149,300 ETH from Ethereum’s proof-of-stake network since the lawsuit. Users were unstaking tokens and leaving the exchange, as seen by the $183 million net outflow.
A Dune graphic reveals that while fast-growing competitors like Figment, RocketPool, and Kiln have been closing the distance, Coinbase still has the second-largest staking service provider position. A decline in the number of staked tokens results in less revenue for the exchange, which charges a 25% commission on user incentives obtained through staking.