The Complete Guide to cbETH: Coinbase’s Wrapped Staked ETH
The Ethereum blockchain will begin a huge transformation with the anticipated merger scheduled for September 2022.
This upgrade will shift Ethereum from a power-hungry proof-of-work model to a more efficient and deflationary proof-of-stake model.
As part of the preparations for the merger, Coinbase has introduced cbETH, a wrapped cryptocurrency that represents Ethereum 2.0 (ETH2) on its platform.
In this comprehensive guide, we will explore what cbETH is, how it works, and its impact on the Ethereum ecosystem.
What is cbETH?
cbETH is an ERC-20 utility token issued by Coinbase to represent Ethereum 2.0 (ETH2) on its platform.
It is a wrapped cryptocurrency, meaning it represents another cryptocurrency that has been “wrapped” or “locked up” in a digital smart contract. In the case of this token, it represents staked ETH on Coinbase, which will eventually become ETH2 when the merger is completed.
At launch, cbETH and ETH have the same value. However, Coinbase expects the price of cbETH to deviate from regular ETH over time. Each token represents one cbETH plus any accrued staking value.
This implies that while the underlying staked ETH keeps earning rewards, each token is projected to represent more staked ETH. This could lead to a price difference between these assets.
Why Was cbETH Created?
cbETH was created for two primary reasons related to the Ethereum merger.
Firstly, the merger will lock all staked ETH on Coinbase, preventing its trade.
This means that users will not be able to access their staked ETH for months, even after the merger is expected to take place in September 2022.
Coinbase’s cbETH serves as a workaround for this issue, allowing holders of Ethereum 1.0 tokens to spend or sell their tokens as normal while their “actual” Ethereum remains locked up.
It is important to note that selling cbETH will not provide any immediate benefits when the Ethereum merger completes. This token is not free crypto; it is a promise of receiving something in the future.
However, Coinbase has offered an alternative for those who wish to hold ETH2 instead of cbETH. Users can trade their cbETH for ETH and then stake it to receive ETH2.
Secondly, the “Beacon Chain,” the Ethereum 2.0 network, will validate all trades during the Merge period. Validators in the Ethereum 2.0 network acquire wrapped cryptocurrencies to verify trades on the Beacon Chain.
To address this requirement, Coinbase has created cbETH and offered it as wrapped crypto to all holders of staked ETH.
Users can actively trade on Coinbase and other platforms while their ETH remains untouchable until the merger is final.
How do you use cbETH?
To use cbETH on Coinbase, you need to be in a country where Coinbase allows ETH staking and meet Coinbase’s Know Your Customer (KYC) rules.
Once you fulfill these requirements, you can follow these steps to use cbETH:
- Log in to your Coinbase account and navigate to the Assets page.
- Under Your Assets, select Ethereum 2.
- At the bottom of your screen, select Want to sell or send your ETH2?
- Enter the dollar amount or absolute value of ETH2 you wish to wrap.
- Select Preview to view how much cbETH you will receive.
- Select Wrap now to complete the cbETH conversion process.
- After the conversion, you can view the cbETH conversion rate and balance on the completion page.
- If you wish, you can choose to trade cbETH on Coinbase.
- To return to your account, select View Account.
It is important to note that while you can convert your ETH2 to cbETH, it will not be immediately possible to unwrap your cbETH to get your ETH2 back.
However, Coinbase has provided an alternative for those who wish to hold ETH2 directly. By trading your cbETH for ETH and then staking it, you can receive ETH2.
What is cbETH in DeFi?
cbETH is an ERC-20 token and, therefore, widely compatible with decentralized finance (DeFi) applications across the Ethereum ecosystem.
Coinbase aims for cbETH to achieve robust adoption for trade, transfer, and use in DeFi applications.
This implies that cbETH is usable as collateral, tradable on decentralized exchanges, and applicable to diverse DeFi protocols.
By enabling users to access and sell their Ethereum holdings through the liquid representation of cbETH, Coinbase hopes to support the DeFi sector during the Ethereum Merge.
Users can continue to participate in DeFi activities and benefit from the liquidity of their staked ETH without waiting for the merger to complete.
Can I convert cbETH to Bitcoin?
As of now, Coinbase does not offer direct conversion from cbETH to Bitcoin or any other cryptocurrency.
However, Coinbase provides a wide range of trading pairs and liquidity for various cryptocurrencies.
Users can trade their cbETH for other cryptocurrencies, such as Bitcoin, by following the standard trading process on the Coinbase platform. It is important to check the available trading pairs and fees before initiating any trades.
Can you sell wrapped ETH on Coinbase?
Yes, you can sell wrapped ETH on Coinbase, just like any other supported cryptocurrency.
The designers intended the token to be tradable on Coinbase and other platforms without restrictions. This allows users to maintain liquidity and flexibility with their Ethereum holdings during the Merge period.
However, it is important to note that selling this token will not provide any immediate benefits when the Ethereum merger completes. The wrapped token represents a promise of receiving something in the future. The value may deviate from regular ETH due to accrued staking rewards.
In conclusion, the introduction of cbETH by Coinbase addresses the challenges posed by the Ethereum Merge.
By providing a wrapped representation of staked ETH, Coinbase enables users to continue trading and participating in the Ethereum ecosystem while their ETH remains locked during the Merge period. This token serves as a liquid and tradable representation of staked ETH, offering flexibility and accessibility to users.
With its compatibility with DeFi applications and the potential for increased rewards, cbETH contributes to the growth and development of the Ethereum ecosystem.
As the Ethereum Merge approaches, Coinbase’s new token offers a seamless and convenient solution for Ethereum holders.