In the ever-fluctuating world of cryptocurrency, Coinbase, a renowned crypto exchange, has experienced a notable downturn in its market share in Ethereum (ETH) staking. The decline, which has recently been under scrutiny, is believed to be an aftermath of increasing pressure from United States regulators. This comes as the ETH staking sector sees an unprecedented surge in demand.
A Sharp Decline in Market Share
Coinbase’s share in Ethereum staking has seen a significant drop. As of recent statistics, the exchange’s stake in ETH stands at a mere 9.7%, the lowest since May 2021. It is a substantial fall from the 13.6% recorded in April 2022 when the Shanghai upgrade of Ethereum allowed for first-time withdrawals.
The slide in Coinbase’s market share coincides with escalating demand for Ethereum staking. This mechanism involves locking tokens to help secure the blockchain while concurrently earning passive income, has been met with overwhelming enthusiasm. The Shanghai upgrade released a substantial volume of deposits to staking, with inflows surpassing withdrawals by an estimated 3.5 million ETH, an equivalent of $7.3 billion at current rates.
The Coinbase and Kraken Ethereum Staking Predicament
Despite the industry-wide enthusiasm, Coinbase suffered a net outflow of $517 million (272,315 ETH) during the same period, the second-largest amount trailing its rival, Kraken. Kraken, another dominant name in the crypto exchange market, faced a lawsuit from the U.S. Securities and Exchange Commission (SEC) earlier this year. Consequently, it was forced to close its staking service for U.S. customers as part of a settlement with the SEC.
On June 6, the SEC initiated a lawsuit against Coinbase, alleging violation of federal securities laws, including offering unregistered securities through its staking service. In response, Coinbase affirmed its commitment to maintaining its staking service, albeit the legal pressures. Nevertheless, the lawsuit led to a considerable shift in staking behavior.
In the wake of the lawsuit, Coinbas users withdrew approximately 149,300 ETH from Ethereum’s proof-of-stake network, with only 52,992 tokens being deposited in return. This net outflow of $183 million signified an exodus of users unstaking their tokens and exiting the exchange.
The Emerging Competition
Despite the setbacks, Coinbase has retained its position as the second-largest Ethereum staking service provider. However, the gap between Coinbase and its competitors, such as Figment, RocketPool, and Kiln, is closing.
These fast-growing rivals are aggressively pursuing the opportunity to leverage the current situation and climb up the ranks in the crypto staking industry.
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