Many in the crypto community have been anxiously awaiting the elusive alt-season, and now one exchange is bringing alt-season to them. Popular U.S.-based cryptocurrency exchange Coinbase has added Tezos (XTZ) staking for U.S. customers, which delivers a profit even when crypto prices are in the doldrums.
In exchange for holding onto their XTZ instead of trading it, users will receive staking rewards of approximately 5% annually, though Coinbase says participants can opt-out at any time. With many banks offering low to negative interest rates, however, it’s unlikely that investors will want to sacrifice those returns to get out early. The initial holding period is 30-45 days and earnings will be reflected in user balances every few days.
Investors celebrated the development, sending the XTZ price into the stratosphere. Tezos rallied as much as 70% on the news, according to analyst and economist Alex Kruger. The price has since pulled back some, but with 23% gains, XTZ easily remains the top performer in the top 20 cryptocurrencies based on market cap, not to mention how it’s outperforming fiat currency pairs.
Staking and Baking
By participating in staking, you’re basically letting Coinbase direct the cryptocurrency toward mining, which is the process of completing blocks on the Tezos mainnet. It’s a process that the Tezos team affectionately refers to as baking. Tezos uses the delegated proof-of-stake mechanism for validation, which lets “token holders…transfer (“delegate”) validation rights to other token holders without transferring ownership,” according to TQ Tezos editor Jacob Arluck. Coinbase is making it easier for anyone to participate in what can otherwise be a complex staking process.
Crypto exchanges are no doubt looking for ways to stem the tide of outflows and attract more funds and customers in an increasingly competitive crypto exchange landscape. Exchanges were making profits hand-over-fist during the 2017 bull market run, but the downturn in prices has taken its toll on crypto trading volumes.
Nonetheless, Coinbase CEO Brian Armstrong maintains that the exchange has remained profitable in 2017, 2018 (when the market crashed), and is on track for a profitable 2019. Armstrong is in it for the long haul, but the exchange’s revenue is tied to trading fees which are a reflection of the bitcoin price, which has seen better days. Coinbase’s expansion into staking gives the company a way to diversify its revenue stream when times aren’t as good.
In recent months, Coinbase has had to contend with more competition on its home turf with the expansion of chief rival Binance into the U.S. market and the launch of bitcoin futures exchange Bakkt for institutional investors. Bakkt cuts directly into Coinbase’s custody business, which is designed to attract coveted institutional capital from the sidelines. Incidentally, Coinbase’s custody clients have had access to the exchange’s staking feature since earlier this year. Coinbase reportedly had to jump through some regulatory hoops before extending the feature to retail investors.
Coinbase is one of the first cryptocurrency unicorns, boasting a valuation of approximately $8 billion at last check. It is a member of Facebook’s Libra consortium and defends the social media giant’s role in the industry for its potential to foster mainstream crypto adoption.