- Coinbase cbETH tokens worth $2.4 billion were withdrawn last month.
- The massive withdrawal caused cbETH supply to drop by more than 50%.
- CbETH is Coinbase’s liquid staked Ether token.
Coinbase’s liquid staking token cbETH has lost more than half of its supply since June.
During this period, the cbETH market size decreased by an implied value of $2.4 billion, raising concerns among some market participants.
However, Coinbase said there is no need to panic as the drop in supply is the result of an infrastructure upgrade implemented in June.
“We have updated the total reserve pool volume to streamline our infrastructure,” a Coinbase spokesperson said. DL News“The decrease in cbETH supply was an intentional consequence of these updates.”
Staking
CbETH is a liquid staking token that represents Ether staked on Coinbase.
Staking means locking a token in a DeFi protocol or blockchain network which makes the token unusable until it is unlocked.
Liquid staking allows investors to use assets locked in the form of a liquid staked token given by the blockchain or DeFi protocol in exchange for the underlying staked asset.
DeFi users can deploy liquid tokens as collateral to borrow other assets or to earn yields on crypto protocols.
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The DeFi market also has another extension of the staking meta: resttaking, through which investors can re-stake their liquid tokens.
As a liquid staking token, cbETH is backed by Ether tokens staked by investors on Coinbase.
Despite this support, the implied value of cbETH is not equal to the spot price of Ether.
Instead, Coinbase uses a conversion rate that controls the issuance and redemption of cbETH.
In this context, issuance occurs when an investor receives cbETH in exchange for staked Ether on Coinbase, while redemption is the opposite: the user unwraps the cbETH and withdraws their stake in Ether.
In June, Coinbase changed its conversion rate calculation to index staked Ether backing for each cbETH, rather than a previous arrangement that indexed total cbETH.
Coinbase therefore deemed it necessary to adjust the token supply.
“The new total supply figure is now closer to the circulating supply, while still meeting market liquidity needs,” the Coinbase spokesperson said.
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. He covers DeFi and technology. To share tips or information on articles, please contact him at osato@dlnews.com.
