The boss of Coinbase’s custody product has revealed plans to lure institutional investors with crypto-based interest payments.
The investors will contribute to the running of the network through their investment and will be able to vote on relevant issues. Coinbase will allow them to do so through its new ‘staking’ services.
High client demand
Sam McInvale, the head of product at Coinbase Custody, told Laura Shin’s Unchained podcast that Coinbase’s clients were interested in investments in networks that allow coins to be ‘staked’ or locked up for a steady income.
“We started hearing this steady drumbeat specifically from our clients, but also in the industry at large about large investors wanting to actively participate in the network they’ve invested in, and usually this was staking and governance in particular,” Mr McInvale said.
“What we realised was that we could could support our clients in the way they were asking so they could actively stake and earn rewards by keeping their funds completely offline.”
Participants, known as ‘bakers’, will be required to stake a set amount of tokens and carry out processes that enable the blockchain to function normally.
They will then be awarded a set amount of tokens based on how much they invested, and the activity that has taken place on the network for that period.
Governance for investor participation
Governance is also an important part of what Coinbase is offering, as it is a way for institutional investors to directly participate in the networks they are interested in.
This is an additional service that Coinbase will provide to the investors, with features to make governance easier.
“We will surface all the upcoming votes to (investors) in the app. We will also send email notifications so (they) can be aware whenever a new executive poll comes up,” Mr McInvale said.
Along with this, investors will also receive a digest that contains relevant information to the vote, allowing investors to make an “informed decision.”
Future support will be added for coins on the Maker protocol.
Client support and Staking-as-a-Service
Coinbase is essentially providing Staking-as-a-Service for institutional investors who wish to enter the ‘DPoS’ economy.
The custody provider have stated that there will be a earning of 8% every year, of which the investor will earn 6.6% after Coinbase fees. The platform will take a 20-25% cut of annual profits of the blockchains.
While this is high for a traditional institutional investor base, Coinbase says there are reasons for the split.
“We’re taking a couple of extra steps. One, we think our security and our infrastructure here is is pretty special and sophisticated. We are hosting the bond, which is not something that, at least that I’m aware of any other stake providers are doing. We are fully regulated in this activity that we’re undertaking,” Mr McInvale said.
A secure, easy-to-use, and investor-ready solution
This will function along with Coinbase Custody’s cold storage solutions for cryptocurrencies. The system is said to be fully insured and extremely safe and easy to use.
“We tried to make this as simple as we can for our clients. Coinbase custody in this case, is running the baker, that is actually actively participating the blockchain,” Mr McInvale said.
There is also an additional layer of security on the Tezos blockchain, regarding the private keys given to the bakers. The technique, known as remote signing, means that even if the baker itself gets compromised, the attacker will not have access to the private key of the baker. This means that the funds will stay in the wallet, and cannot be moved elsewhere.
McInvale also expressed interest towards the Ethereum blockchain, which is now in the process of shifting to a Proof of Stake consensus mechanism.