Coinbase’s cbETH 8% Discount For ETH, Galaxy Digital Answers

Coinbase introduced its wrapped Ethereum staking token, or cbETH, late last month, and it’s been trading at a discount ever since. That discount today got as high as 8% compared to Ethereum. Meanwhile, Lido’s stETH only trades at a discount of less than 3%. Why is this?

These liquid staking tokens, so named because they’re a spendable representation of an illiquid asset, are not meant to hold a 1:1 peg with ETH. So this doesn’t have the same significance as a stablecoin losing its peg.

Late last month, Coinbase unveiled its wrapped Ethereum staking token, or cbETH, and ever since, it has been trading at a loss. Now, the discount against Ethereum reached a high of 8%.

Lido Staked ETH, a similar staking token known as stETH, is also trading at a discount – albeit a smaller one of 3%, according to CoinMarketCap.

The two biggest Ethereum staking companies as of September 9 were by far Lido and Coinbase, with Lido accounting for $4.2 billion and Coinbase for $2 billion. Analysts have noted that the two liquid staking tokens have various incentive structures, and that customers now choose Coinbase’s rivals as evidenced by the differential discounts.

According to Etherscan, 677,308 cbETH had been issued by Coinbase as of this writing, which amounts to slightly over $1 billion in staked ETH. The second $1 billion comes from Coinbase’s illiquid ETH staking option.

It’s simpler to comprehend the significance of cbETH’s discount when it’s compared to Rocket Pool ETH, or rETH, according to a note sent by Galaxy Digital’s Alex Thorn, head of firm-wide research, on Friday.

They both use a cToken model, meaning that neither token’s value changes to reflect the accrual of rewards. So, theoretically, the longer it’s held, the greater the value for which it can be redeemed.

For that reason, Thorn writes, cTokens typically trade at a premium compared to their underlying asset. But while rETH was trading at a 3% premium on Friday, cbETH was still discounted.

Thorn also points to “Coinbase’s larger regulatory footprint”, which the analyst believes “increases cbETH’s counterparty risk profile” and could be contributing to its discount.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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