The financial frontier is shifting, and institutional investors are beginning to embrace a new form of digital asset yield generation: crypto staking. At the forefront of this movement is Coinbase Custody, which has launched staking services for institutional clients, starting with the Tezos (XTZ) network and offering an estimated annual return of 6.6% after fees.
This move marks a pivotal step in bridging traditional finance with decentralized blockchain ecosystems, enabling large-scale investors to earn passive income while maintaining high security standards.
How Coinbase Custody Is Redefining Institutional Staking
For institutions wary of the risks associated with holding crypto assets online, Coinbase Custody offers a compelling solution. Unlike typical staking setups where funds must be partially "hot" (connected to the internet), exposing them to potential hacks, Coinbase ensures all client assets remain in fully insured cold storage at all times.
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To make this possible, Coinbase uses its own capital to meet the bonding requirements needed for validation on proof-of-stake (PoS) networks. In the case of Tezos, validators—known as “bakers”—must post a bond equal to 10% of the staked amount. If clients deposit $100 million in XTZ, Coinbase will use $10 million of its own funds to fulfill the bond obligation.
“Our funds are at risk, never our clients’,” said Sam McInvale, Head of Product at Coinbase Custody. “We could suffer a loss if we were hacked, but our clients' funds will always be safe.”
This model eliminates counterparty risk for institutional investors, making it easier for banks, hedge funds, and asset managers to participate without compromising on security protocols.
Understanding Proof-of-Stake and Passive Income Potential
Proof-of-stake differs significantly from Bitcoin’s energy-intensive proof-of-work system. Instead of relying on computational power, PoS networks require participants to lock up—or “stake”—their tokens as collateral to validate transactions and secure the network. In return, they receive rewards, similar to interest payments.
Users who don’t wish to run validator nodes can delegate their stake to trusted entities and still earn yields ranging from 5% to 25% annually, depending on the network and participation level.
Tezos, one of the earliest delegated PoS blockchains, currently offers around 8% annual yield. After Coinbase takes a 20–25% service fee, clients net approximately 6.6%, a figure that outpaces many traditional fixed-income instruments.
For context, 30-year U.S. Treasury bonds yield less than 3%, making crypto staking an increasingly attractive alternative in a low-interest-rate environment.
Governance and Future Network Expansion
Beyond financial returns, staking enables token holders to participate in governance—voting on protocol upgrades and network decisions. Coinbase plans to expand its support for decentralized governance by adding voting capabilities for Tezos in Q2 and integrating governance features for MakerDAO, the protocol behind the DAI stablecoin.
Looking ahead, Coinbase aims to support other reputable PoS chains such as Cosmos, Polkadot, and potentially Algorand, signaling a broader strategy to become a gateway for institutions entering multi-chain ecosystems.
Importantly, these staking services are separate from asset listings on Coinbase Exchange—even though Tezos is under consideration for listing.
Comparing Staking Models: Coinbase vs. Staking-as-a-Service Providers
While Coinbase focuses on security and simplicity for institutions, other players like Figment, Cryptium, and Battlestar Capital offer different models optimized for higher yields through pooled staking strategies.
Battlestar Capital, for example, claims returns of up to 30% annually by using self-bonding techniques—dynamically adjusting bond sizes based on validator performance. These non-segregated pools allow participants to benefit from economies of scale and enhanced yield optimization.
However, this comes with trade-offs in transparency and control compared to Coinbase’s segregated, cold-storage approach.
“If you deposit your Tezos with a group running a self-bonding strategy, you earn the amalgamated yield of bonding plus delegating,” explains Jason Stone, founder of Battlestar Capital.
Coinbase does not view itself as competing directly with such platforms. As McInvale clarified:
“We are not going to be a public staking-as-a-service offering. It's not like just anyone can delegate to a Coinbase custody validator.”
Instead, Coinbase positions itself as a trusted custodian enabling conservative institutions to enter staking with minimal risk exposure.
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The Bigger Picture: From Speculation to Participation
One of the most significant shifts in the crypto space is the transition from pure speculation—buying and holding—to active participation in blockchain networks.
“There’s also a shift away from only engaging in crypto assets via speculation… to actually wanting to help secure the blockchain, to wanting to vote and have a voice,” said McInvale.
This evolution reflects growing maturity in the market. Investors are no longer satisfied with price volatility alone; they seek meaningful involvement in shaping decentralized protocols.
With Ethereum’s upcoming transition to proof-of-stake, interest in staking is expected to surge. Institutional demand for secure, compliant, and scalable solutions will only intensify.
Frequently Asked Questions (FAQ)
Q: What is crypto staking?
A: Crypto staking involves locking up digital assets in a proof-of-stake blockchain network to support operations like transaction validation. In return, participants earn rewards, typically paid in the same cryptocurrency.
Q: Is staking safe for institutional investors?
A: With providers like Coinbase Custody, staking can be highly secure. Client assets stay in insured cold storage, and the provider assumes operational risks by using its own funds for bonding requirements.
Q: How does Coinbase’s staking yield compare to other options?
A: While some third-party staking services offer higher yields (e.g., 12–30%), they often involve pooled or non-segregated models. Coinbase prioritizes security over maximum yield, delivering ~6.6% annually on Tezos with full fund protection.
Q: Can I delegate my stake to any validator on Coinbase?
A: No. Currently, Coinbase Custody automatically delegates client holdings to its own baker node. Clients cannot choose external validators.
Q: Will Coinbase support Ethereum staking?
A: While not yet confirmed, Coinbase is expected to offer Ethereum staking once the network fully transitions to proof-of-stake.
Q: Are there risks involved in staking?
A: Yes—though minimal with reputable custodians. Risks include slashing penalties for validator misconduct and temporary illiquidity during unstaking periods. However, private keys for spending remain separate from staking keys.
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As the line between traditional finance and decentralized networks blurs, platforms that combine security, yield, and governance access will lead the next wave of adoption. For Wall Street institutions ready to move beyond speculation, the future of value creation lies in active participation—and Coinbase is building the bridge.
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