Understanding Coinbase Staking: How to Earn Passive Income With Your Crypto

There are multiple ways to make money in crypto, and besides the top two–buying and holding solid tokens, and actively trading–staking is another valuable option to generate passive income on the tokens you’re holding.

There are various ways to stake on a range of tokens, but in this Coinbase staking guide we’re going to concentrate on earning passive income through the top crypto exchange in the US. At the end, we’ll go through the Coinbase staking process step-by-step, so skip to that part first if you need to get straight to the practicalities, but before that, we’ll look at exactly what staking means, and touch also on why Coinbase is a good option if you want to earn crypto passive income.

What Does Staking Mean in Crypto?

Staking is a process whereby tokens are locked up in smart contracts, and then become part of the security and validation process for the blockchain. However, this is only possible on networks that use a  proof-of-stake consensus mechanism, rather than a proof-of-work mechanism, which is why you can stake ETH (since Ethereum is proof-of-stake) but not BTC (which is proof-of-work). And as we’ll see below, there are many other networks that operate via proof-of-stake.

Essentially though, you’re locking up your tokens so they can contribute to the blockchain’s operations, and importantly for investors those staked tokens earn rewards in return, so from a purely financial point of view, it’s as though you’re earning interest on your savings.

Note also that staking yields will vary over time, and from network to network, and keep in mind that by staking tokens you’re adding to the security and growth of the blockchain. This means that besides generating income through token returns, you’re contributing to network strength on the blockchain you’ve invested in, which can be a long-term positive for its overall value.

Why Stake on Coinbase?

If you operated fully independently then the staking process would require a high level of technical knowledge, but by going through a centralized exchange it becomes a simple process. When you stake through Coinbase there are no, or very low, minimum balance limits in order to start participating (depending on the token), and allocating tokens is simply a matter of clicking through a few prompts.

What’s more, by staking on Coinbase you can keep all your transactions within one platform–you can buy, sell, and stake, all on a single exchange–and it becomes easy to keep track of your portfolio while you earn crypto passive income. Overall then, Coinbase staking is a good option for crypto beginners who want to keep things simple, or for users who simply want to minimize time spent managing positions, and can benefit from having everything in one place.

That said, it’s a good idea for anyone invested in crypto to acquire knowledge of how blockchains work, as this can help to assess which coins look good from a technical and development perspective. Also, if you want to fully explore DeFi and mechanisms like liquid restaking–whereby tokens are staked in return for receipt tokens, which can themselves be earned on–then you will have to move away from centralized exchanges and interact onchain, although Coinbase’s staking function does feature one such liquid staking token, cbETH (Coinbase Wrapped Staked ETH).

Relatedly, another point to keep in mind is that when engaging with DeFi you’re taking protocol risks that aren’t present when you use Coinbase.

Which Coins Can Be Staked on Coinbase?

At the moment, there are nine tokens that can be staked through Coinbase, all of which can also be bought and sold on the exchange, and these are ETH, SOL, AVAX, ADA, MATIC, XTZ, ATOM, DOT, and cbETH.

Additionally, you can earn interest on USDC, although in this case you’re not actually staking the coins. With USDC, Coinbase itself is paying users, through its USDC rewards program, to hold coins on the platform. This is not the same kind of mechanism as when staking tokens such as ETH or SOL, when rewards come from the actual staking network.

Besides the regular staking options available, earning on USDC with Coinbase is a useful feature when you’re planning on sitting in stables for a while, allowing you to continue picking up yield.

How to Start Coinbase Staking

Now we know what crypto staking refers to and which coins can be used, let’s walk through exactly how to stake on Coinbase, but if you don’t yet have a Coinbase account, then please look at this earlier guide to get a handle on the basics first: Getting Started With Coinbase.

To begin staking, note that Coinbase has two user modes: there’s a default simple mode, and there’s the Advanced Trading mode. In order to start staking on Coinbase, you’ll need to make sure you’re in the Advanced mode, and to do that, look at the bottom of the vertical navigation bar on the left side of the home console, and at the bottom you’ll find a switch that toggles between modes.

If you’d like to learn more about all aspects of the Advanced Trading mode, take a look at this previous guide: Advanced Trading on Coinbase. Right now though, from the Advanced console let’s go ahead and find the staking function.

For that, again, look across to the navigation bar on the left, and click on the three dots where it says More, and then from there you can click on the Earn selection.

On the Earn page, if you scroll down, you’ll then see two important sections, the first of which is labeled My earning assets.

This shows you which of the assets you already have in your portfolio are eligible for staking, and it also tells you their current respective APYs. If you then click on one of these you’ll go to the staking page for that asset, so for example, if I click on SOL, then in addition to the APY I can see the wait time to unstake–with SOL it’s five days–and the earning frequency, which again is five days. Make sure to keep that unstaking period in mind, because it means that you won’t be able to get instant access to your staked coins.

You can also see that there’s a large Start earning button, and it’s really then as simple as clicking there and then clicking through the prompts after that to initiate your staking order. Having done that, if you go back to the Earn page it will now show that you have assets staked.

If you then click on a staked asset you can monitor your earnings, and this is also where you need to go when you want to unstake, which you can initiate by clicking on the large Unstake button and then proceeding through the further prompts.

Back again on the Earn page, we can also scroll down to the second important section, which is labeled Buy new earning assets. This gives you a useful list of all the other assets that are available for Coinbase staking, along with their current respective APYs, and if you click on the Buy button for each one, it will take you straight to the trading page for that asset, where you can place Market and Limit orders.

Fees and Risks

When you stake assets on Coinbase, you’ll pay commission fees to the exchange, which are subtracted from rewards before distribution. The standard fee on ETH staking rewards is 25%, while on other asset staking rewards it’s 35%, but APYs reflect payouts less commission, and there is no fee charged for staking or unstaking.

Also, although staking is a relatively safe way to earn on your tokens, it’s not entirely without risks. One of these is a process known as slashing, which is when a protocol imposes penalties on validators that do not adhere to the rules. However, slashing is rare, and Coinbase explains in its own documents that its retail stakers have never suffered this kind of loss on any supported protocol.

Also, Coinbase does not strictly guarantee that stakers will receive rewards, since staking rewards are generated by the crypto protocols, and not by Coinbase itself.

Additionally, you’ll need to consider market volatility and the future potential of the tokens you’re holding, alongside your own strategy. If you’re holding a token long-term because you believe in its potential, and that it will gain in value, then staking makes sense, but if the token itself doesn’t have strong potential or the price is likely to go down, then it doesn’t make sense to acquire it simply for the purpose of earning more of that token.

And finally, it’s worth considering opportunity cost. If your plan is simply to buy and hold, then Coinbase staking is a useful option, but keep in mind that this is capital that is then locked up and can’t be deployed elsewhere.

Overall though, staking is an integral part of how crypto works, and by participating in the process you’ll be contributing to blockchain security while earning rewards.