Coinbase's Liquid-Staking Token cbETH Has Lost More Than Half of Its Supply Since June

During that period, the cbETH market size has declined by an implied value of $2.4 billion, prompting concerns from some market participants.

Coinbase’s liquid-staking token cbETH has lost more than half of its supply since June.

During that period, the cbETH market size has declined by an implied value of $2.4 billion, prompting concerns from some market participants.

However, Coinbase said there isn’t cause for panic because the supply drop stems from an infrastructure upgrade implemented in June.

“We updated the total reserve pool volume to streamline our infrastructure,” a Coinbase spokesperson told DL News. “The cbETH decrease in supply was an intentional outcome of these updates.”

Here’s what happened. 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 that renders the token unusable until it is unlocked.

Liquid staking enables investors to put locked assets to use 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-staked tokens as collateral to borrow other assets or to earn yields on crypto protocols.

The DeFi market also has another extension of the staking meta — restaking, through which investors can restake their liquid-staked tokens.

As a liquid-staking token, cbETH is backed by Ether tokens staked by investors on Coinbase.

Despite this backing, the implied value of cbETH isn’t equal to the spot price of Ether.

Instead, Coinbase uses a conversion rate that controls the cbETH issuance and redemption.

Issuance in this context is when an investor receives cbETH in exchange for Ether staked on Coinbase, while redemption is the reverse — the user unwraps cbETH and withdraws their Ether stake.

In June, Coinbase changed its conversion rate calculation to index the staked Ether backing for each cbETH, rather than a previous arrangement that indexed the total cbETH.

As such, Coinbase deemed it necessary to adjust the token supply.

“The new total supply figure is now closer to the circulating supply, while still accommodating the market liquidity needs,” the Coinbase spokesperson said.

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