Tezos Baking Comes to Coinbase Custody, Price Jumps 22%

Coinbase Custody, a subsidiary of cryptocurrency exchange Coinbase aimed at institutional investors, has announced that they are launching support for smart contract platform Tezos (XTZ) and its staking mechanism, called baking. Clients will be able to make returns on XTZ, which, after deducting Coinbase’s fee, should come out to 6.6% annually, the company explained.

Following the news, XTZ is up by almost 22% in the past 24 hours (UTC 10:51 AM), currently ranking 19th by market capitalization.

To earn returns, users need to delegate their XTZ coins to a baker. Baking is the action of signing and publishing a new block in the chain, and to even qualify, a baker needs 10,000 XTZ (around USD 8,700 as of the time of writing). The more delegated stake they have, the bigger their chance of being chosen as a baker. Bakers earn a block reward of 16 XTZ for baking a block. In addition to the Baker, 32 Endorsers are randomly selected to verify the last block that was baked. Endorsers receive 2 XTZ for each block they endorse.

However, in order for the funds to be staked, they must be online – which makes them much more vulnerable to potential security breaches. To mitigate that risk, and attract institutional investors, Coinbase promises to keep all staked coins in fully-insured cold storage, while posting the bond to bakers out of their own pocket to make sure there is “zero risk” to investors. Coinbase will be charging a fee as well taking between 20% and 25% of today’s 8% Tezos yield, Sam McInvale, head of product at Coinbase Custody, told CoinDesk.

“Coinbase Custody’s customers’ staked assets are always protected by insurance policies underwritten by some of the largest insurance providers in the world,” the official blog post states, adding, “For Tezos, and all future chains we support, Coinbase Custody runs its own nodes and validators and subjects them to the same security and infrastructure standards that have safely stored the tens of billions of dollars in crypto that we’ve held over the past seven years.”

Additionally, Coinbase promises to also add governance support for the Maker (MKR) protocol “in the coming weeks.” Until now, institutional users storing their MKR with custodian solutions were unable to participate in governance, so Coinbase is looking to solve this by working directly with Maker on the case.