Why Coinbases Move Into Proof-of-Stake Matters

Is Coinbase going to solve the thorny challenges of proof-of-stake (PoS) blockchain governance or centralize those systems even further?

Thats the question experts in the space are pondering with the recent announcement that Coinbase Custody will offer staking support for Maker, Tezos and Cosmos. The move means institutional investors will be able to vote on blockchain governance matters directly through their Coinbase accounts.

Were hoping to bring online, frankly, the majority of institutional investors, Coinbase Custody CEO Sam McIngvale told CoinDesk. Were growing these three assets under custody and hoping to see an increased turnout of these votes.

That this is possible is because blockchains like Cosmos, Tezos and Maker rely on PoS to secure their networks, unlike proof-of-work chains like bitcoin and (for now) ethereum.

PoS relies on participants essentially buying into the blockchains decision-making council. In backing their votes with deposits – staking their claim with real assets – they often earn token rewards for fueling the networks growth. But, in turn, these networks are beginning to face the same challenge democracies have grappled with for centuries:

How do we incentivize voting?

Lessons from Maker

This Coinbase Custody addition was driven by institutional demand, since few PoS token holders so far are actually participating in governance.

According to Becker, nearly 10 percent of Maker tokens were involved in a recent vote to hike fees related to ethereum-pegged stablecoin loans. While cryptocurrency researcher David Hoffman estimated only 0.58 percent of unique wallets holding Maker participated, Becker told CoinDesk the turnout was high among institutional holders that are able to vote. Indeed, he said the most recent fee-raising proposal had the highest turnout to date with 61 voters.

For many institutional holders, Becker argued, compliance requirements can still complicate the logistics of using tokens to vote.

If youre an institution and you represent third-party investors, Becker explained, you do need third-party custody as extra protection, to make sure those assets are looked after in a safe manner.

Thats where the recent move by Coinbase comes in.

On one hand, a Coinbase voting interface could boost turnout by being convenient for the largest Maker holders, including Polychain Capital (founded by Coinbases first employee), 1confirmation (founded by an early Coinbase employee) and Andreessen Horowitzs crypto fund (co-managed by a Coinbase board member).

On the other, Tezos holder and veteran crypto investor Meltem Demirors tweeted that Coinbase Custody could become a wallet-driven proxy voting platform that influences, gathers, aggregates, and reports on user behavior.

In response, Coinbases McIngvale said t ...

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Tags: Coinbase Inc, Governance, Zaki Manian, CoinDesk, Blockchain, Point of sale, Trust Wallet, Tezos, Proof-of-stake, Meltem Demirors