Coinbase recently announced a new way for customers to earn rewards on their Ethereum holdings. Started last week, customers who stake ETH with Coinbase can convert it into an ERC20 utility token called Coinbase Wrapped Staked ETH ("cbETH"). cbETH is a liquid representation of their staked-ETH, which means customers can now earn rewards in a more flexible way.

With cbETH, customers can:

• Withdraw their rewards at any time
• Send and receive cbETH like any other ERC20 token
• Trade cbETH on Coinbase or any other supported exchange

If you’re not familiar with staking, it’s a way to earn interest on your cryptocurrency by holding it in a wallet and participating in the governance of a blockchain network. For example, if you stake ETH, you’re essentially helping to secure the Ethereum network by validating transactions and keeping the network running smoothly. In return, you earn rewards in the form of ETH.

Coinbase’s move to allow customers to wrap their staked ETH into a liquid ERC20 token is a smart one. It will provide more liquidity for those who want to stake ETH, and it will allow users to continue earning rewards on their ETH even if they need to sell it for cash.

Why the price of cbETH will likely deviate from ETH

One of the users on Twitter reported that he staked ETH 2 on Coinbase and unwrapped it for ETH. When he converted cbeth back to ETH to sell it for cash, he received a difference in token amounting to 1 ETH from the original transaction of 11 ETH 2 to receive 10 ETH. The process was simply by unwrapping the staked-ETH (ETH 2) to cbETH and from cbETH converting the funds back to the original Ethereum token. The process cost the customer a fee, and some changes resulted in a missing 1 ETH.

However, the funds he received in ETH were the same in fiat value as the original staked value of his staked token to cbeth, and he stated there's no issue with that. Coinbase replied that cbETH does not have a 1:1 relationship with ETH2 because, as rewards accrue to the underlying staked-ETH, the value is captured by cbETH holders via a moving "conversion rate" (the fair value rate at which Coinbase wraps/unwraps ETH2 for cbETH).

"You may notice that cbETH may be worth more than ETH" 

When it comes to the price of cbETH, it's important to keep in mind that it will likely deviate from ETH. This is because markets might value cbETH less than staked ETH due to certain risks like slashing (a penalty enforced at the protocol level associated with a network or validator failure) or lack of liquidity.

While it's impossible to predict exactly how much cbETH will be worth, we can take a look at some of the factors that will impact its price.

One of the biggest factors that will impact the price of cbETH is the amount of ETH that's been staked. The more ETH that's staked, the more demand there will be for cbETH.

Another factor that will impact the price of cbETH is the amount of liquidity in the market. If there's not a lot of liquidity, it will be difficult to buy and sell cbETH without impacting the price.

Finally, the amount of risk associated with cbETH will also impact its price. If investors perceive cbETH to be riskier than ETH, they will be less likely to buy it.

All of these factors will come into play when determining the price of cbETH. It's important to keep in mind that the price will likely fluctuate based on these factors.

If you're thinking about converting cbETH in Coinbase, it's important to do your own research and understand the risks involved.