What Is Coinbase's cbETH and How Does It Work?

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The Ethereum blockchain underwent a historic transformation in 2022 with the completion of The Merge, shifting from an energy-intensive proof-of-work (PoW) model to a more sustainable proof-of-stake (PoS) consensus mechanism. As part of this transition, staked Ethereum (ETH) became temporarily illiquid, prompting Coinbase to introduce cbETH—a wrapped token designed to maintain user flexibility during the network upgrade.

But what exactly is cbETH, how does it function, and why was it necessary? This article dives deep into Coinbase’s innovative solution, its mechanics, benefits, and long-term implications for users and the broader Ethereum ecosystem.

Understanding cbETH: A Wrapped Token for Staked ETH

cbETH, or Coinbase Wrapped Staked ETH, is an ERC-20 token that represents Ethereum (ETH) staked through Coinbase’s platform. It functions as a "wrapped" version of staked ETH—essentially a digital proxy that reflects both the principal amount and accumulated staking rewards.

Unlike standard ETH, which can be freely transferred or traded at any time, ETH staked on Ethereum 2.0 was locked during and immediately after The Merge. To preserve liquidity for users, Coinbase introduced cbETH so holders could continue using their staked assets in decentralized finance (DeFi) applications, trading platforms, or peer-to-peer transactions—even while the underlying ETH remained locked on the Beacon Chain.

While cbETH starts with a 1:1 value equivalence to ETH, its price is expected to diverge over time as staking rewards accrue. Each cbETH token gradually represents more than one ETH unit due to compounding rewards, making it potentially more valuable than standard ETH in the long run.

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Why Did Coinbase Create cbETH?

The creation of cbETH was driven by two critical challenges arising from The Merge:

1. Locked Staking Withdrawals Post-Merge

Although The Merge officially occurred in September 2022, full withdrawal functionality for staked ETH wasn't enabled until the Shanghai Upgrade in April 2023. This meant users who staked their ETH via Coinbase—or any other provider—could not access or transfer their funds for several months.

This temporary illiquidity posed a major usability issue. Investors might need capital for emergencies, arbitrage opportunities, or portfolio rebalancing. Without a workaround, they’d be forced to wait indefinitely.

2. Need for Validator Participation and Liquidity

Validators on the Ethereum 2.0 network must lock up 32 ETH to participate in block validation and earn staking rewards. During the transition phase, these validators needed a way to remain active in DeFi and trading ecosystems despite their ETH being immobilized.

By issuing cbETH, Coinbase provided a solution: users receive a tradable ERC-20 token backed by their staked ETH, allowing them to maintain exposure to Ethereum while retaining financial flexibility.

“In the initial phases of Ethereum 2.0, becoming a validator requires a one-way ETH transaction to a deposit contract on Ethereum 1.0.”
— Ethereum Foundation

With cbETH, users aren’t cut off from the crypto economy—they can trade, lend, or use their tokens across compatible platforms.

How Does cbETH Work? A Step-by-Step Guide

Using cbETH is straightforward for eligible Coinbase users. Here's how the process works:

  1. Log in to your Coinbase account.
  2. Navigate to the Assets page.
  3. Under Your Assets, locate Ethereum 2 (ETH2).
  4. Click on Want to sell or send your ETH2?
  5. Select Continue and enter the amount of ETH2 you'd like to wrap.
  6. Review the preview showing the equivalent cbETH you’ll receive.
  7. Confirm by selecting Wrap now.
  8. Once completed, view your new cbETH balance under your wallet.
  9. You can now trade, send, or use cbETH like any other ERC-20 token.

It’s important to note that unwrapping cbETH back into ETH2 isn’t currently supported directly through Coinbase. However, users can sell cbETH for ETH on supported exchanges and re-stake if desired.

Key Impacts of cbETH on The Merge and Beyond

cbETH played a pivotal role during Ethereum’s transition. Its influence extends across three major areas:

1. Price Divergence: cbETH vs. ETH

Unlike stablecoins or pegged assets, cbETH is not fixed at a 1:1 ratio with ETH. As staking rewards accumulate on the Beacon Chain, each cbETH token increases in underlying value.

For example:

This dynamic pricing allows early adopters to benefit from compounded returns even before withdrawal capabilities are restored.

2. DeFi Compatibility and Liquidity Preservation

As an ERC-20 token, cbETH integrates seamlessly with decentralized applications (DApps) across Ethereum’s ecosystem. Users can:

This compatibility ensures that stakers don’t lose utility during lock-up periods—helping sustain activity in DeFi markets throughout The Merge.

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3. Incentivizing Greater Staking Adoption

Coinbase ranks among the top custodians of staked ETH on the Beacon Chain. By offering cbETH, it lowers the psychological and financial barrier to staking—users no longer face total illiquidity when locking up funds.

The ability to earn staking rewards and retain liquidity through a tradeable token makes staking significantly more attractive, especially for retail investors.

Is cbETH Good for Coinbase’s Business?

Absolutely. From a strategic standpoint, cbETH strengthens Coinbase’s position in the evolving crypto landscape:

Moreover, with growing interest in liquid staking derivatives (LSDs), products like cbETH position Coinbase as a forward-thinking leader in crypto innovation.

Frequently Asked Questions (FAQ)

Q: Can I unwrap cbETH back into ETH?
A: Direct unwrapping is not currently supported. However, you can trade cbETH for ETH on supported exchanges and re-stake if needed.

Q: Does holding cbETH earn additional staking rewards?
A: No—staking rewards are already factored into the token’s increasing value over time. There’s no separate yield mechanism for holding cbETH itself.

Q: Is cbETH the same as Lido’s stETH?
A: Both are liquid staking tokens, but cbETH is issued exclusively by Coinbase, while stETH comes from the Lido protocol. They operate under different governance and fee structures.

Q: Will cbETH be affected by future Ethereum upgrades?
A: Once full withdrawals are enabled (post-Shanghai), cbETH will still serve as a convenient wrapper for active stakers who want liquidity without unstaking.

Q: Is cbETH available worldwide?
A: Availability depends on local regulations and whether Coinbase supports ETH staking in your region. Check your account eligibility within the app.

Q: How is the price of cbETH determined?
A: Market forces determine its trading price, but it generally trades at a premium to ETH based on accrued staking rewards embedded in each token.

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Final Thoughts

Coinbase’s introduction of cbETH was a timely and innovative response to one of Ethereum’s most complex network transitions. By bridging the gap between security, decentralization, and user experience, cbETH ensures that stakers don’t have to choose between earning rewards and maintaining financial flexibility.

As Ethereum continues to evolve—with upgrades like proto-danksharding and further scalability improvements—tools like cbETH will remain essential for mainstream adoption. Whether you're a long-term holder, DeFi enthusiast, or yield optimizer, understanding cbETH unlocks new possibilities in the world of proof-of-stake blockchain networks.

Core Keywords: cbETH, Coinbase Wrapped Staked ETH, Ethereum Merge, proof-of-stake, liquid staking, staked ETH, ERC-20 token, DeFi liquidity