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Key Takeaways
- Coinbase Earn supports seven coins for staking, with APY figures as high as 10%.
- The platform pays an interest rate of 5.1% for simply holding USDC.
- Staking involves more risks than USDC rewards, but the potential returns may be higher, especially during bullish markets.
Table of Contents
- Option 1: Staking on Coinbase
- Option 2: Earning USDC Rewards
- Factors Influencing APY and Rewards
- Comparing the Rewards
- Comparing the Risks
- Making the Decision
- Investors’ Takeaway
In traditional investing, you can put your money to work. For example, you can hold cash in a high-yield savings account or money market fund to earn additional interest.
In crypto investing, you can put your crypto to work. There are two easy ways:
- Staking your crypto (which earns you extra crypto, paid out in the native token, similar to interest);
- Converting your tokens to USDC and holding it in a yield-bearing account (which earns you extra USDC, similar to interest).
Coinbase is one of the top online exchanges that makes it easy to earn both staking and USDC rewards. In this guide, we’ll help you decide which is right for you – as well as the potential rewards you can earn on each.
Option 1: Staking on Coinbase
Earn on Coinbase is a service that enables you to stake seven different Proof of Stake (PoS) crypto assets directly on the exchange. While setting up staking by yourself is generally time-consuming and expensive (see our staking guide here), Coinbase makes it much easier.
In return for the user-friendliness, Coinbase takes a commission of 25% for ETH, and 35% for SOL, ADA, MATIC, DOT, ATOM, and XTZ (26.3% for Coinbase One members). Staking other tokens besides the mentioned ones is free.
(Note: any staking reward rates that you see listed on Coinbase are calculated after commissions, so you won’t be hit with surprise fees later.)
Current rates are as follows:
The staking rules, including how frequently they pay out, vary by protocol. However, Coinbase eliminates minimum deposit requirements; for example, ETH stakers don’t have to lock a minimum of 32 ETH.
As you can see, rewards vary greatly depending on the token, and will change over time, depending on the staking rate paid by the underlying platform. The underlying token will also change in value, like a stock – so your investment may either increase or decrease.
Option 2: Earning USDC Rewards
Besides staking, Earn on Coinbase also supports rewards for USDC, which allows users to earn an interest rate simply by holding the stablecoin in their Coinbase account.
The USDC Rewards service is available for verified users (Account level 2) from the US and most supported countries.
USDC Rewards is not a lending service, but a loyalty program Coinbase offers. The company pays interest on its funds, but Coinbase doesn’t lend out the USDC assets deposited.
This is significant, as other platforms lend out your USDC and pay you a portion of the interest generated. Those lending platforms take on extra risk – for example, the borrowers might not pay them back.
Currently, USDC rewards are comparable to many of the staking rates listed above. Earning USDC rewards is also easier and safer (1 USDC = 1 USD, so you know the value of your holdings).
But by holding USDC, you give up on the opportunity to hold a staking token, which could be a good or a bad thing (depending on whether the prices goes up or down).
Factors Influencing APY and Rewards
When more people actively stake, the rewards decrease, due to the shared reward pool: more people means that everyone gets a smaller piece of the pie.
Market conditions also affect rewards: the higher the token price, the greater the reward (and vice-versa). Generally, when the token price is attractive, more people tend to be interested in staking, which could also lower the reward rate.
Coinbase sets the USDC reward rate, meaning they can raise or cut the interest rate at any time, based on liquidity and market conditions. For example, in June 2023, Coinbase increased the rate from 2% to 4% after the Securities and Exchange Commission (SEC) said that it wouldn’t treat USDC as unregistered securities, meaning that the rewards don’t violate U.S. regulations.
Comparing the Rewards
Coinbase staking rates will change along with the staking rate on the underlying protocol. As of this writing, staking APY for most tokens has dropped between 0.3% and 4% over the last year, except for Solana, whose staking APY rose 0.88%.
The staking reward rates on Coinbase range between 3% and 20%. However, the value of your taking rewards fluctuates with the token’s price: when price goes up, so do your rewards, since rewards are paid out in the token.
As of this writing, Coinbase’s USDC Rewards offers a 5.1% interest rate, up from 2% last year. Despite the rate increase, this has been lower than the historical APY for USDC on centralized lending platforms. For example, Nexo has offered an APY of 10% and higher. (See our list of best USDC rates here.)
Comparing the Risks
While staking rewards can be much higher in percentage terms, e.g., 9% for ATOM and 10% for NEAR, you are also taking the risk that the value of the underlying token may drop. (Of course, the price may also rise.)
Staking also involves a risk of protocol penalties, such as slashing (where you lose rewards). Coinbase may replace user assets in a slashing incident, but this is not guaranteed.
(However, slashing is rare. A 2023 study found that only 0.04% of ETH validators had been cut. So far, Coinbase stakers have never been slashed on any protocol.)
USDC rewards have the advantage of simplicity and safety. The value of USDC doesn’t fluctuate, eliminating the volatility risk. But the risk is missing out on the next crypto bull run, as 1 USDC = 1 USD.
Making the Decision
The choice between staking APY and USDC rewards should align with your financial objectives and risk tolerance.
- USDC Rewards is suitable for conservative investors with low risk tolerance.
- Staking is better suited to those who are comfortable with more risk but potentially greater rewards (the underlying token could increase or decrease).
You can also do both! Volatility risks can always be mitigated by creating a diversified portfolio, staking multiple coins, and allocating some portion of your investments to USDC.
Remember: Both staking and USDC rewards are taxable events in the US. Income earned on staked coins is taxable when you unstake.
To simplify filing these taxes, U.S. users earning over $600 in USDC rewards will automatically get a 1099-MISC from Coinbase.
Investors’ Takeaway
Earn on Coinbase offers a flexible platform for earning crypto interest by staking PoS coins and holding USDC, with rewards accruing daily.
Selecting between these options requires a strategic approach tailored to individual risk tolerance and financial goals.
Staking offers a higher yield potential, but users must know about market volatility and protocol risks. USDC rewards provide stability and lower risk, making it suitable for more conservative investors.
In the end, whether you lean towards staking for higher potential returns or prefer the safety of USDC Rewards, Coinbase Earn caters to a wide range of investor preferences.