Prime

ETH Upgrade on Coinbase Prime

The Shapella Upgrade refers to the Ethereum network’s upgrade to enable unstaking on mainnet. Check out our latest blog post.

There will be no planned downtime for Ethereum on Coinbase Prime for the Ethereum upgrade but we will be monitoring any impact as a result of the upgrade closely. The best way to stay on top of the current status is via Twitter and the Prime status page

After the network upgrade, ETH holders will be able to unstake ETH and get access to validator rewards without being subject to an indefinite lockup period.

Unstaking Timeline

After the upgrade, an unstake option will be available in the staked ETH page for all staked wallets. Once requested, validators will go through a protocol-level exit queue. 

The time taken to process unstaking requests is determined by Ethereum protocol and demand. We anticipate the demand for unstaking on the network to be high soon after the upgrade and may take weeks to complete. Clients will be able to view an estimated time it may take to unstake prior to unstaking. 

When staking with multiple validators (more than 32 ETH), the unstake request will be done in Prime for the whole wallet but each validator will exit separately. This can be tracked in the View Validators page in Prime. 

Each staked ETH wallet will have a corresponding ETH wallet where the unstaked ETH will be sent after the exit process completes.

Validator rewards will become liquid after the Shapella upgrade through a process called skimming determined by the Ethereum network. No action is required to make rewards liquid. We expect skimming to occur every few days initially, but this frequency could change in the future and is controlled by the network.

All previously accrued rewards prior to the Shapella upgrade will be received in the first skimming.

After the upgrade, Coinbase Prime will create a new ETH wallet for every existing staked ETH wallet and the skimmed rewards will be sent to the ETH wallet where they can be withdrawn. We expect this may take a few days after the upgrade to implement before skimming can begin.

Coinbase Prime will continue to have separate asset pages for ETH and staked ETH for a period after the upgrade. ETH1 and staked ETH will be merged in the near future. 

On the ETH asset page:

  • If you’ve staked ETH, the top banner will display the staked ETH amount and rewards earned. You’ll be directed to the staked ETH asset page to access your staked ETH wallet including pending rewards.

  • From the Overview tab, under Vault balance, you’ll see vault (cold) wallets, including the Staking Transaction Rewards (cold) wallet and a new ETH  (cold) wallet for every existing staked ETH wallet, where any skimmed rewards or unstaked principal will be deposited to. Under Trading Balance, you’ll see the unstaked ETH trading (hot) wallet. The assets in both the hot and cold wallets are liquid.

  • All transaction rewards, skimmed validator rewards and unstaked ETH will be received in ETH wallets.

On the staked ETH asset page (you’ll only see this if you’ve staked ETH):

  • The top banner will display the staked ETH amount, the staked ETH amount and rewards earned. You’ll be directed to the ETH asset page to access your rewards wallets.

  • From the Overview tab, under Vault Balance, you’ll see the staked ETH wallet(s). The pending staking validator rewards are displayed under the respective staked ETH wallet(s). These assets are illiquid until they are skimmed by the validator and sent to your ETH wallet every few days. The Staking tab will also display the staked wallets.

  • You will be able to unstake your ETH by clicking “Unstake”. 

  • You will be able to see detailed validator information or track unstaking progress by clicking “View Validators”

Coinbase Prime will complete required maintenance for all staked ETH wallets after the upgrade to enable unstaking and withdrawals. These will be reflected in the Activity History in each account. 

  • 1 transaction will show for each ETH wallet that has 32 ETH staked

  • 2 transactions will show for each ETH wallet that has >32 ETH staked

How does ETH Staking work on Coinbase Prime?
The protocol mandated minimum number of tokens for a validator to be in the active set, participate in consensus, and earn rewards is 32 ETH. The maximum number of tokens that can be staked from a wallet is 3200 ETH. If you would like to stake more than 3200 ETH, you can stake multiple times from the same wallet, but each individual stake will have a maximum of 3200 ETH.

You can only stake ETH in multiples of 32 ETH and any remaining balance will stay in your wallet. The ETH you opt to stake will be converted to staked ETH. You will see the staked balances in your staked ETH asset page.


How does staked ETH earn rewards?

You can earn validator rewards and transaction fee rewards when you stake your ETH. With the ETH network upgrade, both transaction fee rewards and validator rewards are now liquid.

Transaction fee rewards are earned in your “Staking Transaction Rewards Wallet”. Accrued validator rewards will be skimmed approximately every 4-5 days by the protocol and become liquid. The rewards will be automatically sent to a new ETH wallet that corresponds to your staked ETH wallet.


How does ETH unstaking work?

To unstake, you will initiate an unstake transaction in the staked ETH page for all staked wallets. Once submitted, validators will go through a protocol-level exit queue. This process can take weeks to complete depending on the protocol-level exit queue congestion and is not in Coinbase’s control. You will be able to view an estimated time it may take to unstake prior to unstaking.

When staking with multiple validators (more than 32 ETH), the unstake request will be done in Prime for the whole wallet but each validator will exit separately. This can be tracked in the View Validators page in Prime. 

Each staked ETH staking wallet will have a corresponding ETH wallet where the unstaked ETH will be sent after the exit process completes. 


Can I choose my validators?

At the moment, you can’t choose the validator service provider for ETH staking. Coinbase uses vetted service providers including Coinbase Developer Platform and others. Your staked ETH will be spread across multiple service providers to minimize risk and encourage decentralization. 


Does Coinbase offer any protection or insurance for staked assets that are slashed? 

We do not offer any slashing protection. We believe the best way to minimize slashing risk is to use diversified, high-quality validators. We use multiple validator providers for ETH staking to promote decentralization within ETH and minimize risk to client funds.


What is the US tax treatment for ETH staking?

When you receive your liquid rewards in your Coinbase Prime account, Coinbase will consider rewards earned from staking ETH as taxable income. Subject to future guidance from the IRS, ETH staking rewards are considered income, just like any other kind of staking rewards.

Pre-Upgrade Transaction Rewards: Prior to the date of the Upgrade, Institutional clients have been receiving their transaction rewards in their Coinbase Prime Vault wallets. As these rewards have been paid, they have been reportable as income on a 1099-MISC. Those who received a 1099-MISC for 2022 may see these transaction rewards included. 

Post-Upgrade One-Time Taxable Event for Prior Validator Rewards: ETH staking "validator" rewards earned before withdrawals are supported by Coinbase will be summed up and considered income, using the market price of ETH as of the date(s) when you receive their your skimmed validator rewards in your Coinbase Prime Vault wallets. 

Future Rewards: Moving forward: both ETH staking transaction and validator rewards will be considered income when they are paid, using the market price of ETH as of the date they are received. 

Tax treatment for ETH staking may differ based on your jurisdiction and regulations; please contact a qualified tax accountant for more information.