Coinbase Staking vs. USDC Rewards: Which is Better?

Key Takeaways

• Coinbase Earn supports 7 coins for staking, with APY figures of up to 10%.
• The platform pays an interest rate of 5.1% simply for holding USDC.
• Although staking involves more risk than USDC rewards, the potential returns can be higher, especially in bull markets.

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Traditional investing allows you to put your money to work. For example, you can earn extra interest by holding cash in a high-yield savings account or money market fund.

Cryptocurrency investments can be made using cryptocurrencies. There are two easy ways:

• Cryptocurrency staking (earning additional cryptocurrency paid in native tokens as well as interest)
• Convert tokens to USDC and store them in a yielding account (you earn additional USDC similar to interest).

Coinbase is one of the best online exchanges where you can easily stake and earn USDC rewards. In this guide, we’ll help you decide which is right for you and the potential rewards you can earn from each.

Option 1: Staking on Coinbase

To earn money on Coinbase, it is a service that allows you to stake seven different Proof-of-Stake (PoS) cryptocurrency assets directly on the exchange. Setting up staking yourself is usually time consuming and expensive (see our staking guide here), but using Coinbase makes it a lot easier.

In return for user-friendliness, Coinbase takes fees of 25% for ETH and 35% for SOL, ADA, MATIC, DOT, ATOM, and XTZ (26.3% for Coinbase One members). Staking other tokens other than those mentioned is free.

(Note: The staking reward percentages listed on Coinbase are calculated after commissions, so you don’t get hit with unexpected fees later.)

Current rates are as follows:

Staking rules, including payout frequency, vary depending on the protocol. However, Coinbase removes the minimum deposit requirement. For example, ETH stakers do not need to lock up at least 32 ETH.

As you can see, rewards vary greatly between tokens and change over time depending on the staking percentage paid by the underlying platform. Native tokens also fluctuate in value like stocks, so your investment may increase or decrease.

Option 2: Earn USDC Rewards

In addition to staking, Earn on Coinbase also supports rewards in USDC. This allows users to earn interest rates simply by holding stablecoins in their Coinbase account.

USDC rewards service is available to verified users (account level 2) in the United States and most supported countries.

USDC Rewards is not a lending service but a loyalty program provided by Coinbase. The company pays interest on the funds, but Coinbase does not lend out deposited USDC assets.

This is very important because other platforms lend USDC and pay out a portion of the accrued interest. These lending platforms carry additional risks. For example, the borrower may not repay the money.

Current USDC rewards are similar to many of the staking ratios listed above. Receiving USDC rewards is also easier and safer (1 USDC = 1 USD, so you know the value of your holdings).

However, by holding USDC you are giving up the opportunity to hold staking tokens, which can be a good or a bad thing depending on whether the price goes up or down.

Factors Affecting APY and Rewards

As more people actively stake, the rewards decrease due to the shared reward pool. That means more people participating means everyone gets a smaller piece of the pie.

Market conditions also affect compensation. The higher the token price, the greater the reward (and vice versa). Typically, the more attractive the token price, the lower the reward rate, as more people are interested in staking.

Coinbase sets the USDC reward rate. This means that interest rates can be raised or lowered at any time depending on liquidity and market conditions. For example, in June 2023, Coinbase raised its interest rate from 2% to 4% after the Securities and Exchange Commission (SEC) said it would no longer treat USDC as an unregistered security. This means that the compensation does not violate US regulations.

Compare rewards

Coinbase staking rate changes depending on the staking rate of the underlying protocol. As of this writing, staking APY for most tokens is down between 0.3% and 4% compared to last year, with the exception of Solana, which saw a 0.88% increase in staking APY.

Coinbase’s staking reward rates range from 3% to 20%. However, the value of the rewards earned will depend on the token price. As the price rises, the rewards also increase as they are paid out in tokens.

As of this writing, Coinbase’s USDC Rewards offers an interest rate of 5.1%, up from 2% last year. Even with interest rate increases, this is lower than USDC’s historical APY on centralized lending platforms. For example, Nexo offered an APY of over 10%. (Check out our list of the best USDC rates here.)

risk comparison

Staking rewards can be much higher in percentage terms (e.g. 9% for ATOM and 10% for NEAR), but you also run the risk that the value of the underlying token may fall. (Of course, the price may rise.)

Staking also carries the risk of incurring protocol penalties such as slashing (loss of rewards). Coinbase may replace user assets in the event of a serious incident, but this is not guaranteed.

(However, cuts are rare: a 2023 study found that only 0.04% of ETH validators were cut. So far, Coinbase stakers have never been cut on any protocol.)

USDC rewards have the advantages of simplicity and safety. The value of USDC does not fluctuate, eliminating volatility risk. However, since 1 USDC = 1 USD, you are missing out on risk in the next cryptocurrency bull market.

make a decision

Choosing between APY staking and USDC rewards should be tailored to your financial goals and risk tolerance.

• USDC Rewards Suitable for conservative investors with low risk tolerance.
• staking It is more suitable for those who take more risk but potentially receive larger rewards (the base token can increase or decrease).

You can even do both! Volatility risk can always be mitigated by creating a diversified portfolio, staking multiple coins, and allocating part of your investment to USDC.

Remember: both staking and USDC rewards are taxable in the United States. Income earned from staked coins is taxed when unstaked.

To simplify this tax reporting, US users who earn more than $600 in USDC rewards will automatically receive a 1099-MISC from Coinbase.

Implications for Investors

Earning at Coinbase provides a flexible platform to earn cryptocurrency interest by staking PoS coins and holding USDC, and rewards accrue daily.

Choosing between these options requires a strategic approach tailored to your individual risk tolerance and financial goals.

Staking offers higher earning potential, but users need to be aware of market volatility and protocol risks. USDC rewards offer stability and low risk, making them suitable for more conservative investors.

Ultimately, whether you prefer staking for higher potential returns or the safety of USDC rewards, Coinbase Earn caters to a wide range of investor preferences.

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