Coinbase and Figment are investing in a non-custodial liquid staking protocol aimed at enterprise customers. The new company, called Alluvial, will build and manage a liquid staking protocol with integrated "know your customer" (KYC) and anti-money laundering (AML) checks.
With normal staking, you lock up your assets to earn yield, and you can't touch them while they're locked up. Liquid staking allows investors to use their assets while they're locked up. Liquid staking protocols issue synthetic tokens that represent the assets and can be used in decentralized finance. When the lockup period ends, the synthetic tokens act as receipts that can be redeemed for the original staked assets.
Coinbase believes its investment in Alluvial helps it address what could be a significant and underserved enterprise liquid staking market. According to Bitfrost.io managing partner Anton Chashchin, “$1.14T worth of cryptocurrencies were traded by institutional clients in 2021, up from $120B the year before.” Institutions clearly want to be in crypto, and Coinbase believes they would invest in liquid staking if they could.
According to Coinbase, "mature and regulated businesses need to know their counterparties and require enterprise-grade reliability, security, and KYC / AML processes. Alluvial seeks to tackle this industry gap by creating the industry standard for enterprise-grade liquid staking across multiple protocols."
At launch, Coinbase and its co-investor Figment will operate validators on Alluvium's new network, with other operators joining soon after.