Tokenized derivatives are the key to unlocking capital: how Coinbase is changing the game for staked Ether

The cryptocurrency market is evolving, and one of the most interesting trends in recent months is the recognition that derivatives are not just speculative tools but practical means for capital management. Coinbase has just launched a lending feature that allows users in the US (excluding New York) to borrow up to $1 million USDC collateralized by cbETH — a tokenized representation of staked ether. This solution opens new opportunities for investors seeking liquidity without unstaking their assets or selling their positions in a complex crypto environment.

As of the launch of this feature (January 2026), ether is trading around $2.94K, and Bitcoin remains at $88.12K. This means qualified Coinbase clients can now access significant amounts of capital while maintaining exposure to the growth of these assets and continuing to earn staking rewards.

What is cbETH and how are derivatives changing the staking asset market?

cbETH is not just another token. It is a tokenized derivative representing staked ether on the Coinbase platform. When a user deposits ETH on Coinbase, they receive cbETH, which accrues staking rewards in real-time. Previously, such tokens were mainly passive assets — users held them, earned income, but had limited ways to utilize these funds.

Now, the situation has changed dramatically. Derivatives are new opportunities to extract value from already locked-in capital. Users can use cbETH as collateral for loans, allowing them to simultaneously maintain exposure to ETH, earn staking rewards, and access liquidity. This approach is especially attractive for investors holding large positions who rarely rebalance.

How does Morpho Protocol ensure the security of these loans?

At the core of this solution is Morpho — a decentralized lending protocol that manages these loans via smart contracts. The loans operate with overcollateralization, meaning the borrower must put up more funds as collateral than they borrow.

A key requirement: users must keep their loan-to-value (LTV) ratio below 86%. For example, if someone borrows $500,000 USDC against cbETH, the amount of cbETH on their account must be at least $581,400 (to maintain 86% LTV). If this ratio ever exceeds the threshold, the position will be automatically liquidated with associated penalties.

Interest rates on these loans fluctuate depending on market conditions and do not have a fixed repayment schedule. Borrowers can repay at any time, providing flexibility but also requiring constant monitoring of collateral positions. Sharp declines in ETH price exponentially increase the risk of liquidation.

Why are derivatives critically important for Coinbase’s business amid increased competition?

The launch of this feature occurs amid intensifying competition in the staking-related product market. Other platforms, including DeFi protocols and alternative centralized exchanges, already offer similar solutions. Coinbase understands that simply offering staking is not enough — users need financial flexibility.

Tokenized derivatives like cbETH are gaining popularity precisely because they solve a real problem: how to monetize a long-term asset without selling it. This is especially attractive when investors are cautious about realizing profits due to market volatility. Instead of selling ETH during a price spike, a user can borrow USDC using cbETH and deploy these funds elsewhere.

Practical use cases and potential earnings

Which investors will find this most useful? Primarily large holders who accumulated ETH positions through staking. They can:

• Rebalance their portfolio: borrow USDC and reallocate funds to other assets without selling ETH
• Finance purchases: use the loan to buy other cryptocurrencies or even non-crypto assets
• Achieve income divergence: continue earning staking rewards from cbETH while paying mostly variable interest rates

When interest rates are low, this strategy is especially attractive. If staking income exceeds borrowing costs, the user essentially gains free funds in the short term.

Risks and collateral management requirements

However, derivatives are not without risks. The main danger is sudden volatility in ETH. If ETH’s price drops sharply by 15-20%, as often happens in crypto cycles, the user’s collateral position could enter the red zone. With an LTV close to 86%, even a moderate decline can trigger liquidation.

Additionally, users must understand:

• Management complexity: active monitoring of LTV and ETH price
• Fees: liquidation will incur penalties, which can be significant
• Geographical restrictions: the feature is not available everywhere — the US and certain territories have restrictions

Coinbase clearly positions this solution as a feature for qualified clients rather than beginners, indicating the company’s awareness of potential risks.

Conclusions: derivatives are the future of capital efficiency

The launch of cbETH-backed loans reflects a broader trend in the crypto industry: derivatives are now a core part of expanding the functionality of underlying assets. Instead of holding assets passively in “storage,” users gain tools to generate additional value without giving up their positions.

Coinbase positions this as part of its strategy to provide greater flexibility for crypto assets in a volatile market. If the product is successfully implemented and attracts a significant portion of users with staked ETH, it could set a new standard for platforms offering staking.

For investors, this means staked ether is no longer just a passive investment. Derivatives are active capital management tools that change the way long-term crypto holdings can generate income in 2026 and beyond.