Coinbase loses Ether staking market share amid regulatory pressure.

The crypto exchange Coinbase has lost some of its market share in the growing business of ether (ETH) staking due to mounting pressure from regulators in the United States, which is affecting its staking service.

According to a chart by digital asset investment product-issuer 21Shares based on Dune analytics, the exchange’s share in ETH staking dropped to 9.7%, the lowest level since May 2021. This is a significant drop from the 13.6% recorded on April 12, when Ethereum’s Shanghai upgrade allowed withdrawals for the first time.

The drop in market share has occurred at a time when demand for ETH staking, which involves locking up tokens to participate in securing the blockchain while earning a passive income on holdings, was at an all-time high. The Shanghai upgrade led to a surge of deposits to staking, with inflows outpacing withdrawals by 3.5 million ETH, worth $7.3 billion at current prices.

Read more: Ethereum’s Shanghai Upgrade Spurs Institutional Investment Into Staking

However, Coinbase experienced a net outflow of $517 million (272,315 ETH) during the same period, the second-largest amount after rival crypto exchange Kraken.

“A potential reason could be that investors do not want to be exposed to regulatory risk by using Coinbase’s staking services,” Tom Wan, an analyst at 21Shares, told blockchain in a note.

Kraken was sued by the U.S. Securities and Exchange Commission (SEC) earlier this year and shut down its staking service for U.S. customers as part of a settlement with the agency.

On June 6, the SEC also filed a lawsuit against Coinbase for violating federal securities laws, including offering unregistered securities to users with its staking service. However, the exchange said it remains committed to keeping its staking service.

Since the lawsuit, Coinbase has withdrawn some 149,300 ETH from Ethereum’s proof-of-stake network, while depositing only 52,992 tokens, according to blockchain data compiled by 21Shares. The $183 million net outflow indicates that users were unstaking tokens and leaving the exchange.

Despite this, Coinbase remains the second-largest staking service provider, but fast-growing competitors such as Figment, RocketPool, and Kiln have been catching up, according to a Dune chart. The exchange takes a 25% commission on user rewards earned through staking, so a decrease in the number of staked tokens means less revenue for Coinbase.

Edited by James Rubin.