Compared with Lido stETH, we assess that cbETH is stronger in the categories Smart Contract and Volatility. It is weaker in the categories Liquidity, Centralization, and Legal.

There are potential advantages of a centralized LSD product within a diversified collateral basket, namely that the service provider can react more quickly during adverse circumstances, leading to less volatility and possibly greater user trust in the product.

Care should be taken to limit exposure to cbETH for the primary reasons: 1) liquidity is quite low despite cbETH having the second highest LSD marketshare and is highly concentrated on Coinbase. 2) A recent SEC enforcement action demonstrates a level of regulatory scrutiny that creates some uncertainty about the future of the cbETH product or, at the very least, Coinbase's ability to remain competitive against competing LSD products.

Our assessment overall is that cbETH is a suitable collateral asset within a diverse basket of LSDs, but DAO voters are recommended to limit protocol exposure to cbETH by targeting a basket allocation composed primarily of wstETH. wstETH has a much stronger liquidity profile and achieves a level of decentralization that offers stronger user assurances. cbETH is a good contender with risk attributes making it quite complementary to wstETH, but due to weaknesses in its liquidity profile and legal situation, it should remain a minority member of the collateral basket at this time.