The bets could significantly increase the flow of investments in US-traded ethereum exchange-traded funds (ETFs). x.com/tomwanhh/status/1854490599308562897?s=46&t=aw6ZR-6aD050XLPVXY8AQA”>according to Tom Wan, a former crypto analyst at 21.co.
On Nov. 7, Wan noted that staking could help funds reduce management fees, increase the total amount of ethereum staked, and provide more substantial incentives to investors.
Wan noted that the lack of staking on ethereum ETFs is currently a barrier to their success. Staking could be a “game changer,” allowing these ETFs to compete more effectively with bitcoin ETFs.
Currently, no US-based ethereum ETFs include staking due to regulatory concerns. The U.S. Securities and Exchange Commission (SEC) has raised questions about whether staking services could be considered unregistered securities offerings.
However, several analysts have indicated that ETFs would benefit significantly from staking, a process that allows investors to lock their ethereum to validate transactions and earn rewards.
As of November 6, ethereum ETFs have seen cumulative net outflows of more than $500 million, according to data from SoSoValue.
How Staking Would Transform ethereum ETFs
Pale x.com/tomwanhh/status/1854490599308562897?t=TRu9LFrBxVGbUbqSj3UvZA&s=19″>explained that staking eth inside ETFs could reduce fee management fees of up to 2.5%, seen in funds like Grayscale ETHE, to almost zero. Staking returns typically hover around 3.2%, meaning ETF issuers could stake roughly 25% of their assets to cover operating costs without passing on fees to investors. This fee reduction would make Ether ETFs more attractive and affordable.
In Europe, companies like CoinShares and Bitwise have already started offering staking rewards along with lower fees, demonstrating the viability of this approach. Wan noted that while other issuers such as VanEck and 21Shares still charge management fees, the returns on their bets are typically enough to cover expenses.
Wan estimated that staking within the ETF could add between 550,000 and 1.3 million eth to the total staked supply, taking it to new highs from the current rate of around 28.9%. This increase in staked eth could attract more investors and contribute to the stability of the ethereum network.
Major ETF issuers like 21Shares, Bitwise, and VanEck are well-versed in staking, giving them an advantage over companies with lower AUM. Wan noted that smaller companies can offer higher returns on their bets to attract investors.
He stated:
“This approach could benefit issuers with lower AUM, allowing them to be more aggressive with higher staking returns to attract investors.”
Staking via ETFs could also reshape ethereum's staking landscape by funneling more funds into centralized staking pools and exchanges, inadvertently improving liquidity. Wan suggested that ETF issuers explore liquid staking solutions, such as Lido's stETH liquid staking token, to allow investors to withdraw funds more efficiently.
In conclusion, Wan stated that staking could help ethereum ETFs reach their full potential and compete more effectively with bitcoin ETFs. With a management fee close to 0% and a yield of around 1%, Ether ETFs could become an attractive option for investors, offering a solid alternative within the cryptocurrency investment space.
