Crypto ETFs with staking can supercharge returns but they may not be for everyone

Investing in crypto assets like ether, the native token of the Ethereum network, once followed a simple path: traders bought coins on platforms like Coinbase or Robinhood, or stored them in self-custody wallets such as MetaMask, and held them directly.

Then came staking, or pledging a certain amount of cryptocurrencies to a network to validate transactions and earn rewards. This was seen as a way for investors to generate passive income while holding the tokens through crypto exchanges in anticipation of price appreciation.

However, as crypto has moved closer to mainstream finance, new products such as exchange-traded funds (ETFs) that track spot prices now sit alongside direct ownership, giving investors more choice — but also more decisions to make.

If that wasn’t enough, the ETFs that track ether, intended to provide traditional investors with easier access to ETH exposure, now offer staking products. These funds not only provide exposure to the ether price but also offer the potential for passive income through staking yields.

For example, crypto asset manager Grayscale, earlier this month, was the first fund to pay shareholders staking rewards for its Ethereum Staking ETF (ETHE). Investors received $0.083178 per share, meaning that if someone purchased $1,000 worth of ETHE shares, which at that time traded at $25.87, they would have earned $82.78.

This leaves investors with a tough question: Is it better to buy and hold spot ETH outright via a crypto exchange or to purchase an ETF that stakes it on their behalf?

Yield vs ownership

At its core, the decision comes down to two factors: ownership and yield.

When an investor buys ETH directly through an exchange like Coinbase or Robinhood, they’re buying the actual crypto asset. Investors gain or lose money depending on whether the price increases or decreases, while the exchange holds the asset on their behalf.

If they choose to stake that ETH through Coinbase, the platform handles the staking process, and the investor earns rewards — typically around 3% to 5% annually — minus a commission that the exchange collects on those rewards. While this approach doesn’t require managing validators or running software, it still keeps the investor within the crypto ecosystem, allowing them to transfer, unstake, or use their ETH elsewhere.

On the other hand, if an investor chooses to buy shares of an ether ETF, that fund would purchase ETH on their behalf, without the investor ever having to log in or create a crypto wallet. And if that ETF has a staking component, the fund that buys ETH will stake it and earn rewards on behalf of the investors.

Fees are another major difference.

Grayscale’s Ethereum Trust (ETHE), for instance, charges a 2.5% annual management fee, which applies regardless of market conditions. If the fund also stakes ETH, a separate cut goes to the fund’s staking provider before any earnings are passed on to shareholders.

Coinbase, by contrast, doesn’t charge an annual management fee to hold ETH, but it does take up to 35% of any staking rewards, which is a standard practice for any platform offering yield on staking, although the fees can vary.

“There is no fee to stake your assets. Coinbase takes a commission based on the rewards you receive from the network. Our standard commission is 35% for ADA, ATOM, AVAX, DOT, ETH, MATIC, SOL, and XTZ,” according to the Coinbase website disclosure. The fees are lower for someone who is part of Coinbase’s paid premium membership.

That makes the effective yield from staking typically higher on Coinbase than through a staking ETF, though the ETF structure may appeal more to investors who want simplicity and access through a traditional brokerage account.

In other words, investors will have exposure to ETH price moves and passive income from staking, without ever having to understand what a crypto exchange or wallet is. All they have to do is buy the stocks of that staking ETF. It’s like earning yield from a fund that invests into dividend-paying companies — except, in the case of staking ETFs, the rewards come from the blockchain, not a company.

Sounds fairly easy, which is one of the reasons these ETF products became so popular in the first place. However, there are some caveats.

First, income generation isn’t guaranteed.

Just like traditional stock-related ETFs, these staking funds are subject to risks, such as fluctuating yields. Imagine this scenario: if a company suddenly cuts its dividend, it may lower the yield of the fund held by the investors.

Similarly, staking rewards vary. The staking rewards are based on network activity and the total amount of cryptocurrency staked. Right now, for ETH, the annual yield is around 2.8%, according to CoinDesk data.

Annualized staking yield of the Ethereum validator population. (CoinDesk CESR )

But those rewards aren’t guaranteed and fluctuate as the chart shows. And if something goes wrong with the staking operation — say the validator fails or gets penalized — the fund could lose part of its ETH.

The same is true when staking through Coinbase: while the platform handles technical details, rewards still fluctuate, and poor validator performance could reduce returns. That said, staking through Coinbase offers more flexibility than an ETF — you retain ownership of your ETH and can choose to unstake or transfer it, something ETF shareholders can’t do.

There’s also the matter of access and control. Even when an investor holds ETH on an exchange like Coinbase or Robinhood, they are still part of the crypto ecosystem. If someone ever wants to transfer their ETH to a wallet or use it in DeFi apps, they can (though Robinhood’s withdrawal process adds complexity).

With an Ethereum ETF, that flexibility disappears. Investors don’t hold ETH directly and can’t transfer it to a wallet, stake it independently, or use it in DeFi protocols. Their exposure is limited to buying or selling ETF shares through a brokerage account, meaning access to the asset is entirely mediated by the fund structure and traditional market hours rather than the blockchain itself.

Which is better?

So, which one is better? The answer lies in what investors are looking for from these products.

If they are looking for yield without managing keys or validators, a staking fund might be a good option. Even if the fees are eating into the total returns.

However, if an investor values direct ownership, long-term flexibility, or is willing to stake ETH themselves, holding crypto on a wallet or an exchange may be the better option. Plus, they can avoid the fund management fees (although they will still need to pay various transaction fees).

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