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Staking ether through ETFs or directly: balancing yield, fees and control
Investing in crypto assets such as ether (ETH), the native token of the Ethereum network, used to be relatively straightforward: investors would buy coins on platforms like Coinbase or Robinhood, or store them in self-custody wallets such as MetaMask and hold them directly.
Then staking emerged — the process of locking up a certain amount of crypto to help validate transactions on a network and earn rewards. This became a way for investors to generate passive income while continuing to hold tokens, often through exchanges, in anticipation of long-term price appreciation.
As crypto has moved closer to mainstream finance, however, new products such as spot exchange-traded funds (ETFs) have appeared alongside direct ownership. These products offer more ways to gain exposure, but also require investors to make more complex decisions.
Ether ETFs, originally designed to give traditional investors easier access to ETH exposure, are now incorporating staking. These funds not only track the price of ether but also provide the potential for passive income through staking yields.
For instance, digital asset manager Grayscale recently became one of the first to distribute staking rewards to shareholders of its Ethereum Staking ETF (ETHE). The fund paid $0.083178 per share. That means an investor who bought $1,000 worth of ETHE shares at a price of $25.87 would have earned approximately $82.78 in staking rewards.
This development raises a key question: is it better to buy and hold spot ETH directly through a crypto platform, or to purchase an ETF that stakes ETH on an investor’s behalf?
Yield vs. ownership
At its core, the decision comes down to two main factors: ownership and yield.
When investors buy ETH directly through platforms like Coinbase or Robinhood, they own the actual crypto asset. Their gains or losses depend on price movements, while the platform typically holds the assets in custody on their behalf.
If they choose to stake that ETH through Coinbase, the platform manages the technical process, and investors earn rewards — typically around 3% to 5% annually — minus a commission retained by the exchange. This approach does not require running validators or specialized software, and investors remain within the crypto ecosystem, free to transfer, unstake, or use their ETH elsewhere.
By contrast, when investors buy shares of an ether ETF, the fund purchases and holds ETH on their behalf, without requiring them to create a wallet or use a crypto exchange. If the ETF includes staking, the fund stakes the ETH and distributes rewards to shareholders.
Fees represent another major difference.
Grayscale’s Ethereum Trust (ETHE), for example, charges a 2.5% annual management fee regardless of market conditions. If the fund stakes ETH, an additional portion of rewards may go to the staking service provider before any income is passed on to shareholders.
Coinbase, on the other hand, does not charge an annual custody fee for holding ETH but may retain up to 35% of staking rewards. This commission level is common among staking service providers, although exact rates can vary. Coinbase’s paid membership tiers may offer lower fees.
As a result, effective staking yields are often higher through Coinbase than through staking ETFs. However, ETFs may appeal more to investors seeking simplicity and access through traditional brokerage accounts.
In other words, investors can gain exposure to ETH price movements and earn passive staking income without ever needing to understand crypto wallets or exchanges. Buying shares of a staking ETF is somewhat analogous to earning dividends through an equity income fund — except the rewards come from blockchain activity rather than corporate profits.
Risks and limitations
Despite their convenience, staking ETFs carry risks.
First, income is not guaranteed. Just as dividend-focused ETFs can see yields decline if companies cut dividends, staking rewards can fluctuate.
Staking yields depend on network activity and the total amount of ETH staked. Currently, ETH staking yields are around 2.8% annually, but this figure changes over time. If validators underperform or are penalized, the fund could lose a portion of its staked ETH.
The same general risks apply when staking through Coinbase. Although the platform handles the technical aspects, rewards still vary and validator performance affects returns. However, staking through an exchange offers more flexibility than an ETF: investors retain ownership of their ETH and can choose to unstake or transfer it — options not available to ETF shareholders.
Access and control are also important considerations. Even when holding ETH on exchanges like Coinbase or Robinhood, investors remain part of the crypto ecosystem. They can transfer ETH to private wallets or use it in decentralized finance (DeFi) applications, although withdrawal processes may sometimes be complex.
With an Ethereum ETF, that flexibility disappears. Investors do not directly own ETH, cannot transfer it to a wallet, stake independently, or use it in DeFi protocols. Their exposure is limited to buying and selling ETF shares through brokerage accounts, meaning access is governed by fund structures and traditional market hours rather than blockchain networks.
Which option is better?
There is no one-size-fits-all answer — the right choice depends on an investor’s priorities.
For those seeking yield without managing private keys or staking infrastructure, a staking ETF may be attractive, even if fees reduce overall returns.
For investors who value direct ownership, long-term flexibility, or the ability to independently stake and use ETH within the crypto ecosystem, holding ETH directly through a wallet or exchange may be the better choice. This route also avoids fund management fees, although transaction and network costs still apply.
Summary
Ether staking ETFs combine price exposure with passive income, making crypto investing more accessible to traditional investors. However, this convenience comes at the cost of higher fees, less control, and no direct ownership of ETH. Investors must weigh simplicity and regulated access against flexibility, potentially higher yields, and full participation in the crypto ecosystem when deciding between staking ETFs and holding ETH directly.