Institutional ETH ETFs Could Boost Staked Supply by 10%

Institutional funds currently hold approximately 3.3 million ether (ETH), which represents roughly 3% of the circulating supply, through exchange-traded funds (ETFs). With 27% of ETH already staked, these ETF holdings alone could increase the total amount of staked ETH by more than 10%. This calculation does not even account for additional inflows from investors who are attracted to the promise of earning staking yield within an ETF wrapper. The critical question now is not whether institutions can stake, but rather when and how they will do it.

The method by which ETH ETF staking is implemented is crucial. If ETH ETF staking is approved, issuers may default to third-party operators or route staking through a handful of custodians. This could result in validator power concentrating quickly, especially considering current custody providers, creating centralized entities. Lido still leads with over 30% of staked ETH, but under the hood there are more than 500 operators with the inception of Community Staking Module last year. However, if a wave of institutional ETH money flows into just a few trusted intermediaries, Ethereum risks drifting toward a validator oligopoly on centralized operators.

On the other hand, there is a rare opportunity for ETF issuers to go direct, running their own nodes. Vertical integration into staking infrastructure allows issuers to both decentralize the network and unlock economic upside. The standard validator fee, typically 5–15% of staking rewards, is currently captured by operators and the liquid staking protocol managing the staking pools, such as Lido, RocketPool and even the centralized wallet exchanges pools. However, if ETF managers run their own nodes or partner with independent providers, they can reclaim that margin and boost fund performance. In an industry competing on basis points, that edge matters. We’re already seeing an M&A trend underway. Bitwise’s acquisition of a staking operator is no coincidence: it’s a signal that smart asset managers are positioning for a future where staking isn’t just a back-end service but a core part of the fund’s value chain.

This development represents Ethereum’s fork in the road, in which institutions can either treat staking as a plug-and-play checkbox, reinforcing centralization and systemic risk, or they can help build a more credibly neutral protocol by distributing operations across validators. With a short queue, an expanding set of validators and billions of ETH sitting idle, the timing couldn’t be better. So as the institutionalization of staking looks increasingly likely, let’s make sure it’s done right, reinforcing the foundations of what blockchain is all about.

The approval of US spot Bitcoin and Ether exchange-traded funds (ETFs) in 2024 is expected to drive further institutional adoption of cryptocurrencies. With 27% of ETH already staked, the holdings of these ETFs alone could increase the total amount of staked ETH by more than 10%. This development is significant as it could unlock a massive wave of institutional capital seeking yield, particularly if US-based spot Ether ETFs are permitted to stake the underlying ETH.

The potential for ETFs to stake their holdings is not limited to Ethereum. Discussions have included the possibility of including other cryptocurrencies such as ADA, SOL, and XRP within strategic reserves. This expansion could provide traditional investors with exposure to a broader range of digital assets while generating additional income through staking rewards. For instance, VanEck has filed for a first-of-its-kind US BNB ETF that aims to hold spot BNB tokens and periodically stake a portion of its assets. This ETF would give traditional investors exposure to Binance Coin (BNB), the native asset of the Binance Smart Chain, and enable the trust to stake its holdings to generate additional income. The staking process for BNB can yield returns of 3%–6% annually, depending on network conditions.

The trend of staking-integrated ETFs is not unique to the US. In some regions, some crypto ETFs have begun experimenting with staking mechanisms, and jurisdictions are becoming more friendly to such structures. This global trend suggests that the market may soon follow suit, opening the door to a broader base of investors and providing them with the earning potential of on-chain participation.

The approval of Ethereum staking ETFs could also pave the way for similar products in the ecosystem. However, a Bitcoin Staking ETF would face unique challenges due to the differences in the staking mechanisms of Bitcoin and Ethereum. Institutional staking and ETF developments are gaining increasing attention, particularly in how custodians manage Ethereum staking for institutional products. This trend is expected to continue as more institutions seek to participate in the growing cryptocurrency market.