Investing in crypto assets like Ether, the native token of the Ethereum network, once followed a simple path: traders purchased 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 moves closer to traditional finance, new products such as exchange-traded funds (ETFs) that track spot prices are now adding to direct ownership, giving investors more choices – but also more decisions to make.
If that wasn’t enough, ETFs tracking ether, intended to provide traditional investors with easier access to ETH exposure, now offer staking products. These funds not only provide exposure to the price of ether, but also offer passive income potential through staking returns.
For example, crypto asset manager Grayscale, earlier this month, was the first fund to pay shareholder rewards for its Ethereum Staking (ETHE) ETF. Investors received $0.083178 per share, meaning that if someone had purchased $1,000 worth of ETHE stock, which was trading at $25.87 at the time, they would have earned $82.78.
This poses a difficult question for investors: is it better to buy and hold ETH in spot through a crypto exchange or buy an ETF that stakes it on their behalf?
Yield vs. ownership
Basically, the decision depends on two factors: ownership and yield.
When an investor buys ETH directly through an exchange like Coinbase or Robinhood, they are purchasing the real crypto asset. Investors make or lose money depending on whether the price rises or falls, 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 3-5% per year – minus a fee the exchange collects on those rewards. While this approach does not require managing validators or running software, it keeps the investor within the crypto ecosystem, allowing them to transfer, withdraw, or use their ETH elsewhere.
On the other hand, if an investor chooses to purchase shares of an Ether ETF, that fund will purchase ETH on their behalf, without the investor ever needing to log in or create a crypto wallet. And if that ETF has a staking component, the fund that buys the ETH will stake it and earn rewards on behalf of investors.
Another major difference is fees.
Grayscale’s Ethereum Trust (ETHE), for example, charges a 2.5% annual management fee, which applies regardless of market conditions. If the fund also stakes ETH, a separate share will be paid to the fund’s staking provider before profits are passed on to shareholders.
Coinbase, on the other hand, does not charge an annual management fee to hold ETH, but it does take up to 35% of any staking reward, which is standard practice for any platform offering yield on staking, although fees can vary.
“There are no fees for staking 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.
This makes the effective yield from staking generally higher on Coinbase than through a staking ETF, although the ETF structure may appeal more to investors who want simplicity and access through a traditional brokerage account.
In other words, investors will be exposed to ETH price fluctuations 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 shares of this staking ETF. It’s like earning yield with a fund that invests in dividend-paying companies – except, in the case of ETFs, the rewards come from the blockchain and not from a company.
It seems simple enough, and it’s one of the reasons why these ETF products became so popular in the first place. There are, however, some reservations.
First, revenue generation is not guaranteed.
Just like traditional stock-linked ETFs, these stake funds are subject to risks, such as fluctuating returns. Imagine this scenario: if a company suddenly cuts its dividend, it can reduce the return on the fund held by investors.
Likewise, staking rewards vary. Staking rewards are based on network activity and the total amount of cryptocurrency staked. Currently, for ETH, the annual return is around 2.8%, according to CoinDesk data.
But these rewards are not guaranteed and fluctuate as the chart shows. And if something goes wrong with the staking operation – for example the validator fails or is penalized – the fund could lose some of its ETH.
The same is true when betting through Coinbase: even though the platform handles the 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 withdraw or transfer it, something ETF shareholders cannot do.
There is also the issue 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 wants to transfer their ETH to a wallet or use it in DeFi applications, they can (although Robinhood’s withdrawal process adds complexity).
With an Ethereum ETF, this flexibility disappears. Investors do not hold ETH directly and cannot 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 that access to the asset is entirely mediated by the fund structure and traditional market hours rather than the blockchain itself.
Which is the best?
So which one is better? The answer lies in what investors expect from these products.
If they are looking for yield without managing keys or validators, a staking fund could be a good option. Even if fees eat into total returns.
However, if an investor values direct ownership, long-term flexibility, or is willing to invest in ETH themselves, holding cryptocurrencies on a wallet or exchange may be the best option. Plus, they can avoid fund management fees (although they will still have to pay various transaction fees).
