BlackRock’s staking Ethereum ETF pays yield but investors still prefer its $9 billion ETHA fund

Staking was supposed to strengthen Ethereum exchange-traded funds (ETFs), but BlackRock’s early results show investors still favor its original fund.

When US spot Ethereum ETFs launched in July 2024, the absence of staking was widely identified as one of their biggest structural disadvantages. Investors buying the funds gained exposure to ETH’s price but forfeited the rewards available to holders who committed their tokens to securing the Ethereum network.

At the time, JPMorgan cited the removal of staking from ETF filings as one reason it expected weaker demand than for Bitcoin funds. BitMEX Research similarly argued that institutional investors could find non-staking products less attractive, while Galaxy Digital estimated that giving up staking represented a meaningful opportunity cost for ETF investors.

BlackRock now offers an early test of that argument.

Its iShares Ethereum Trust ETF (ETHA) provides straightforward exposure to ether without staking. The newer iShares Staked Ethereum Trust ETF (ETHB) stakes part of its holdings and distributes a portion of the resulting income to shareholders.

So far, adding yield has not overturned the hierarchy.

ETHA held about $8.96 billion in net assets on Sept. 11, compared with roughly $1.05 billion for ETHB, BlackRock fund data show.

The difference is even larger in secondary-market trading: ETHA generated an estimated $1.86 billion of share turnover that day based on volume multiplied by its closing price, roughly 30 times ETHB’s $61.8 million.

ETHB is also paying investors. The fund listed a distribution of $0.036487 per share payable Sept. 10 after beginning to earn staking rewards in May.

Yet ETHA attracted $148.8 million of net inflows on Sept. 11, compared with $18.3 million for ETHB, Farside Investors data show.

The comparison comes with an important limitation. ETHA has had substantially more time to accumulate assets, trading relationships, and institutional adoption, while ETHB is still building its track record. Its roughly $1 billion asset base also represents meaningful demand for a newer product.

Still, ETHA’s continued inflows after staking income became available challenge the stronger version of the thesis that missing yield was the main constraint on Ethereum ETF demand.

Staking removes one handicap, but not ETHA’s head start

ETHB removes much of the opportunity-cost problem that shaped criticism of the original Ethereum ETF structure. It cannot immediately replicate the liquidity ETHA has accumulated since becoming one of the first US spot Ethereum ETFs.

BlackRock reported a 30-day median bid-ask spread of 0.05% for ETHA as of Sept. 11, compared with 0.06% for ETHB. That difference is small, but the much wider disparity in trading activity gives institutions substantially more capacity to enter and exit larger ETHA positions.

Daily flows have yet to show a sustained migration toward the staking product.

Both funds recorded no net flows on Sept. 8 and attracted capital on Sept. 9. ETHA suffered an outflow on Sept. 10 while ETHB gained assets, but both returned to inflows the next day, with ETHA attracting substantially more money.

Those movements cannot establish whether individual investors are rotating between the products. ETF flow data identify creations and redemptions at the fund level but do not reveal whether an investor selling ETHA subsequently used the proceeds to purchase ETHB.

That distinction matters if staking eventually changes the competitive balance. A sustained period of ETHB creations accompanied by ETHA redemptions would provide much stronger evidence that investors are actively exchanging simpler exposure for yield-bearing exposure.

Yield introduces costs and another layer of liquidity management

Staking also gives ETHB a more complicated economic structure than simply adding yield to ETHA.

About 75.85% of ETHB’s ether was classified as staked as of Sept. 10, while roughly 24.15% remained unstaked. The unstaked portion provides liquidity for fund operations and redemptions without requiring BlackRock to wait for ether to exit Ethereum’s staking process.

Investors also face two separate layers of charges.

ETHB carries a standard annual sponsor fee of 0.25%, the same headline rate as ETHA, although a temporary waiver reduces the fee to 0.12% on its first $2.5 billion of assets for 12 months beginning March 12.

Staking rewards carry another charge. An April prospectus supplement sets the aggregate staking fee at 10% of gross staking consideration, down from an earlier 18%.

The fees apply to different bases. The sponsor fee is assessed against fund assets, while the staking fee is deducted from rewards generated by participating in Ethereum’s proof-of-stake network.

Distributions are also conditional, not a fixed yield. BlackRock can consider staking consideration received, legal requirements, and the fund’s operational and liquidity needs when determining payments.

The structure introduces additional redemption considerations. Under stressed conditions, ETHB’s prospectus allows delayed settlement or cash-only redemptions when staking exit times or available liquidity make ordinary settlement more difficult.

Those trade-offs put the staking thesis to a tougher test than whether investors like receiving additional income.

ETHB must generate enough after-fee value to persuade investors to choose a younger, less-traded vehicle over an incumbent with nearly $9 billion in assets.

The next signal will be whether ETHB can convert its distribution feature into sustained creations rather than episodic demand around payouts. If that happens while ETHA begins losing assets, the staking thesis will have stronger support.

Until then, BlackRock can capture both preferences: investors prioritizing ETHA’s established liquidity and those willing to accept additional complexity to earn staking income through ETHB.

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