In This Article:
Grayscale Investments, which manages the Grayscale Ethereum Trust ETF (ETHE) and the Grayscale Ethereum Mini Trust ETF (ETH), has formally approached the Securities and Exchange Commission to allow Ethereum staking capabilities in its exchange-traded products, according to documents submitted to the regulator in April.
The asset manager, whose ETHE and ETH represent nearly 50% of all Ethereum assets in U.S. ETPs, argues that current restrictions put American investors at a disadvantage compared to international markets where staking is permitted. Staking is a function of the Ethereum protocol that allows holders to participate in validating transactions on the network.
In its presentation to the SEC's Crypto Task Force, Grayscale outlined how U.S. Ethereum ETPs have foregone approximately $61 million in potential staking rewards since their launch through February 2025. If the prohibition continues, Grayscale projects ETPs could miss out on $5.5 billion in staking benefits over the next decade when factoring in daily compounding.
The Staking Challenge Facing ETHE & ETH
At the heart of Grayscale's proposal is addressing a key technical challenge: the time mismatch between ETF redemptions and Ethereum's unstaking process.
While ETF share redemptions typically settle in one business day, unstaking Ethereum can take approximately 10 days under normal conditions. This creates a potential liquidity hurdle for ETPs that want to both maximize staking rewards and maintain sufficient assets for redemptions.
"ETH does not leave the Trust's wallet at the Custodian during this process; however, staked ETH is not transferable until it becomes unstaked," Grayscale explains in its presentation.
To solve this, Grayscale proposes maintaining a "Liquidity Sleeve" of unstaked Ethereum to handle redemptions, along with potential short-term financing arrangements with custodians and liquidity providers. The company also suggests a revolving credit facility as a backstop for extreme scenarios.
Data analysis presented by Grayscale indicates that ETH ETP redemptions have generally been moderate, with the largest funds experiencing a maximum 10-day drawdown of 6.7% and an average redemption size under 3% of fund assets.
The company notes that European ETPs that offer staking have demonstrated "their ability to stake and efficiently track NAV, with tight spreads and a functional creation-redemption arbitrage mechanism," suggesting the model can work effectively in regulated products.
NYSE Arca has already submitted an amended Form 19b-4 application requesting the rule change that would permit staking in Grayscale's Ethereum ETPs.