Wall Street’s Next Bet: Staking-Enabled ETH ETFs

Disclosure: This is an op-ed. The opinions expressed in this article are solely those of the author and do not reflect the views and opinions of The Defiant.

On the surface, Ethereum may appear to have lagged behind some of its peers over the last few months, but in reality the birth chain of smart contracts and decentralized applications is getting ready to steal the spotlight.

Don’t let the cheap memes cloud your vision — ETH ETFs’ just had their biggest day since February, bringing in $38.7M on April 22nd alone. Ethereum co-founder Vitalik Buterin also recently noted in an X post about Ethereum developments that so-called based rollups, a type of layer 2 scaling solution, were “making rapid progress.” Not to mention the potential of the fast approaching Pectra upgrade, slated for early May, to level up the network, including improved staking.

With attention spread across scores of flashy industry stories in the past six months — from BTC finally breaking $100K to a memecoin supercycle that’s often flown far too close to the sun — the world’s top asset managers like Blackrock and Fidelity are filtering out the noise and quietly buying huge sums of ETH. With institutions starting to pour into the asset, and the approval of staked ETFs on the horizon, we are on the threshold of exponential growth.

Things are about to get very interesting, and staking-enabled ETH ETFs might very well be the light at the end of the tunnel. People’s attention is primarily focused on the assets themselves, but the pending approval of these products will be the key to scaling of what large institutions can offer on Ethereum, and to improving investor sentiment.

The institutionalization of Ethereum staking products is poised to rapidly push forward market maturity and consumer trust in what the crypto community has been bullish on for years. It is no secret that investors have the highest confidence in institutional investment products, so this growth could occur quite rapidly following approval.

Many asset managers are actively seeking approval to add staked ETH to funds now, including Fidelity who has recently renewed their push. From the perspective of asset managers, this is by far the most overlooked aspect of Ethereum’s future by retail investors and blockchain enthusiasts alike. The current rate of return for staked ETH hovers around 3%, depending on the protocol, but once staked ETFs are approved by regulators, the potential returns will be accelerated by tangential growth in staking-backed bond or yield funds (e.g., Grayscale GDIF, Superstate).

Asset managers who are early to offer staking-enabled ETH ETFs will have a competitive edge in attracting investors seeking yield. Similarly, those who are able to move toward a total return ETF by integrating innovative solutions, including liquid staking tokens, to increase their percentage of ETH staked in the funds will additionally have a leg up over the competition.

This remains one of the largest causes of the current state of ETH: institutional bullishness vs. retail bearishness. Asset managers see through the tangled web of regulations as it slowly unwinds, and past it is a myriad of highly productive financial products with impressive upsides for issuers and investors alike. As recently as last month, Blackrock’s head of digital assets publicly announced their excitement around the ability for staked ETH ETFs to supercharge the digital asset ETF market.

The shift we are seeing from institutions is being driven by three key underlying factors:

1. The anticipation of regulatory clarity (especially after the most recent U.S. elections).
2. Technical advancements of Ethereum (successful upgrades; withdrawal enablements).
3. The market acceptance of the underlying technology and asset class as a whole (from stablecoins, to tokenized real-world asset (RWA) adoption, and Larry’s Fink’s bullish position on ETH).

These massive managers are trained to read the tea leaves and are all seeing the same thing: a first-mover advantage. In many ways, they have been biding their time, carefully watching market dynamics abroad where ETH and staked ETH ETFs have been live, while awaiting positive market signals at home with respect to the regulatory climate.

Regulatory winds of change

Now that the most pro-crypto administration in history and the so-called “crypto Congress” have ascended the most vital offices in America, the time is finally coming, and momentum is picking up rapidly.

At the end of January, the White House issued the “Executive Order to Establish United States Leadership in Digital Financial Technology,” which functionally dismantles the previous administration's timid and restrictive approach to crypto while laying the groundwork for the future of digital assets. The order's stated goal is for the future of the technology and the asset class to be grown on American soil. Through the establishment of an executive working group on digital assets and vocal support for stablecoins, the administration has taken a very clear pro-crypto stance.

Simultaneously, the SEC rescinded the infamous SAB121, which has eased regulatory burdens on banks and crypto companies in the United States. Most importantly, it is clearing the path for banks to hold crypto on their balance sheets, which will unleash the adoption of digital assets throughout the private sector as a whole.

Additionally, SEC Commissioner Hester Pierce — also the head of the SEC's new Crypto Task Force — has requested public input on questions regarding safe harbors, trading, custody and more. With the goal of finally fostering a sense of clarity while maintaining investor protections, the new stance of the SEC is one that seeks to collaborate with the industry to create sensible regulations that are effective, while allowing the industry to thrive.

The momentum in the halls of Congress is just as promising. Senators Bill Hagerty (R-TN), Tim Scott (R-SC), Kirsten Gillibrand (D-NY), and Cynthia Lummis (R-WY) introduced the Guiding and Establishing National Innovation for U.S. Stablecoins Act on Feb. 4, 2025. This bipartisan legislation, known as the GENIUS Act, aims to create a comprehensive regulatory framework for payment stablecoins, addressing the need for clear guidelines in the rapidly evolving cryptocurrency sector. One Congress considers this bill, alongside another stablecoin bill from the Senate, and establishes regulatory clarity, institutions will finally be able to confidently move forward in their ability to utilize and custody stablecoins in their operations.

In addition, proposed amendments to NYSE Rule 8.201-E titled “Commodity-Based Trust Shares” have already been filed to permit staked digital asset ETFs, but you don’t have to be a policy expert to know this: change is in the air, and institutions are getting ready to pounce.

The value of Ethereum has always gone far beyond the value of its native asset. Its ecosystem and capacity to support a wide variety of digital and financial applications alike is the true value — and long-term one at that. As Ethereum continues to evolve and address scalability challenges through upgrades such as the Merge in 2022, the Dencun upgrade last year, and the upcoming Pectra upgrade, we will continue to see new and exciting solutions built on the network, including staking-enabled ETFs.

While short-term price fluctuations may capture headlines, the long-term trajectory of Ethereum is poised for significant growth and innovation. As institutional investors recognize the multifaceted value proposition of Ethereum beyond mere price appreciation, we stand on the threshold of a highly transformative period in the history of digital assets.

Mara Schmiedt is CEO and co-founder of Alluvial, the development company behind Liquid Collective. Passionate about open-source technology, she has published research on liquid staking and led a working group with the Ethereum Foundation that developed the Ethereum Launchpad and the first DVT proof of concepts.