Staking ETFs: How to Earn Ethereum Passive Income Without Complexity

Amid the current crypto market downturn, investors are looking for new ways to maximize profits. One such method is staking through exchange-traded funds (ETFs), which offer passive income directly in the portfolio. However, choosing between directly owning ETH and purchasing staking fund shares requires a deeper understanding of the hidden costs and opportunities.

Recently, Grayscale, one of the largest crypto asset managers, became the first company to start paying staking rewards to its shareholders in the Ethereum Staking ETF (ETHE) fund. Each stock received $0.083178, which for an investor with a portfolio worth $1,000 would mean earning about $82.78. This move opened up new opportunities for traditional investors, but also presented them with difficult choices.

Selection Formula: Yield vs. Control

When you buy ETH directly on platforms like Coinbase or Robinhood, you become the owner of the actual cryptocurrency. Your profit depends only on the asset’s price fluctuations. At the current rate of $2.77K for ETH (down 8.12% in the last 24 hours) and BTC at $83.53K (down 6.56%), this poses additional risks.

If you decide to stake ETH through the same platform, it manages the process on its own, and you receive rewards — usually between 3% and 5% per year minus the exchange fee, which on Coinbase is up to 35% of earnings. At the same time, you remain the owner of the asset and can transfer, unlock, or use it in DeFi protocols.

An alternative is to buy shares of a staked ETF. The fund will purchase ETH on your behalf, stake it, and you’ll earn passive income without having to deal with the technical aspects. However, this comfort is expensive.

Commissions and payouts: where the attention is hidden

Grayscale ETHE charges an annual management fee of 2.5% regardless of market conditions. In addition, a separate percentage goes to the staking provider before the proceeds are transferred to shareholders. In practice, this means that the true yield is much less than the theoretical one.

For comparison, Coinbase without an annual storage fee looks more attractive, but keep in mind that 35% of the rewards are not a one-time payment, but an ongoing fee. For members of the Coinbase Premium paid membership, the fees are lower, making this option even more competitive.

The current annual yield on ETH is around 2.8%, but this figure changes constantly depending on network activity and the total amount of staked Ethereum. Staking rewards are not guaranteed — they fluctuate, as CoinDesk data shows, and depend on the state of the network’s validators.

Flexibility and Control: What the Investor Loses

The biggest difference is flexibility. When you stake ETH on Coinbase or Robinhood, you remain part of the crypto ecosystem. You can transfer coins to a cold wallet, use them in DeFi apps, or simply sell them in minutes.

With ETFs, this flexibility disappears. You don’t own ETH directly, you can’t transfer it to a wallet, you can’t stake it yourself, and you can’t use it in blockchain protocols. Your access is limited to buying or selling shares through a brokerage account, which means depending on traditional market hours and fund structure.

Additionally, if something goes wrong with the staking operation — for example, a validator is penalized — the fund may lose some of its capital, including your investment.

Practical recommendation: choosing your own path

The choice depends on your priorities. If passive income is the main goal and you’re willing to sacrifice control and flexibility, a staking ETF can be an attractive option. This is especially useful for those who are not versed in cryptocurrency wallets and exchanges.

However, if you value direct ownership, long-term flexibility, or are willing to manage your staking yourself, storing ETH on a platform like Coinbase will empower you. Yes, there will still be fees, but you will have the opportunity to adapt to market changes.

Additionally, given the current drop in spot trading volumes (from $1.7 trillion last year to $900 billion) and the overall uncertainty in the market, it’s worth carefully evaluating whether you’re ready for a long-term passive income investment or more interested in high liquidity and control.