Investing in cryptoassets like ether, the native token of the Ethereum network, once followed a simple path: Traders bought coins on platforms like Coinbase or Robinhood, or stored them in self-custody wallets like MetaMask, and held them directly.
Then came staking, or pledging a certain amount of cryptocurrency 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 cryptocurrencies have moved closer to mainstream finance, new products such as exchange-traded funds (ETFs) that track spot prices now sit alongside direct ownership, giving investors more options but also more decisions to make.
If that weren’t enough, ether-tracking ETFs, intended to give traditional investors easier access to ETH exposure, now offer staking products. These funds not only provide exposure to the price of ether, but also offer the potential to generate passive income through staking returns.
For example, crypto asset manager Grayscale earlier this month was the first fund to pay shareholders rewards for its Ethereum Stake ETF (ETHE). Investors received $0.083178 per share, meaning that if someone bought $1,000 worth of ETHE shares, which were trading at $25.87 at the time, they would have made $82.78.
This leaves investors with a difficult question: Is it better to buy and hold spot ETH directly through a crypto exchange or buy an ETF that will stake it on your behalf?
Performance versus ownership
At its core, the decision comes down to two factors: ownership and performance.
When an investor purchases ETH directly through an exchange like Coinbase or Robinhood, they are purchasing the actual 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 between 3% and 5% annually) minus a fee the exchange charges on those rewards. While this approach does not require managing validators or running software, it still 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 buy shares of an ether ETF, that fund would purchase ETH on their behalf, without the investor having to log in or create a crypto wallet. And if that ETF has a staking component, the fund purchasing ETH will stake it and earn rewards on behalf of investors.
Rates are another important difference.
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 portion goes to the fund’s staking provider before profits are transferred to shareholders.
Coinbase, on the other hand, does not charge an annual management fee for holding ETH, but does charge up to 35% of any staking rewards, which is standard practice for any platform that offers staking returns, although fees may vary.
“There is no fee for staking your assets. Coinbase charges 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 disclosure on Coinbase’s website. Fees are lower for someone who is part of Coinbase’s paid premium membership.
That makes the effective staking yield 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 movements and passive income from staking, without having to understand what a crypto exchange or wallet is. All they have to do is buy the shares of that holding ETF. It’s like earning returns from a fund that invests in companies that pay dividends, except in the case of staking ETFs, the rewards come from the blockchain, not a company.
It sounds easy enough, and this is one of the reasons why these ETF products became so popular in the first place. However, there are some caveats.
First of all, income generation is not guaranteed.
Like traditional stock-related ETFs, these holding 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, the rewards for staking vary. Staking rewards are based on network activity and the total amount of cryptocurrency staked. Right now, for ETH, the annual return is around 2.8%, according to data from CoinDesk.
But those 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 staking through Coinbase: while 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 question 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 ever wants to transfer their ETH to a wallet or use it in DeFi applications, they can do so (although Robinhood’s withdrawal process adds complexity).
With an Ethereum ETF, that flexibility disappears. Investors do not own ETH directly and cannot transfer it to a wallet, stake it independently, or use it in DeFi protocols. Your exposure is limited to buying or selling ETF shares through a brokerage account, meaning access to the asset is entirely mediated by the fund structure and traditional market hours rather than the blockchain itself.
Which is better?
So which is better? The answer lies in what investors look for in these products.
If they are looking for performance without managing keys or validators, a staking fund could be a good option. Even if fees are affecting total returns.
However, if an investor values direct ownership, long-term flexibility, or is willing to stake ETH on its own, holding cryptocurrency in a wallet or on an exchange may be the best option. Additionally, they can avoid fund management fees (although they will still have to pay various transaction fees).
