BlackRock endorses staking for Ethereum ETFs

BlackRock is pushing for staking in Ethereum ETFs, calling it a necessary step to make the funds more attractive to investors. Robert Mitchnick, head of crypto at the firm, said at the Digital Asset Summit in New York that the lack of staking is one of the biggest reasons demand for these funds has been weak.

Since launching in July, Ethereum ETFs have failed to gain traction. Many expected them to perform like Bitcoin ETFs, which saw massive inflows, but that hasn’t happened. Mitchnick dismissed the idea that interest in Ethereum ETFs is low, but he admitted something is missing.

“There’s no question it’s less perfect for ETH today without staking,” he said. “A staking yield is a meaningful part of how you can generate investment return in this space, and all the [ether] ETFs at launch did not have staking.”

BlackRock launched the iShares Ethereum Trust ETF and has a tokenized money market fund, BUIDL, which started on Ethereum and has since expanded to Aptos and Polygon.

BlackRock sees staking as key to Ethereum ETF growth

Right now, Ethereum ETF holders aren’t earning any staking rewards, unlike regular ETH investors. Staking lets investors lock their ETH on the network in exchange for yield, making it an important part of Ethereum’s value proposition. Without it, these ETFs are less appealing.

But adding staking isn’t simple. “It’s not a particularly easy problem,” Mitchnick said. “There are a lot of fairly complex challenges that have to be figured out, but if that can get figured out, then it’s going to be sort of a step change upward in terms of what we see the activity around those products is.”

The SEC is one of the biggest hurdles. It has historically classified some staking services as unregistered securities under the Howey Test, which determines whether an asset counts as a security. However, the new SEC administration is taking a different approach. The agency has launched a crypto task force that will hold its first roundtable discussion on Friday to define the security status of digital assets.

Ethereum, meanwhile, has been struggling. The ETH price has dropped more than 40% this year, weighed down by unclear narratives, declining revenue after its last major upgrade, and growing competition from Solana. Standard Chartered even slashed its ETH price target by more than half.

Mitchnick isn’t convinced the pessimism is justified. “ETH … at the second grade level is easier to define … but at the 10th-grade level is a lot harder,” he said. “Second-grade level: it’s a technology innovation story. … Beyond that, it does get a little more vast, a little more complicated. It’s about being a bet on blockchain adoption and innovation. That’s part of the thesis as we communicate it to clients.”

Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now