Grayscale’s Ethereum ETF On The Brink Of Major Change With NYSE’s Staking Proposal

The New York Stock Exchange (NYSE) has submitted a proposed rule change aimed at allowing the Grayscale Ethereum Trust (ETHE) and the Grayscale Ethereum Mini Trust (EZET) to stake their ETH holdings. 

This proposal is particularly noteworthy because it seeks to enable the trusts to earn rewards on their staked ETH while ensuring that the assets remain under the custody of their current custodian.

Grayscale Advocates For Staking In Crypto ETFs

Staking, a process integral to Ethereum’s proof-of-stake (PoS) model, allows holders to earn yield on their assets. By staking through trusted providers, ETHE and EZET could potentially bolster their returns, making these investment vehicles more attractive to institutional investors who are increasingly seeking opportunities that offer staking benefits. 

Unlike traditional staking-as-a-service models, which have drawn scrutiny from the Securities and Exchange Commission (SEC), Grayscale claims that its approach is designed exclusively for the benefit of fund shareholders. This means that the assets will not be pooled with those of third parties, which could mitigate some regulatory concerns.

Industry advocates, including organizations such as Jito Labs and Multicoin Capital, have been vocal in their support for integrating staking features into exchange-traded funds (ETFs). 

They argue that doing so would not only benefit investors but also more accurately reflect the advantages of native network assets. Furthermore, incorporating staking into ETFs could empower issuers to contribute to the security of the networks on which these assets operate.

Ethereum Surpasses Bitcoin In ETF Inflows

The proposed rule change comes at a crucial time for Grayscale, especially as its ETHE product has faced substantial outflows—nearly $4 billion—making it the largest loser among Ethereum investment products since the approval of spot Ethereum ETFs. 

In contrast, the EZET has struggled to gain market traction, attracting only $650 million in inflows, which is minimal compared to its competitors. 

Other Ethereum spot ETFs, notably those managed by BlackRock and Fidelity, have seen significant inflows, largely due to their lower fees and strong institutional backing.

The Ethereum ETF market’s dynamics are shifting, with Ethereum now gaining momentum in terms of ETF flows, even surpassing Bitcoin in inflows for the first week of February, as reported by CoinShares. 

If the NYSE Arca proposal is approved, it could significantly enhance the appeal of ETHE and EZET, providing a much-needed boost to their performance and potentially curbing outflows.

At the time of writing, ETH is trading at $2,645, recording a 20% loss in the monthly time frame for the market’s second largest cryptocurrency. 

Featured image from DALL-E, chart from TradingView.com