Hello readers,

There are currently 6.7 million ETH – representing 5.6% of the total supply – held by ETFs, a figure that has surged 64% since July 1st. In total, nearly $26b is now held by the ETH ETFs.

Meanwhile, another 5.6 million ETH (4.7% of the supply) are held by recently launched public companies that use ETH as a reserve asset.

Data: The DeFi Report, as of 10.21.25

This rapid expansion underscores a broader truth: traditional finance is merging with onchain finance.

From the U.S. government's Project Crypto to the pending Crypto Market Structure Bill, regulatory and institutional frameworks for digital assets are being developed that will define the next chapter of capital markets.

In this report, produced in collaboration with Blockdaemon, we explore the intersection of Ethereum’s staking economy and regulated ETF products.

We highlight how staking-enabled ETF products could reshape market dynamics across:

Validator and Staking Rewards
Validator Operations
Liquidity Management
The ETH “basis trade”
ETH’s perception as a Store of Value
Ethereum’s Economic Security
Liquid Staking Tokens
Protocol Governance
Protocol Decentralization

Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.

The DeFi Report is powered by BIT Digital, the leading global platform for high-performance computing infrastructure and one of the largest ETH Treasury firms. NASDAQ: BTBT

Let’s go.

Staking Market Overview

There is currently just over 36 million ETH locked in staking contracts, representing 29.8% of the circulating supply.

The total ETH staked has increased by 4% over the last year and by 33% over the previous two years.

Data: The DeFi Report, as of 10.21.25

The top 10 ETH staking entities currently hold over 22.4 million ETH, representing 60% of the total staked ETH. Lido, the market leader, currently has 23.4% of the staked ETH supply.

Data: The DeFi Report, as of 10.21.25

ETH Staked by Entity

In the chart below, we can observe the market share by entity over time.

Data: The DeFi Report, as of 10.21.25

Notable Market Trends:

Binance, the largest centralized exchange by trading volumes, moved into the number two position by growing its staked ETH supply by 108% over the last year. In total, the largest centralized exchanges control 21.9% of the staked ETH supply.
Highly specialized institutional staking service providers such as Blockdaemon grew their staked ETH by 1.28 million over the last year. Blockdaemon was up 126%, followed by Figment (75%) and Kiln (4.3%). Institutional staking service providers currently have 7.8% of the staked ETH supply.

The two largest non-custodial liquid staking solutions (Lido and RocketPool) lost over 1.4 million ETH over the last year (3.8% of the total ETH staked). EtherFi, a liquid staking and re-staking solution, picked up 409k ETH over the same period. In total, the liquid staking sector controls 31.0% of the Ethereum staking market today.

Coinbase lost 39% of its staked ETH over the last year. Per Coinbase, this is largely due to an update in their internal accounting procedures.

ETH Validators by Entity

Data: The DeFi Report, as of 10.21.25

Each entity seen in the chart above operates validator infrastructure at scale. Their share of the Ethereum staking market directly corresponds to the number of validators they run.

Historically, every validator on Ethereum was capped at an effective balance of 32 ETH per validator. If an entity controls, for example, 1 million ETH, that would translate into 31,250 validators. As such, the leading ETH staking entities must spin up and manage tens of thousands of validators across Ethereum’s distributed architecture.

However, with EIP-7251 (included in the Pectra Upgrade), that cap is raised to 2,048 ETH, allowing validators to consolidate larger stakes under a single validator key.

Running validators at this level means automation, redundancy, and often the use of cloud infrastructure or specialized bare-metal servers. Entities use monitoring, slashing insurance, and key-management solutions to ensure they don’t lose client funds.

The Role of Issuers, Custodians, and Validators

Issuers

Who they are: Protocols or entities that issue staking derivatives — such as Lido stETH, RocketPools rETH, or Coinbase’s cbETH.

Role: 1) Receive user deposits of ETH, 2) mint a liquid staking token (LST) that represents the staked asset + accrued staking rewards, 3) manage the accounting/economics (exchange rate, reward accrual, redemption mechanics).
Why they matter: These entities and protocols are the “front-end” of liquid staking, providing the gateway between stakers and validators.

Custodians

Who they are: Institutions that safeguard user assets — for example, Coinbase Custody, Anchorage, and BitGo.

Role: 1) Hold staked assets securely on behalf of clients (retail, funds, institutions, family offices), 2) enforce compliance, governance, and operational controls, 3) provide tax reporting, insurance, and integration with enterprise workflows.
Why they matter: Custodians make staking accessible to regulated institutions that cannot (or will not) self-custody private keys or run validators. They bridge traditional finance with onchain rewards.

Validators

Who they are: professional infrastructure operators such as Blockdaemon, Figment, and Kiln. They can also be independent stakers.

Role: 1) Run validator nodes that propose and attest blocks for the Ethereum network, 2) earn block rewards, fees, and MEV on behalf of stakers. This is where institutional providers, such as Blockdaemon, assist clients with enhanced infrastructure to optimize rewards and ensure OFAC compliance.
Why they matter: Validators are the “engine room” of staking — the actual machines that secure the Ethereum network and generate the rewards that issuers and custodians distribute to their users.

Staking Rewards: Projecting the Impact of Regulated ETF Products

ETFs

The ETH ETFs currently hold over 6.7 million ETH (up 64% since 7/1/25), making up 5.6% of the total ETH supply.

In terms of USD, the ETFs now hold nearly $26b of assets under management.

Data: The DeFi Report, as of 10.21.25

ETH ETFs: Current AUM by Issuer

Data: The DeFi Report, as of 10.21.25

These issuers have not yet been approved to offer staking rewards to the ETF holders. However, BlackRock, Fidelity, Bitwise, 21Shares, and Grayscale have all filed applications to do so.

In fact, the SEC currently has a deadline of October 30 to respond to BlackRock and November 13 for Fidelity.

As such, we anticipate that most of the ETH in ETFs will be moved to the new staking-enabled products over the coming year.

Staking Reward Compression: The Law of Diminishing Returns

While the price impact of increased demand for ETH from the ETFs and Treasury Firms is likely positive, the effect on staking rewards is definitely negative.

Why?

The Ethereum protocol is explicitly designed to reduce the consensus reward rate as more ETH is staked, ensuring the network does not overpay for security. The base reward for staking follows an inverse square root curve relative to the total amount of ETH staked.

As such, rewards compression is a mathematical certainty.

In the chart below, we can see how the consensus reward APY (pink) declines as more ETH is staked (blue):

Data: The DeFi Report, as of 10.21.25

If we assume that 5 million of the current 6.7 million ETH in ETFs is added to staking products over the next year, we can observe the impact on the consensus reward APY below.

Calculation based on the inverse square root curve

With an additional 5 million ETH added to staking ($19.2b), the consensus reward is expected to drop by 13 basis points. With ten million ETH added ($38.4b), it drops 28 basis points.

Execution Rewards

These same reward compression dynamics apply to ETH’s execution rewards APY – which relies on user activity onchain (priority fees and MEV), as well as the amount of ETH staked.

Below, we can see the volatility of rewards (based on onchain activity) and how rewards decline with more ETH staked (all else equal). To be clear, there is no protocol dependency between ETH staked and the execution rewards (as there is with consensus rewards). It’s just that more ETH staked means less pro rata execution rewards for each validator on the network, all else equal.

Data: The DeFi Report, as of 10.21.25

YTD, the Ethereum Network has averaged 376 ETH paid per day to validators from user-priority fees and MEV, translating into an execution rewards APY of 0.38%.

Below, we can see the impact on execution rewards (assuming the same network economics).

Assumes 376 ETH per day in priority fees + MEV (YTD average)

Of course, if more users flock to Ethereum, we would expect to see higher priority fees and MEV – potentially offsetting the drop in execution rewards from more ETH staked.

ETH Treasury Firms

In addition to the growth of ETH ETF products, a new and powerful trend has emerged in 2025: the rise of the ETH treasury company. Following the path forged by Bitcoin treasury pioneers, a wave of publicly traded firms is now accumulating ETH as a primary reserve asset.

Unlike Bitcoin, which is primarily treated as a passive store of value, ETH’s unique properties make it a productive treasury asset.

Companies are drawn to ETH not just for its potential price appreciation but for its ability to generate rewards through staking. This allows them to generate cash flow directly from their balance sheet assets and increase the ETH/share for shareholders.

ETH treasury firms currently hold 4.7% of the total ETH supply.

Data: The DeFi Report, Strategic ETH Reserve, as of 10.21.25

Key players in this space include:

BitMine Immersion Technologies (BMNR): Chaired by Tom Lee, BitMine was previously a Bitcoin Miner and pioneered the concept of “immersion cooling” for miners. The firm has acquired 3.24 million ETH (2.67% of the circulating supply), with plans to reach 5% of the circulating supply (over 6 million ETH).

SharpLink Gaming (SBET): One of the first Nasdaq-listed companies to adopt ETH as a core asset reserve, SharpLink has rapidly accumulated over 859k ETH.

The Ether Machine (ETHM): A new entrant to the ETH treasury market, The Ether Machine has already acquired 496k ETH.
Bit Digital (BTBT): An existing data center business that recently added ETH as a reserve asset. Bit Digital currently holds 150.2k ETH, ranking fourth among ETH treasury firms.

These firms, and others like them, are creating a persistent new source of demand for ETH explicitly tied to staking, thereby amplifying its impact on the ETH staking market.

When combined with new staking-enabled ETFs, $50b of ETH could enter the validator queue in the coming years.

In addition to the impact on staking rewards, staking-enabled ETFs could have several downstream effects on the Ethereum Network.

We explore those impacts in the following sections.

First Order Impacts of Regulated Staking Products

Capital flowing from staking enabled by ETFs will not interact with the Ethereum protocol in the same way that a retail user does today.

Furthermore, ETF issuers operate within a stringent regulatory and operational framework that dictates a specific, intermediated approach to staking.

Custody & Validator Operations

ETF issuers, such as BlackRock and Fidelity, will not operate their own validator nodes. Instead, the ETH purchased via the ETFs will be held by a qualified custodian, such as Coinbase Custody, BitGo, or Anchorage Digital.

This custodian will then delegate the assets to specialized, institutional-grade validator operators such as Blockdaemon, who manage the technical infrastructure.

Rewards

Regulated ETFs are designed to track an underlying asset (ETH in this case). As such, staking rewards generated by the ETF’s assets will be reinvested back into the fund (rather than paid out as dividends).

This process, known as NAV accretion, increases the fund's Net Asset Value (NAV), which is expected to be reflected in a rising share price over time.

Liquidity Management & “Rewards Drag”

A core obligation of an ETF is to provide daily liquidity to meet market redemptions. However, unstaking ETH is not instantaneous. Instead, it requires entering a protocol-enforced exit queue that can last for days and even weeks.

To accommodate this, ETF issuers will not be able to stake 100% of their assets. They must maintain a significant “buffer” in a liquid, unstaked state to meet potential redemptions.

Pending protocol enhancements or innovations, we believe this will create a “rewards drag” that lowers the fund's overall return when compared to “pure staking” returns.

Second Order Impacts of Regulated Staking Products

Projected Validator Queue Wait Time

To maintain stability, Ethereum’s protocol intentionally limits the rate at which validators can enter (activate) or leave (exit) the active set.

This rate-limiting mechanism is known as the churn limit. Its primary purpose is to prevent rapid, large-scale changes to the validator set that could otherwise compromise network finality.

Currently, the enter/exit queue can process approximately 8 validators per epoch. There are 225 epochs/day; therefore, 1,800 validators can be added to the Ethereum Network per day.

As such, the Ethereum protocol is not designed to handle the demand that could be coming from regulated ETH staking products.

Below, we can see the impact on the validator enter/exit queue wait time under various scenarios:

Based on the churn limit of 256 ETH per epoch or 57,600/day

In an environment with a multi-month wait, instruments that offer immediate exposure to rewards could become inherently more valuable, such as liquid staking derivatives (e.g., stETH via Lido).

This could cause liquid staking tokens (e.g., stETH, cbETH) to trade at a noticeable premium to regulated ETH staking products, as a liquid staking token represents a claim on an already rewards-generating asset, effectively allowing a buyer to bypass the exit queue entirely.

However, there is a risk of depeg with LSTs during market volatility tied to DeFi activities. For this reason, we believe they will not be perceived as robust solutions suitable for handling billions of staked ETH from ETF products.

Data: The DeFi Report, as of 10.21.25

ETH as a Store of Value

Staking-enabled ETFs could strengthen ETH’s positioning as a store of value by institutionalizing staking rewards as a predictable source of “onchain revenue.”

As ETFs make staking rewards simple, transparent, and accessible, investors may increasingly view ETH not just as a speculative asset but as a productive one.

This contrasts with BTC, which is viewed as “digital gold” with no rewards. Over time, this dynamic could sharpen the ETH vs BTC narrative: BTC as a scarce store of value, and ETH as both a scarce store of value and an income-generating asset.

The ETH “Basis” or Carry Trade

Today, the ETH “basis trade” typically involves hedge funds buying spot ETH and shorting ETH in the futures market to capture the spread between the two markets. The futures premium reflects demand for leverage on CME and other venues, with the strategy’s return coming almost entirely from that spread, as the spot ETH leg is otherwise idle capital.

However, with regulated ETH staking ETFs, the calculus changes.

Because the new ETFs will reinvest staking rewards, the spot leg in the basis trade will generate staking rewards in addition to the futures-spot spread.

This improves the trade’s return profile and could generate increased demand for the “basis trade,” which requires purchasing the spot ETH ETF. As participation grows, the increased demand for the trade will likely compress futures spreads over time, pulling them closer to the underlying staking reward.

In effect, staking ETFs could render ETH staking rewards the benchmark “risk-free rate” for ETH markets, thereby reshaping how futures premiums are priced.

Third Order Impacts of Regulated Staking Products

Impact on Economic Security

Staking-enabled ETFs could bolster Ethereum’s economic security by channeling large pools of institutional capital into staking.

Since Ethereum’s security model relies on the amount of ETH at stake to secure consensus, a rise in staked ETH via regulated investment products would increase the cost of attacking the network, strengthening its resilience.

At the same time, this concentration of staking through ETFs introduces trade-offs. While more ETH is staked, it enhances raw economic security; however, if it is controlled by a handful of large funds and custodians, it could create centralization risks. These risks are low today (requires 33% control of ETH staked), but should be monitored nonetheless.

Impact on Governance

Staking ETFs could influence Ethereum’s governance by concentrating validator power in a small number of large, regulated funds and their custodians.

Because ETF providers don’t run their own validators directly but rely on staking partners, the entities they select could end up controlling a significant portion of the total stake. This concentration might amplify the influence of a handful of custodians in protocol-level decision-making, network upgrades, and even in contentious forks.

At the same time, since these products are regulated, ETF sponsors and custodians will be under scrutiny to act conservatively, follow compliance guidelines, and avoid behaviors that could be perceived as governance manipulation.

The net effect could be a trade-off — as Ethereum’s governance gains legitimacy in the eyes of traditional institutions, it may also face greater pressure to centralize who actually runs validators and participates in consensus.

Market Dynamics

Regulated ETH staking products will inevitably restructure the staking market. A new segment of “institutional-grade” stakers could emerge, focused on security, compliance, and reliability over chasing marginal reward advantages.

This will place a premium on validator operators that can provide SOC 2-certified infrastructure, comprehensive reporting, and full-service operational excellence — the foundational requirements for institutional capital.

Reward Compression

The compression of the base staking rewards could have notable downstream consequences for Ethereum’s DeFi ecosystem. As the “risk-free” rate for holding ETH declines, capital will likely seek higher returns (albeit with greater risk), fostering further innovation.

Liquid Staking Tokens (LSTs) could solidify their role as a primary building block of DeFi, serving as the key instrument for deploying staked capital into more productive uses.

This could fuel continued growth in protocols built on top of LSTs and restaked ETH, including lending markets, liquidity pools, and structured products. This “financialization of stake,” while innovative, may introduce new risk vectors that require careful implementation and management.

Conclusion

The future of Ethereum will not look like the past.

With the SEC’s “Project Crypto” and the Crypto Market Structure Bill moving through Congress, the days of Ethereum being viewed as the “wild west” of finance are coming to an end.

Meanwhile, Ethereum staking is no longer a niche activity confined to crypto-native platforms — it’s becoming a regulated, institutional-grade market.

As this transition accelerates, regulated staking products and demand from ETH treasury companies will not only alter rewards curves — they will redefine how traditional and crypto-native finance interact with Ethereum itself.

For institutions, the challenge is to capture these new opportunities within a framework of compliance and operational excellence. For Ethereum, the challenge is to absorb this demand without sacrificing the decentralization and resilience that underpin its value.

Today’s report was produced in collaboration with Blockdaemon, the leading staking platform for institutions.

Special thanks to Chanchal Samadder and Hosam Mahmoud for their contributions.

Chanchal Samadder, CFA, is Head of EMEA at Blockdaemon, where he leads the firm’s institutional business in the region. Prior to joining Blockdaemon, Chanchal spent 20 years in the ETF industry in leadership roles across product, strategy, capital markets, and distribution at BlackRock, Amundi (Lyxor), and Aberdeen Asset Management. Most recently, Chanchal was Head of Product and Capital Markets at Bitwise Asset Management, where he developed and launched one of the first Ethereum Staking ETPs globally.

Hosam Mahmoud is a Product Manager at Blockdaemon, where he leads the firm's MEV product strategy and initiatives. Prior to joining Blockdaemon, Hosam built extensive expertise in digital assets at CoinDesk Data, where he specialized in blockchain analytics and market intelligence. Hosam is currently pursuing a PhD in Quantitative Finance at the University of Sussex with a focus on DeFi microstructure.

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Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.

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