Investing in crypto assets like ether, the Ethereum network’s native token, once followed a simple path: traders bought coins on platforms like Coinbase or Robinhood, or held them in self-managed wallets like MetaMask and held them directly.
Then came staking or pledging a certain amount of cryptocurrencies to a network to validate transactions and earn rewards. This was seen as a way for investors to generate passive income while holding tokens through crypto exchanges in anticipation of price appreciation.
But as crypto has 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 choices — but also more decisions to make.
If that wasn’t enough, the ETFs that track ether, aimed at giving traditional investors easier access to ETH exposure, now offer stake products. These funds not only provide exposure to the ether price, but also offer the potential for passive income through dividend betting.
For example, crypto asset manager Grayscale was, earlier this month, the first fund to pay out shareholders for staking rewards for its Ethereum Staking ETF (ETHE). Investors received $0.083178 per share, meaning that if someone bought $1,000 worth of ETHE shares, which at the time were trading at $25.87, 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 to buy an ETF that stakes it on their behalf?
Dividends vs ownership
At its core, the decision comes down to two factors: ownership and yield.
When an investor buys ETH directly through an exchange like Coinbase or Robinhood, they are buying the actual crypto asset. Investors win 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 this ETH through Coinbase, the platform handles the staking process and the investor earns rewards — typically around 3% to 5% annually — minus a commission the exchange collects 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, deposit, or spend their ETH elsewhere.
On the other hand, if an investor chooses to buy shares in an ether ETF, that fund will buy ETH on their behalf without the investor ever having to log in or create a crypto wallet. And if that ETF has a staking component, the fund that buys the ETH will stake it and earn rewards on behalf of the investors.
Fees are another big difference.
Grayscale’s Ethereum Trust (ETHE), for example, charges an annual management fee of 2.5%, which applies regardless of market conditions. If the fund also stakes ETH, the fund’s betting provider receives a separate cut before the earnings are passed on to the shareholders.
Coinbase, on the other hand, does not charge an annual management fee to hold ETH, but it does take up to 35% of any stake reward, which is a standard practice for any platform that offers stake dividends, although fees can vary.
“There is no fee for staking your assets. Coinbase takes 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 Coinbase website. Fees are lower for someone who is part of Coinbase’s paid premium membership.
That makes the effective return from betting on Coinbase typically higher than through a betting 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 have exposure to ETH price movements and passive income from bets without ever having to understand what a crypto exchange or wallet is. All they have to do is buy the shares of the betting ETF. It’s like earning returns from a fund that invests in dividend-paying companies — except, in the case of hedged ETFs, the reward comes from the blockchain, not a company.
It sounds pretty easy, which is one of the reasons these ETF products became so popular in the first place. However, there are some caveats.
First, income generation is not guaranteed.
Like traditional equity-linked ETFs, these hedge funds are subject to risks, such as fluctuating dividends. Imagine this scenario: If a company suddenly cuts its dividend, it can lower the return on the fund that investors own.
Similarly, stake rewards vary. The stake rewards are based on network activity and the total amount of cryptocurrency staked. Right now, for ETH, the annual yield is around 2.8%, according to CoinDesk data.
But these rewards are not guaranteed and fluctuate as the chart shows. And if something goes wrong with the staking operation—say, the validator fails or gets penalized—the fund could lose a portion of its ETH.
The same is true when staking through Coinbase: while the platform handles technical details, rewards still fluctuate and poor validation performance can reduce returns. That said, staking through Coinbase offers more flexibility than an ETF – you retain ownership of your ETH and can choose to liquidate or transfer it, something ETF shareholders cannot do.
There is also the issue 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 apps, they can (although Robinhood’s withdrawal process adds complexity).
With an Ethereum ETF, that flexibility disappears. Investors do not hold ETH directly and cannot transfer it to a wallet, stake it independently, or use it in DeFi protocols. Their exposure is limited to buying or selling ETF shares through a brokerage account, meaning access to the asset is mediated solely by the fund structure and traditional market timing rather than the blockchain itself.
Which one is better?
So which one is better? The answer lies in what investors are looking for from these products.
If they are looking for dividends without managing keys or validators, a hedge fund can be a good option. Even if the fees eat into the overall return.
However, if an investor values direct ownership, long-term flexibility, or is willing to stake ETH themselves, holding crypto on a wallet or exchange may be the best option. Plus, they can avoid the fund management fees (although they still have to pay various transaction fees).
