Educational Guide
on Staking with ETPs
- Protocols that rely on Proof of Stake consensus mechanisms allow token holders to earn rewards in the form of additional tokens (this is known as “staking”).
- Investors in ETPs that track these tokens can also earn rewards, which are designed to accumulate within the ETP and can enhance overall returns and compound over time.
- ETP issuers stake the underlying assets through institutional staking providers, while private keys remain securely held with the ETP's regulated custodian.
- Staking carries risks such as potential slashing penalties, liquidity risk, and staking platform risk, although institutional providers aim to mitigate these risks. You can find a detailed risk section at the end of this document.
As blockchain technology develops, the way networks agree on valid transactions, known as a consensus mechanism, is evolving. Proof of Stake networks such as Ethereum allow participants to “stake” (lock up) their tokens to help validate transactions and secure the network. In return, they earn rewards. Those who stake act as “validators” are responsible for checking transactions and adding new “blocks” (bundles of transactions) to the blockchain, which is a permanent digital ledger.
Staking has become an important feature of the digital asset ecosystem because it allows investors to earn additional returns while supporting the network. It is often compared to earning dividends from shares, but with a key difference: participants must actively contribute to the network's operation, and poor or dishonest behaviour can, in some blockchain systems such as Ethereum, but not all such as Solana, result in penalties, known as “slashing,” where some or all of the staked assets are lost.
For investors, staking can enhance returns, for example, combining price gains with staking rewards, or help cushion losses if prices fall. Rewards are typically paid in the same token, increasing the investor's holdings over time, and can be reinvested (“restaked”) to compound returns, similar to dividend reinvestment in traditional finance.
How do Staking Exchange Traded Products (ETPs) work?
Staking ETPs are designed to offer an exchange-traded way for investors seeking exposure to the price movement of a cryptoasset, and additionally to potential staking rewards that may accumulate within the ETP.
- The issuer “stakes” the underlying assets of specific ETPs on selected platforms managed by professional, institutional-grade staking providers. In all cases, the private keys for these staked assets remain segregated and held in cold storage, which are offline digital wallets designed to prevent hacking, at regulated custodians.
- The staking provider stakes the assets on behalf of the ETP, which are used to secure the network and generate returns.
- Staking rewards are reinvested into the ETP daily, adding to the ETP's performance by increasing its underlying cryptocurrency entitlement.
While Staking ETPs may reduce certain operational complexities compared to direct staking, it is important to note that crypto ETPs carry their own risks and structural considerations and may not be suitable for all investors. Returns are also not guaranteed.
Comparing Staking and Non-Staking ETPs
Staking and non-staking ETPs differ primarily in how they seek to generate returns, their cost dynamics, and the investor experience.
Return profile
Staking ETPs aim to track the spot performance of the underlying cryptoasset while additionally incorporating staking rewards. These rewards may be partially or fully accrued within the product, which can contribute to an enhanced total return compared to non-staking ETPs that only reflect the price performance of the underlying asset. Note: taking rewards are variable and not guaranteed.
Cost and efficiency considerations
Staking ETP issuers may use staking rewards to offset product costs or improve overall efficiency for investors. As a result, total cost of ownership can differ between staking and non-staking ETPs. Investors should therefore consider both fees and potential reward participation when comparing products. The total expense ratio, fee structure, and the extent to which staking rewards are passed on to investors are among the factors disclosed by issuers in product documentation.
Liquidity and accessibility
Both staking and non-staking ETPs are typically traded on regulated stock exchanges and offer daily liquidity. Importantly, staking ETPs are structured so that investors are not directly exposed to the operational complexities of staking, such as lock-up periods or technical requirements. Trading and settlement remain aligned with standard securities market practices.
The different kinds of Staking ETPs
Staking ETPs share many structural similarities with other exchange-traded products. Core characteristics such as the total expense ratio (TER), custodians, listing venue, and overall ETP framework are often comparable across issuers. However, they may differ in several operational aspects, particularly how much of the investors ETH is staked and the proportion of staking rewards distributed to investors, tracking error, and execution methods from differences in market ecosystem participants, including brokers, market makers, and authorised participants.
There are differences, however, among the various products, and investors should do appropriate due diligence among providers to understand how staking rewards are shared.
Key questions to ask:
- How much of the staking reward goes to investors and how much goes to the ETF issuer and/or staking provider?
- Are the daily rewards earned by investors disclosed by the ETF issuer?
- Are the daily changes to the crypto entitlement disclosed by the ETF issuers?
- Are there any other hidden risks or costs?
ETP issuers typically retain a portion of the gross staking rewards as a staking service fee. This fee is used to cover the operational costs associated with staking, including validator services, custody, infrastructure, and ongoing management of the staking process.
Staking rewards are generally accrued on a continuous basis and reflected within the ETP, typically through an increase in the cryptocurrency entitlement per unit over time. The effective staking rate is variable and depends on factors such as network conditions, protocol-specific reward mechanisms, validator performance, and overall market dynamics.
Risks of Staking ETPs
Staking rewards are not guaranteed and may fluctuate over time. Actual outcomes can differ due to protocol rules, validator participation, network performance, market volatility, and transaction fee dynamics. Staking involves risks, including potential loss of staked assets and/or rewards as a result of slashing events, penalties, smart contract vulnerabilities, protocol-level risks, or operational failures. Investors may lose part or all of their capital invested.
Entry and Exit queues
Some blockchains have "exit queues" that limit how quickly a given amount of staked assets can be unstaked by validators. Ethereum, for instance, has a dynamic queue that limits how many validators can enter or exit per epoch (~6.4 minutes). An epoch is a time period used by the network to organise validator activity. If many validators attempt to exit at once, a queue forms and withdrawal times can extend to several weeks. Importantly, validators waiting in the exit queue continue to earn staking rewards because they remain part of the active validator set. Rewards only stop once the validator exits, after which there is an additional withdrawal delay of ~256 epochs (~27 hours) before the ETH becomes withdrawable.
For staking ETPs, this creates both liquidity and return considerations. While digital tokens in the exit queue still earn yield, it cannot be immediately redeemed. To manage this, many ETP issuers maintain a liquidity buffer, leaving a portion of the digital token unstaked so investor redemptions can be met without waiting for the full unstaking cycle (a waiting period required before staked assets can be withdrawn).
Liquidity Considerations
Staked assets can generally be withdrawn; however, depending on the underlying protocol, an unbonding or waiting period may apply before the assets are fully accessible. This period can range from immediate availability to several weeks, although in most cases it does not exceed one month.
To ensure continuous liquidity and seamless tradability during stock exchange trading hours, ETP issuers and managers have developed proprietary liquidity-bridging mechanisms. These processes are designed to effectively manage the liquidity requirements of the product, designed to support secondary market tradability (i.e. on the stock exchange) under normal market conditions, though liquidity may be reduced during periods of significant market stress. In parallel, creations and redemptions in the primary market (handled by authorised participants) can typically be executed within one to two business days, without exposing investors to counterparty risk.
Importantly, these liquidity-bridging arrangements are supported by established participants in traditional financial markets, ensuring a robust and reliable operational framework.
Slashing risk
An error in confirming a transaction or violating protocol rules can result in a penalty called “slashing,” which means some of the staking rewards (or in some case the original staked assets) are lost. Despite staking platforms' efforts to avoid errors and incurring slashing penalties, such issues can occur because of operational aspects of the staking process. Staking ETPs often reduce the risk of slashing by employing professional institutional staking platforms whose sole purpose is to stake assets and be able to cope with those operational challenges.
Staking platform risk
Staking ETPs use established staking providers that try to mitigate slashing using a range of measures such as third-party insurance and on-chain bonds. However, exceptions may exist where slashing risk is not entirely covered.
Reliance on a staking platform creates a dependency on a third party for a core function of the ETP. If a staking provider experiences an operational failure, a security breach, insolvency, or is subject to regulatory action, staked assets may be temporarily inaccessible, subject to delays in recovery, or partially or fully lost.
Price and Market Volatility
The market price of crypto assets and the ETPs that track them can fluctuate significantly and unpredictably. Investors are exposed to the price movements of the underlying asset, which may result in substantial losses, including losing entire capital invested. Broader market movements, including macro-economic events, changes in market sentiment, and shifts in trading liquidity, can materially affect the value of the ETP independently of any staking activity or reward accrual.
Secondary Market Liquidity
The tradability of a staking ETP on a secondary market depends on market depth, available trading volumes, and the continuous presence of market makers. In periods of heightened market stress or reduced activity, bid-ask spreads may widen and trading volumes may decline, which can affect an investor's ability to execute transactions at expected prices.
Custody and Cyber Risk
The underlying assets of a staking ETP are held by regulated custodians using institutional-grade arrangements, including cold storage. Despite these safeguards, digital assets may be exposed to cyber threats, including hacking, compromise of custody infrastructure, or losses arising from operational failures in the custody chain.
Regulatory Risk
Crypto assets and the regulatory frameworks governing them are subject to ongoing change. Changes in applicable laws, regulations, or regulatory interpretations across relevant jurisdictions may affect the structure, operation, or value of staking ETPs. Investors should be aware that the regulatory environment for crypto assets and crypto ETPs continues to evolve and that future regulatory developments could have an adverse effect on the product.
Conclusion
Staking ETPs provide access to staking mechanisms through a regulated and accessible investment structure, offering exposure to staking rewards without the operational complexity of managing validators directly. While staking can enhance total returns through yield and reinvestment effects, investors should remain mindful of operational, liquidity, and protocol-related risks. As the staking segment continues to expand within the broader crypto market, it is likely to play an increasingly prominent role in digital asset investment frameworks.
Bottom Line
-
Protocols that rely on Proof of Stake consensus mechanisms allow token holders to earn rewards in the form of additional tokens (this is known as “staking”).
-
Investors in ETPs that track these tokens can also earn rewards, which are designed to accumulate within the ETP and can enhance overall returns and compound over time.
-
ETP issuers stake the underlying assets through institutional staking providers, while private keys remain securely held with the ETP’s regulated custodian.
-
Staking carries risks such as potential slashing penalties, liquidity risk, and staking platform risk, although institutional providers aim to mitigate these risks. You can find a detailed risk section at the end of this document.
Important information:
This document is for informational and educational purposes only and does not constitute investment advice, a personal recommendation, or an offer or solicitation to buy or sell any financial instrument.
Bitwise Europe GmbH, incorporated under the laws of Germany, is the issuer of the Exchange Traded Products under a base prospectus and the applicable final terms, as supplemented from time to time, approved by the German Federal Financial Supervisory Authority (BaFin). The approval of the prospectus by BaFin relates solely to the completeness, coherence and comprehensibility of the prospectus in accordance with the Prospectus Regulation and does not constitute an endorsement, recommendation or assessment of the merits of the products. The base prospectus and final terms are available at bitwiseinvestments.eu/resources.
Any numerical examples, return figures, percentage rates, and price movements used in this document are illustrative only. They do not represent actual historical performance and should not be taken as an indication or guarantee of future results. Actual outcomes will vary and may differ materially from the figures shown.
For further details, please refer to the full disclaimer available at: bitwiseinvestments.eu/disclaimer
About Bitwise
Bitwise is one of the world’s leading crypto specialist asset managers. Thousands of financial advisors, family offices, and institutional investors across the globe have partnered with us to understand and access the opportunities in crypto. Since 2017, Bitwise has established a track record of excellence managing a broad suite of delta-one, index and active solutions across ETPs, ETFs, separately managed accounts, private funds, and hedge fund strategies, spanning both the U.S. and Europe.
Contact
General Inquiries
europe@bitwiseinvestments.com
Institutional investors
clients@bitwiseinvestments.com
Press Inquiries
europe@bitwiseinvestments.com
You May Also Like
Welcome to Bitwise
Select your location
Welcome to Bitwise
Confirm your location to help us deliver the site experience most relevant to you
Welcome to Bitwise
Confirm your location to help us deliver the site experience most relevant to you
Welcome to Bitwise
Confirm your location to help us deliver the site experience most relevant to you
Switch to local website
We noticed you may be accessing this website from a different location than the one currently selected.
English
Country
English
Country
This website is operated by Bitwise Europe GmbH (“Bitwise”, “we”, “us”). The information on this website is intended for UK retail clients and other visitors in the United Kingdom. If you are not in the UK, local laws and rules may differ and the materials here may not be appropriate for you.
All content is provided for general information only. It does not constitute investment advice, tax or legal advice, an offer, or a solicitation to buy or sell any investment and must not be relied upon to make an investment decision. You should consider whether an investment is suitable for your circumstances and, where appropriate, seek independent professional advice.
Cryptoassets and crypto-linked products are high-risk. The FCA categorises retail crypto promotions as Restricted Mass Market Investments (RMMI). As such, additional prominence, risk-warning and risk-summary requirements apply to retail communications. You could lose all the money you invest.
Investments in cryptoassets or many crypto-linked products are generally not covered by the UK Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS). You should not expect to be protected if something goes wrong.
Access to certain pages, features, or transactions may be subject to client categorisation and appropriateness assessments required by FCA rules. We may ask you to complete checks or declarations before you can proceed.
Where this website contains a retail financial promotion for crypto or other RMMIs, you will see the FCA-prescribed risk warning and a link (“Take 2 mins to learn more”) to the FCA risk summary presented in a pop-up or dedicated page. For convenience, you can access that summary here at any time.
Where performance is shown, past performance is not a reliable indicator of future results. Any projections, targets, or forward-looking statements are inherently uncertain and may not be realised. Fees and expenses reduce returns.
Returns may be reduced by fees, charges, spreads, and taxes. Tax treatment depends on individual circumstances and may change. Seek professional advice if unsure.
Where a prospectus (including any base or supplemental prospectus) or KID/PRIIPs KIID or equivalent is provided, it is regulatory disclosure, not marketing. Those documents are generally outside the UK financial-promotion restriction.
In line with FCA rules for high-risk investments, we do not offer incentives to invest (e.g., refer-a-friend bonuses, monetary/non-monetary perks) in relation to retail crypto promotions.
External links are provided for convenience only. We do not control and are not responsible for third-party websites or their content. We take reasonable care to ensure accuracy but do not guarantee completeness, timeliness, or availability of the website or its contents; information may change without notice.
Our products or services may not be available in all jurisdictions or to all investors. Access may be restricted by law. You are responsible for understanding and complying with applicable laws and regulations.
For queries or complaints, contact: clients@bitwiseinvestments.com | Additional contact and legal information is available in our Terms of Website Use and Privacy Policy.
Copyright & trademarks © 2025 Bitwise. All rights reserved. Product names, logos and brands are property of their respective owners
The selected location is intended only for people resident in that country. If you are accessing from the UK, you should not use this version of the website or access the products and services shown here, as they are not available in your country and may not be suitable for you.
We recommend switching to your local version of our website to view information relevant to your jurisdiction.
Les produits d’investissement domiciliés en Europe et présentés sur ce site sont des Exchange Traded Commodities (« ETC »), instruments financiers considérés comme des titres de créances complexes par l'Autorité des Marchés Financiers, présentant des risques difficilement compréhensibles par le grand public. À ce titre, leur distribution en France répond à des règles spécifiques. Il relève de la responsabilité des intermédiaires et investisseurs professionnels souhaitant offrir des ETCs à leurs clients de s'assurer que leur distribution auxdits clients est réalisée dans le respect de la réglementation française.
The information provided in this advertising material is for informative purposes only and does not constitute investment advice, a recommendation or solicitation to conclude a transaction.
This website and all documentation and other information provided on or via it (all together this “website”) is issued by Bitwise Europe GmbH (“BEU” or the “Issuer”). This website is provided for illustrative, educational and information purposes only and may be subject to change.
Where this website constitutes an advertisement within the meaning of Article 22 of Regulation (EU) 2017/1129, as amended (the “Prospectus Regulation”) or Regulation 3 of the Public Offers and Admissions to Trading Regulations 2024, and the relevant offer or admission to trading is subject to an obligation to draw up a prospectus, the applicable prospectus has been or will be published and is or will be available in the Resources section of the Bitwise Europe website at bitwiseinvestments.eu/resources/.
Bitwise Europe GmbH, Thurn- und Taxis-Platz 6, 60313 Frankfurt am Main, Germany, registered with the commercial register of the local court of Frankfurt am Main under HRB 116604, is the issuer of Exchange Traded Products (“ETPs”) described in this website under an applicable base prospectus approved by BaFin, or, where applicable, another competent authority, as supplemented from time to time, and the applicable final terms. Final terms are published and filed with the relevant competent authority in accordance with applicable law and are not subject to approval. The relevant product documentation identifies the competent authority that approved the applicable prospectus.
Approval of a prospectus means that the competent authority has scrutinised it against the applicable standards of completeness, comprehensibility and consistency, and it does not constitute an endorsement or recommendation of the Issuer or the ETPs. If you are considering investing in products issued by BEU you should check with your broker or bank that such products are available in your jurisdiction and suitable for your investment profile. A decision to invest any amount in an ETP offered by BEU should take into consideration your specific circumstances after seeking independent investment, tax and legal advice.
You should read the relevant base prospectus, any supplements and the applicable final terms before investing and, in particular, the section entitled “Risk Factors” for further details of the risks associated with an investment. Where required, you should also read the key information document under Regulation (EU) No 1286/2014 (PRIIPs), the product summary under the Consumer Composite Investments (Designated Activities) Regulations 2024 or the equivalent product disclosure applicable in your jurisdiction. The prospectuses, supplements, final terms, key information documents and other regulatory documents relevant to BEU’s ETPs are available electronically and free of charge in the “Resources” section of the Bitwise Europe website at bitwiseinvestments.eu/resources/.
Access to those documents is not conditional on completion of a registration process, on any country or investor-type selection, on acceptance of the Terms of Website Use or of any disclaimer limiting legal liability, or on payment of a fee, in accordance with Article 21(4) of the Prospectus Regulation or the FCA Handbook, Prospectus Rules. Warnings specifying the jurisdictions in which an offer or an admission to trading is being made may be displayed in connection with certain content and are not disclaimers limiting legal liability.
Any country or investor-type selection used on this website determines which marketing content may be displayed. It does not itself constitute a formal regulatory client classification, an assessment of appropriateness or suitability, confirmation of legal eligibility to invest, or investment advice.
If You Are in the UK, US, or Canada
Information contained in this website does not constitute, and under no circumstances is to be construed as, an offer to sell or a solicitation of an offer to buy securities, or any other step in furtherance of a public offering, in the United States or Canada, or any state, province or territory thereof, where neither the Issuer nor its products are authorised or registered for distribution or sale and where no prospectus of the Issuer has been filed with any securities regulator. Neither this website nor information in it should be taken, transmitted or distributed (directly or indirectly) into the United States.
In the UK, this website is provided for information purposes only, and is in any event provided in accordance with the exemption to the requirement, set out under section 21 of the Financial Services and Markets Act 2000, that communications relating to invitations or inducements to engage in investment activity be approved by a person authorized by the Financial Conduct Authority. As such, this website is directed only at persons who fall within a relevant exemption to the restriction on financial promotions as set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, such as investment professionals (Article 19); high net worth individuals (Article 48); high net worth companies, unincorporated associations etc. (Article 49); sophisticated investors (Article 50); self-certified sophisticated investors (Article 50A); and associations of high net worth or sophisticated investors (Article 51). Persons who do not fall within a relevant exemption should not access, or otherwise rely or act on this website, rather they should instead proceed to the Private Investor version of the website. Neither the Issuer nor its products are authorised or regulated by the UK Financial Conduct Authority, and the content of this website has not been approved by an authorized person within the meaning of the Financial Services and Markets Act 2000.
Publications & Social Media Disclosure
Social media communications, including posts on LinkedIn and X, (all together “Social Media”) may constitute advertisements, financial promotions, investment recommendations within the meaning of Regulation (EU) No 596/2014, the Financial Services and Markets Act 2000 or other regulated communications depending on their content and the jurisdiction in which they are communicated. Unless expressly stated otherwise, they are not intended to constitute investment advice or a personal recommendation.
BEU makes all reasonable efforts to ensure that the information contained in documents and on Social Media is accurate and reliable; however, errors may occur. To the extent permitted by applicable law, documents and materials available on Social Media are provided without any express or implied warranties as to accuracy, validity, timeliness or completeness. Nothing in this paragraph excludes or limits any statutory or regulatory responsibility or liability that cannot lawfully be excluded or limited, including obligations applicable to advertisements or financial promotions and liability relating to a prospectus or other regulatory disclosure.
Unless expressly endorsed or adopted by Bitwise Europe, comments expressed by members of the online community represent those persons’ own views and are not endorsed by Bitwise Europe.
Risks of ETPs & Cryptocurrencies
An investment in an ETP backed by one or more cryptocurrencies, such as those issued by BEU, is dependent on the performance of the underlying cryptocurrency, less costs, but it is not expected to match the performance of the underlying asset precisely. Investing in ETPs also involves numerous risks including general market risks relating to underlying, adverse price movements, currency, liquidity, operational, legal and regulatory risks and investors should be prepared to lose some or all of the amount invested.
ETPs backed by cryptocurrencies are highly volatile assets and performance is unpredictable. Past performance is not a reliable indicator of future performance. The market price of ETPs will vary and they do not offer a fixed income. The value of any ETP may be affected by exchange rates and the price movement of its underlying cryptocurrency(ies). This website may contain forward looking statements including statements regarding Bitwise Europe’s belief or current expectations with regards to the performance of certain asset classes. Forward looking statements are subject to certain risks, uncertainties and assumptions, and there can be no assurance that such statements will be accurate and actual results could differ materially from those indicated. You must not place reliance on forward-looking statements or any other similar information contained in this website.
Cryptocurrencies are highly volatile and are known for their extreme and rapid fluctuations in prices. While there may be potential for significant gains, you are at risk of losing part or all of your entire capital invested. The price of cryptocurrencies can fluctuate widely and, for example, may be impacted by global and regional political, economic or financial events, regulatory events or statements by regulators, investment trading, hedging or other activities by a wide range of market participants, forks in underlying protocols, disruptions to the infrastructure or means by which crypto assets are produced, distributed, stored and traded. Characteristics of cryptocurrencies and divergence of applicable regulatory standards create the potential for market abuse. The price of cryptocurrencies may also change due to shifting investor confidence in future outlook of the asset class.
For a detailed overview of risks associated with cryptocurrencies and specifically associated with BEU’s products, please refer to the prospectus and final terms, which are available in the “Resources” section of the Bitwise Europe website at bitwiseinvestments.eu/resources/. You should only invest if you are capable of understanding and evaluating the risks involved. If you are in doubt as to whether an investment is appropriate for you, you should consult an authorised person who specialises in advising on investments including crypto-backed ETPs.
