Investors' Guide
to Crypto Staking

Staking is as a foundational mechanism that ensures the security and sustainability of Proof of Stake (PoS) blockchain networks like Ethereum, Solana, or Aptos. This decentralized consensus mechanism not only safeguards the network but also grants rewards to participating investors in exchange for validating transactions on the blockchain.

STAKING GUIDE PDF

Staking explained

Introduction

Investment strategies constantly evolve as investors seek avenues to maximize returns from their assets. Traditional finance has long relied on various instruments like bonds, stocks, and money market funds to generate income.

The amount of income depends on how risky or safe the instrument is perceived by the market. The emergence of crypto and digital assets has introduced novel approaches to leveraging digital assets for income generation, one of which is staking.

  • Given the unique driving factors, staking may offer a source of yield which is uncorrelated to traditional asset yields potentially enhancing overall income stability for investors.
  • Unlike securities lending, staking doesn't involve counterparty risk, as the staked assets remain in the blockchain ecosystem, but it can tie up investor crypto for a short period when staking starts or stops (often referred to as bonding and unbonding period).
  • Staking involves investors pledging their crypto assets as collateral to validate transactions on a blockchain network, thereby contributing to its security. In return, they receive additional tokens as rewards.
  • Staking can be seen as similar to equity dividends, however only those who vote and engage in the company's governance have the right to earn a share of the profits.

Within the following, this guide delves into the fundamentals of crypto staking, exploring its principles, advantages for ETP investors, associated risks, and how Bitwise can offer support in navigating this terrain.

Product Highlight Press Releases

Example: Ethereum Yield vs Other Yields

graph

What is Staking?

Proof of work and proof of stake are two different ways of achieving consensus on a blockchain network. Consensus means that all the nodes (computers) on the network agree on the validity and order of transactions. This is important to prevent fraud, such as double-spending or altering the history of transactions.

Proof of work is the original consensus mechanism used by Bitcoin and some other cryptocurrencies. It involves solving complex mathematical problems that require a lot of computing power and energy. The nodes that solve these problems are called miners, and they are rewarded with newly created coins and transaction fees.

Proof of stake is an alternative consensus mechanism, used by Ethereum and other blockchains, that aims to address some of the issues of proof of work. It does not require solving difficult puzzles, but rather selecting validators based on how many coins they stake (deposit) on the network.

Staking is a mechanism that allows investors to participate in the validation process of a blockchain network and earn a return on their staked assets.

  • 1Blockchain technology enables peer-to-peer transactions without the need for a trusted intermediary such as a bank or a financial institution.
  • 2Peer-to-peer transactions require a consensus mechanism to ensure that the transactions are valid and consistent. For instance, if one party makes a payment to another, there needs to be a way to verify that the payer has sufficient funds in his or her account to make the payment.
  • 3In traditional finance, a bank often acts as the intermediary that verifies and settles the transactions.
  • 4A blockchain network has different consensus mechanisms to replace the role of the intermediary. Staking is a prominent consensus mechanism that supports the validation and confirmation of new transactions. To stake, investors allocate (“stake”) their crypto assets to a blockchain network. These crypto assets are then used to validate network transactions.
  • 5Staked assets represent the minimum holdings required by the network to enable the validation and confirmation of new transactions. These holdings are denominated in the native currency of the network.
  • 6As an incentive for allocating their assets, investors receive a return which is known as a staking reward (in addition to potential market returns). The amount of staking rewards varies for each network.
  • 7Networks that use staking to confirm transactions consume far less energy than alternative mechanisms and are therefore considered more environmentally friendly.

Benefits to the Blockchain Ecosystem

scheme

Staking with ETPs

When it comes to staking, investors have many options. Utilising an ETP wrapper stands out as one of the most efficient, secure, and reliable methods to earn staking rewards.

The Key benefits of staking using Bitwise Staking ETPs are:

  • High operational efficiency
  • Low cost
  • Higher rewards potential vs other ETPs and staking options
  • Rewards automatically compounded
  • Liquidity, no lock up periods - investors can sell at any time on exchange
  • Transparent, benchmarked performance
  • Secure, no lending
Staking with ETPs
Staking
ETP		 Liquid Staking
Derivative		 Institutional Staking
Derivative		 Solo
Staking
Liquid Yes Yes No No
Trading on regulated exchange Yes No No No
Slashing risk Low Low Low High
Minimum investment Low Low Very High High (32 ETH)
Execution layer rewards potential Higher Higher Lower Lower
Staking fee 10% * 10%—25% Depends on AUM 0%
Benchmarked Yes No No No
Operational complexity to set up Low High High High
* The staking service fee is paid to the issuer of the ETP to cover for staking related fees

How Staking with Bitwise ETPs works

Staking works
  1. 1
    Bitwise securely “stakes” the underlying assets of specific ETPs on a robust platform managed by professional, institutional-grade staking providers. In all cases, the private keys for these staked assets remain segregated and held in cold storage at regulated custodians. This means there is no third-party counterparty risk (unlike securities lending)
  2. 2
    The staking provider stakes the assets on behalf of the ETP.
  3. 3
    The staked assets are used to secure the network and generate returns.
  4. 4
    Staking rewards are reinvested into the ETP daily, adding to the ETP\’s performance.
  5. 5
    The staked assets can be withdrawn at any time, there is typically a waiting period before assets are returned. This period can range from 0 days to as long as 6 months depending on the protocol (though typically it is one month or less). To solve this problem, Bitwise has developed proprietary liquidity bridging processes to manage the liquidity needs of an ETP considering these lock-up periods. Meaning investors can not only trade un-impacted in the secondary market and redeem in the primary market on a normal T+1 to 2 settlement cycles, without facing any counterparty risk. The above-mentioned liquidity bridging process is provided by conventional financial market players, not through so-called decentralized autonomous organization also known as staking platforms.
Staking works

Benefits of Staking ETPs

Staking ETPs by Bitwise make staking efficient and reliable for investors allowing for both caputuring the spot performance of the underlying asset as well as enhanced ETP performance thanks to staking. Staking rewards generated by the ETP less a service related staking fee are passed on to investors by being reinvested in the ETP.

Bitwise Staking ETPs are designed to deliver the best possible outcomes for investors and aim at offering the highest staking returns and the lowest total cost of ownership compared to other staking ETPs on the market.

ETP reliable

Investors in Bitwise Staking ETPs enjoy daily liquidity on the stock exchange and are not limited by lock-up periods or other technical challenges of digital asset staking.

ETP ETC

ETPs are an efficient way for investors to gain digital asset exposure while trading on traditional financial market infrastructure, with all the benefits of regulated products.

ETP digital asset

Risks associated with Staking

Unstaking and Utilization Rate Limitation

Most blockchain networks impose a waiting period before staked assets are eligible to be returned (unbonding period). The ETP wrapper enables investors to sell on exchange at any time without waiting for unbonding. Furthermore, in order to meet redemption requests in the primary market, Bitwise Staking ETPs employ a proprietary liquidity bridging process where e.g. Bitwise borrows ETH to meet redemptions of the respective ETP. This means redemption requests can be processed on a normal T+1 settlement basis without incurring any additional risks and maintaining a high staking utilization compared to other ETPs. This is a significant benefit to investors when compared to staking crypto directly and is a unique feature of Bitwise Staking ETPs.

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 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.

Bitwise Staking ETPs 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

An investor can either stake assets on a blockchain network directly (which requires significant operational setup and oversight) or rely on a platform to provide this service.

Relying on a platform allows investors to benefit from the platform's expertise and can be an efficient way to access the benefits of staking.

Bitwise Staking ETPs use established staking providers. All of these providers 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.

Staking vs Lending

What are the differences?

Staking and lending, while both yield-earning methods utilizing cryptocurrency, represent distinct approaches to generating income. Staking aligns with the native principles of crypto, whereas lending is a familiar concept in traditional finance.

Staking involves users committing cryptocurrency to a blockchain network to support transaction validation. Staking helps secure the network and, in turn, compensates those who stake with rewards.

On the other hand, lending is where users agree to loan their cryptocurrency in return for interest payments, which compensate lenders for giving up their assets for a period of time, as well as for the risk that they might not get them back.

Both concepts allow users to earn passive income, but the purpose, risks and rewards diverge significantly.

Bitwise does not utilize lending in any of its ETP products.

Staking Lending
Purpose Help secure the network by validating the transactions Provide liquidity to borrowers
Mechanics Lock up or “stake” crypto assets on a Blockchain Lend crypto assets to an institutional lending partner, can be on a collateralized or uncollateralized basis
Rewards Staking rewards Lending fee
Risks Slashing Risk, Liquidity Risk (though daily liquidity is ensured through ETC Group products) Counterparty Risk, Collateral Shortfall Risk

Frequently Asked Questions

Yes, all Bitwise ETPs - including the staking products - can be bought or sold on exchange daily. This means investors can buy and sell on the stock exchange during conventional exchange trading hours. Additionally, to ensure Bitwise can meet daily redemption requests on the primary market, a liquidity bridging process is employed where Bitwise borrows crypto in the market to meet redemptions. This process does not expose holders of the ETP to any kind of counterparty risk.
The level of staking rewards depends on the underlying cryptocurrency protocol. Generally, staking yield depends on the amount of staked assets on a blockchain network. The more staked, the lower the staking yield. But other factors also play a part, such as transaction volumes and overall demand for block space on the underlying blockchain network.
Yes. ETP holders receive all rewards less net of relevant service provider fees and staking fees charged by Bitwise. The fees vary depending on the product and are visible on the relevant product page on our website.
Staking rewards, net of fees, are added to the Crypto Entitlement (CE) of an ETP at the end of each trading day.
Yes. The staking providers Bitwise uses for its Staking ETPs have the ability to stake directly from the ETP’s custody wallet. This means the crypto assets’ private keys never leave custody during staking and remain in cold storage.
Yes, investors certainly can (and do) directly stake their own crypto but it requires substantial time and complexity to setup and a relatively high level of expertise. In addition, significant daily oversight is required to manage slashing risk. This can also be quite expensive given the fees on community validators. By choosing Bitwise Staking ETPs, an investor can enjoy the benefits of staking through a professionally managed institutional staking platform, without the need for specialized expertise in staking (or crypto).

Useful links

LinkedIn X
Product List Product List

Explore our full suite of crypto ETPs

About Us About Us

Read about our who we are and what we do

How to invest How to invest

Information page on how to trade crypto ETPs

Research Research

Digital Asset Research

Key risks of Crypto ETPs

  1. Cryptocurrencies and products linked to cryptocurrencies are highly volatile.
  2. You can lose some or all of your investment.
  3. Risks of investing are numerous and include market, price, currency, liquidity, operational, legal, and regulatory risks.
  4. Exchange traded products do not offer a fixed income or match precisely the performance of the underlying cryptocurrency.
  5. Investment in cryptocurrencies and products linked to cryptocurrencies are only suitable for experienced investors and you should seek independent advice and check with your broker prior to investing.
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

Country
Country
Important Notice:
The distribution of the information and material on this website may be restricted by law in certain countries. None of the information is directed at, or is intended for distribution to, or use by, any person or entity in any jurisdiction (by virtue of nationality, place of residence, domicile or registered office) where publication, distribution or use of such information would be contrary to local law or regulation.
Important Notice:

The products displayed on this website are not available for subscription or purchase by retail investors in your selected jurisdiction. Please contact your broker or financial adviser for further information.

Important Notice:
You are about to access the Bitwise Asset Management website. Based on your location, clicking 'Proceed to US website' below will redirect you to the US-specific website.
Avis Important

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.

Terms of website use

Please read these terms carefully before using this website. By clicking on “Accept” and by accessing the website on an ongoing basis, you are deemed to have read, understood and accepted these Terms of Website Use.

The distribution of the information and material on this Website may be restricted by law in certain countries. None of the information is directed at, or is intended for distribution to, or use by, any person or entity in any jurisdiction (by virtue of nationality, place of residence, domicile or registered office) where publication, distribution or use of such information would be contrary to local law or regulation. By clicking on “Accept” and by accessing the website on an ongoing basis you attest that you are a professional investor or are otherwise allowed to access this website pursuant to all applicable laws.

You must not use or attempt to use any automated program (including, without limitation, any spider or other web crawler) to access our system or in relation to this Website.

We may change these Terms of Website Use from time to time. Any changes we may make will be posted on this website. By continuing to use and access this website following such changes, you agree to be bound by any changes we make. Please review this page frequently to see any updates or changes to these Terms.

If you are in the UK, US or Canada

Information available on this website is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering in the United States, to, or for the account or benefit of, any U.S. Person or in 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 it contains should be accessed by a US person or legal entity or taken, transmitted or distributed (directly or indirectly) into the United States.

This document does not constitute an invitation or inducement to engage in investment activity. In the UK, this document is provided for information purposes and directed only at investment professionals (as defined under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended from time to time). It is not intended for use by, or directed at, retail customers or any person who does not have professional experience in matters relating to investment in cryptocurrencies and crypto-backed ETPs. Neither the Issuer nor its products are authorised or regulated by the UK Financial Conduct Authority.

No advice

Nothing on this website should be considered to be investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. All investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

The information on this website is provided for information purposes only. The fact that Bitwise has provided it does not constitute investment advice or a recommendation to buy or sell any particular product or to engage in any other related transaction. The products involve a high degree of risk and are not necessarily suitable for everyone. The products presented in this section of the website are intended for sale only to sophisticated investors who are able to understand and bear the risks involved. They may not be suitable for you.

In preparing the information in this section of the Website, Bitwise has not taken into account your individual investment objectives, financial situation or investment needs. Nothing in the website constitutes or is intended to constitute financial, legal, accounting or tax advice. Neither Bitwise or any affiliate will provide or purport to provide you with investment advice as a result of your use of this website. Accessing this website does not create any contract whereby Bitwise agrees or undertakes to provide you with any information or investment advice. The information on this website is provided solely on the basis that you will make your own investment decisions.

Limitation of Liability

Neither Bitwise nor any of its affiliates, directors, officers or employees shall be responsible or will be liable for any loss or damage including consequential or indirect damage or loss of profit, arising in any way from the use of, or inability to use, this website or any reliance placed on the information it contains. The website is provided on an "as is" basis. Whilst we take all reasonable care to ensure the information published on this website is up to date and as accurate as possible, Bitwise does not guarantee or warrant that this website, or any services or content on it, will always be accurate, available or provided uninterrupted. We may suspend, withdraw, discontinue or change all or any part of this website without notice. We do not guarantee that this website will be secure or free from bugs or viruses. You agree that your use of this website is at your own risk.

Certain documents made available on this Website may have been prepared and issued by persons other than Bitwise. Bitwise is not responsible in any way for the content of any such documents. The website may also contain hyperlinks to external websites that are not under the control of Bitwise. Bitwise does not approve or endorse the contents of such websites and does not control or take any responsibility for the content of any such websites.

Risk Warnings

  • Cryptocurrencies and products linked to cryptocurrencies are highly volatile.
  • You can lose some or all of your investment.
  • Risks of investing are numerous and include market, price, currency, liquidity, operational, legal and regulatory risks.
  • Exchange traded products do not offer a fixed income or match precisely the performance of the underlying cryptocurrency.
  • Investment in cryptocurrencies and products linked to cryptocurrencies are only suitable for experienced investors and you should seek independent advice and check with your broker prior to investing.

All investors should read the relevant base prospectus and final terms contained on this website before investing and, in particular, the section entitled ‘Risk Factors' for further details of risks associated with an investment.

General

The website is owned and operated by Bitwise Europe Management Ltd., a company registered in England and Wales under number 12165332 with its registered office at Gridiron, One Pancras Square, London, England, N1C 4AG. You can contact us by email at europe@bitwiseinvestments.com.

References to “Bitwise”, “we”, “us” and “our” in these Terms of Website Use refer to Bitwise Europe Management Ltd. and our affiliates.

All content and the design of this Website are owned by Bitwise or our licensors and protected by copyright and other applicable laws. Any copying of the website or of its content requires the prior written consent of Bitwise.

Bitwise respects the privacy of users. Please see our Privacy Policy for information setting out how we handle personal information collected through the Website.

Cookie Settings

We use cookies on our site to optimize our services. Learn more

These cookies are necessary to ensure the smooth functioning of this website (e.g. session cookies, cookie to store the selected cookie preferences, etc.). These required cookies can thereforce not be deactivated.
Functional cookies are used to ensure the smooth functioning of all tools on the wesites. The entire and proper function of the webite is available to the user only with the use of functional cookies. The use of analysis cookies serves the ongoing quality improvement of this website and its content. By using them, wa aim to maximise user satisfaction.