Without staking rewards, a spot ETH ETF misses out on fully capitalizing on Ethereum's unique benefits compared to Bitcoin. Both cryptocurrencies are leading digital assets but serve different purposes with distinct technological foundations.

Bitcoin is primarily a digital store of value and medium of exchange, operating on a proof-of-work (PoW) consensus mechanism that relies on miners. Its supply is fixed, with new issuance halving approximately every four years, making it a deflationary asset attractive to investors seeking to hedge against inflation and diversify their portfolios. Offering a spot bitcoin ETF makes sense, as Bitcoin provides portfolio benefits similar to gold but with additional digital asset advantages. CoinShares Research shows that including just 4% of Bitcoin in a traditional 40/60 portfolio significantly enhances performance, improving diversification and potential returns.

Ether, however, is more than a digital currency. The Ethereum blockchain is a decentralized, Turing-complete platform that enables smart contracts and decentralized applications (dapps). ETH serves multiple roles, from facilitating transactions to staking and securing the network, playing a critical role in decentralized finance (DeFi) and Web3. Web3 aims to create a decentralized web where users control their data and digital identities, with Ethereum providing the infrastructure for dapps and innovations like NFTs, which revolutionize digital art, collectibles, and virtual goods.

Given Ethereum's versatility, launching a spot ETH ETF without a staking feature raises questions. Without staking rewards, a spot ETH ETF fails to fully leverage Ethereum's advantages as both an investment and foundational technology for decentralized applications and digital finance.

Including staking in an Ethereum ETF provides additional returns through staking rewards, with annual yields typically ranging from 1% to 4%. Staking aligns investors with the network’s security and stability, promoting a healthier ecosystem and enhancing holdings' value. Staking-enabled ETH ETFs can also foster a more informed investor base, helping investors understand blockchain technology better and stay updated with Ethereum's evolution.

Staking-enabled ETFs offer higher total returns and help mitigate cryptocurrency volatility by providing steady income. However, the daily volatility of Ether can exceed the annualized staking reward, meaning staking might not fully cushion price swings, but it still offers a more predictable return profile, appealing to risk-averse institutional investors.

Staking-enabled ETFs also encourage greater investor engagement with the Ethereum network, fostering a stronger, more informed community. However, regulatory concerns about the security and custody of staked assets must be addressed. The staking and custody ecosystem for Ethereum is now robust, ensuring secure and transparent management of staked ETH.

Regulatory hurdles, such as the US SEC’s reluctance to allow staking in traditional spot ETF structures and the tax implications of staking rewards, need to be navigated. Clear regulatory guidance is essential to address these concerns and facilitate the adoption of staking-enabled ETFs, potentially generating additional revenue for the IRS.

Overall, integrating staking into the ETF structure offers additional income, compounding growth, and network security benefits, fostering a healthier, more secure, and sustainable ecosystem. Without staking, a spot ETH ETF may struggle to attract investors, who might prefer crypto-native solutions offering staking and network participation.