Grayscale Says Investors Are Leaving ‘Money on the Table’ in Unstaked ETH ETFs

Steve Vanourny (0:00)

But I think the thing that people are now realizing who are in the unsteak products, which are still the majority of the assets, is that they're leaving a lot of money on the table.

Jennifer Sanasie (0:14)

Want trusted crypto research? Check out The Stack, Grayscale's blog. Visit grayscale.com/thestack.

One year ago, Grayscale changed the game, unlocking Ethereum staking inside an ETF for the first time. So what's happened since? Joining me now is Grayscale Head of Index, Steve Vanourny. Steve, welcome.

Steve Vanourny (0:32)

Hey, thanks, Jan. I'm really excited to be here to celebrate Grayscale's accomplishment, one year anniversary with Yves Brannick.

Jennifer Sanasie (0:39)

Well, happy anniversary to you and the rest of the team over at Grayscale. One year in, talk to me a little bit about the lessons you've learned.

Steve Vanourny (0:48)

Oh, gosh, a lot. I'd say the headline for Grayscale is staking matters, staking makes a big difference, and I think it's proven its worth. We've learned a lot on the operational side, and we think we have one of the most professional and institutionally run programs. And probably most importantly, we've learned a lot on the results side. I think the results speak for themselves with staking driving very significant outperformance for the fund. I think clients have recognized that. We've seen a lot of client interests in staking and a lot of client interest in the product as a result.

Jennifer Sanasie (1:21)

For investors who are watching this or maybe just starting to learn about staking or interested in investing in the staking ETF, talk me a little bit through the economics.

Steve Vanourny (1:30)

Yeah, the economics, essentially when you make the decision to stake, it allows validators on the network to utilize the tokens in the validation process. Typically, we're staking about 80 percent of the portfolio. And the all in economics, I think for an investor, you have to look across a number of different aspects. Obviously, management fees always matter. And for our product, it's the lowest management fee. Secondly, for staking itself, there are a number of different considerations. There's what's the manager staking fee, i.e. what portion of the staking rewards is the manager keeping versus delivering to the client.

Second, you need to look at just the amount of assets that are staked, because the more assets that are staked, the higher the rewards can be, but that needs to be balanced against liquidity. And then finally, just the effectiveness of the program itself, and how much staking rewards are actually realized. And the way you see that result ultimately is just in the performance of the fund. All those different factors I talked about, from management fee to staking rewards add up.

In our experience in the first year since we've enabled staking, that's driven about 100 basis points about performance versus the peer set. And so, you know, when you're talking about products that are largely used for indexing, you know, 100 basis points makes a very substantial difference.

Jennifer Sanasie (2:49)

You mentioned lowest management fees there, of course, first to market.

Talk to me about how you remain competitive in an environment where more and more firms are bringing staking products to investors. Why should someone look at a Grayscale staking ETF over one of your competitors?

Steve Vanourny (3:06)

Yeah, it's a great question.

I think what's maybe not appreciated is having been first and being biggest in staking actually creates a lot of benefit for the client. Being first in particular has a couple of benefits. One is we've developed really high expertise in this. We have a broad set of validators and other service providers. They're all institutional grade quality. We have the talent here who now has a year under the belt on this product, but more when you look across the board. And this gets a little technical, but when new investors come into products, there's often a validation queue. And so when you have the largest product and you have the longest track record, both of which we have, there are actually net benefits to the investors' return because they're not getting diluted by new investors who are having to wait for that staking queue to begin. So the experience and the size and scale of the fund really matter and make a difference for the end investor. And that's, I think, something that Grayscale's really proud of. And I think it maintains a competitive edge as we go forward.

Jennifer Sanasie (4:14)

One year since staking was introduced to the product, a few years since the ETH actually hit the market. I know Grayscale was working at it for much longer than that. Talk to me about how you're looking at the Ethereum ecosystem today.