Ethereum's evolving ecosystem is at a pivotal moment as discussions around Layer-2 scaling solutions and staking-enabled ETFs gain momentum. At the Digital Asset Summit, Ethereum co-founder Joe Lubin reiterated the central role of Layer-2 networks, emphasizing their importance in enhancing scalability and supporting next-generation applications. Meanwhile, major ETF issuers, including BlackRock and Bitwise, are pushing for regulatory approval to allow staking within Ethereum ETFs, a move that could improve investor returns and attract additional capital.
However, these developments come amid growing concerns from investors. While Layer-2 adoption has reduced transaction fees, it has also led to a decline in Ethereum’s base-layer revenues, raising questions about its long-term sustainability. Similarly, Ethereum ETFs have experienced continued outflows, reflecting broader uncertainty in the market. As the ecosystem adapts to these shifts, Ethereum faces both new opportunities and economic challenges that will shape its future trajectory.
The Push for Staking in Ethereum ETFs Gains Momentum as NYSE Arca Files Rule Change Proposal
The landscape for spot Ethereum exchange-traded funds (ETFs) in the United States is evolving rapidly, with a growing push to allow staking—a key feature that could enhance investment returns. On Thursday, this movement gained significant traction as NYSE Arca submitted a proposed rule change that, if approved, would permit Bitwise’s spot Ethereum ETF to engage in staking and earn yield.
At the same time, BlackRock’s Head of Digital Assets, Robert Mitchnick, voiced strong support for the inclusion of staking in Ethereum ETFs, stating that such a move could unlock additional demand and fundamentally change how investors interact with these products.
Under the leadership of former Securities and Exchange Commission (SEC) Chair Gary Gensler, the notion of staking within ETFs seemed like a nonstarter. The SEC had taken a hard stance on crypto staking, citing concerns over securities laws and potential risks to investors.
When Ethereum ETFs were approved and launched in July 2024, they did so without staking capabilities, limiting their ability to generate additional yield for investors. BlackRock, Fidelity, and other issuers secured regulatory approval but had to forgo staking—a mechanism that allows Ethereum holders to participate in securing the blockchain network while earning passive rewards.
However, the regulatory climate is shifting. With a more crypto-friendly government now in place, optimism is growing that Ethereum ETFs could soon be granted permission to stake their holdings. If approved, the rule change would mark a major milestone in the evolution of crypto investment products, allowing ETFs to generate revenue beyond just price appreciation.
Staking has long been a central component of Ethereum’s ecosystem since the network transitioned from proof-of-work to proof-of-stake (PoS) in 2022. The PoS mechanism allows investors to lock up their ETH in the network to help validate transactions, and in return, they receive rewards in the form of additional ETH.
For traditional investors, this represents a significant opportunity. Currently, the average staking yield for Ethereum hovers between 3-5% annually—an attractive incentive that could make spot Ethereum ETFs more appealing, particularly in comparison to their Bitcoin counterparts, which lack staking capabilities.
The push to incorporate staking into ETFs aligns with growing institutional interest in Ethereum as a yield-generating asset. “There are a lot of fairly complex challenges that have to be figured out, but if that can get figured out, then it’s going to be sort of a step change upward in terms of what we see the activity around those products is,” Mitchnick added.
NYSE Arca’s recent filing is not the only proposal in favor of staking-enabled ETFs. Grayscale, 21Shares, and Fidelity have already submitted similar proposals, indicating strong demand from multiple issuers.
If the SEC greenlights these rule changes, Ethereum ETFs would become more competitive with traditional yield-bearing assets such as dividend-paying stocks, corporate bonds, and real estate investment trusts (REITs). This could potentially draw more institutional capital into Ethereum, further legitimizing its role in the broader financial market.
Despite the excitement, Ethereum ETFs still lag significantly behind Bitcoin ETFs in terms of market demand. BlackRock’s spot Ethereum ETF holds approximately $2.3 billion in assets under management (AUM), compared to nearly $48 billion in AUM for the firm’s Bitcoin ETF.
Regulatory Hurdles and Potential Roadblocks
While momentum is building, significant regulatory hurdles remain. The SEC has historically been cautious about staking, often associating it with securities-related risks. The agency has taken enforcement actions against crypto firms engaged in staking services, citing concerns over investor protection and opaque financial structures.
For Ethereum ETFs to be granted staking privileges, ETF issuers will likely need to provide detailed disclosures about how staking rewards will be managed, how risks will be mitigated, and how investor funds will be safeguarded.
Additionally, the SEC may seek assurances that staking within ETFs does not lead to unintentional classification of ETH as a security. The debate over whether Ethereum should be classified as a commodity or a security has persisted for years, and any regulatory misclassification could have wide-ranging implications for the industry.
Joe Lubin Champions Layer-2 Scaling as Ethereum Faces Investor Skepticism
In related news, Ethereum co-founder Joe Lubin took center stage at the Digital Asset Summit, reinforcing the pivotal role of Layer-2 (L2) scaling solutions in Ethereum’s long-term vision. Speaking in an interview, Lubin stressed that the Ethereum network is uniquely positioned to remain the dominant force in blockchain infrastructure, thanks to its extensive security guarantees and mature ecosystem.
Lubin further highlighted another emerging Layer-2 solution, MegaETH, which he believes will contribute to Ethereum’s scalability and efficiency. His remarks shed light on Ethereum’s strategy of fostering Layer-2 development rather than competing with newer Layer-1 chains, many of which have struggled to gain the same level of trust and adoption.
However, while Ethereum’s leadership continues to bet on Layer-2 expansion, some investors remain skeptical about its long-term implications—particularly in relation to Ethereum’s economic model and the sustainability of its revenue streams.
Ethereum’s Layer-2 networks, which include rollups and sidechains, have seen an explosive rise in adoption. According to L2Beat, there are now more than 140 unique Ethereum scaling solutions, with over 60 rollup networks in operation. These scaling solutions reduce congestion on the Ethereum mainnet by processing transactions off-chain while still settling security proofs back to Ethereum’s Layer-1.
However, investors and analysts have raised concerns that Layer-2 networks could be undermining Ethereum’s core economic value rather than enhancing it. Critics argue that these solutions divert transaction fees away from Ethereum’s mainnet, reducing its revenue and potentially weakening its security model.
A stark example of this came with the Dencun upgrade, implemented in March 2024, which drastically lowered gas fees for Layer-2 transactions. While this improved usability for Ethereum users, it had an unexpected downside—Ethereum’s base layer revenue collapsed by 99% by September 2024.
Ethereum’s gas fees, once a significant source of validator revenue, have plummeted by 95% since Dencun’s implementation. This has raised concerns that Ethereum’s long-term economic sustainability may depend on alternative revenue models, such as maximal extractable value (MEV) or Ethereum ETFs incorporating staking yields.
Ethereum Price Struggles
The Ethereum network’s economic shift has coincided with significant price volatility in Ether (ETH), with the cryptocurrency experiencing a prolonged downtrend in 2025.
Since peaking earlier in the year, ETH’s price dropped to $1,759 on March 11, reflecting broader market concerns and a risk-off sentiment among institutional investors. Analysts warn that Ethereum’s price trajectory remains uncertain, with some forecasting a continued decline in 2025 unless new bullish catalysts emerge.
