SKN | Why Are Institutions Increasing Crypto Staking Despite Falling Yields?

Key Points:

• Ethereum staking reached a record 43.8 million ETH in the third quarter, representing 35.9% of its total supply, while Solana’s active stake climbed to 440.5 million SOL.
• Staking yields declined on both networks, with Ethereum’s gross annualized yield falling to 2.63% and Solana’s dropping to approximately 6%.
• Institutional adoption is expanding through custodians, exchanges, and liquid staking products, although withdrawal delays and liquidity management remain important operational constraints.

Institutional participation in cryptocurrency staking is increasing even as the returns generated by major blockchain networks continue to decline. The trend reflects a broader shift in how professional investors approach digital assets, with staking becoming an increasingly established component of long-term holdings rather than simply a strategy for maximizing short-term rewards.

Institutional Access Is Supporting Staking Adoption

Ethereum and Solana attracted additional staked capital during the third quarter, demonstrating continued institutional and investor engagement despite lower yields. According to Bitwise data cited by CoinDesk, 43.8 million ETH, equivalent to 35.9% of Ethereum’s total supply, was staked. Solana’s active stake reached 440.5 million SOL.

Industry participants attribute the expansion partly to improved access through established custodians, exchanges, and investment products. Coinbase indicated that staking exchange-traded funds and digital asset treasury companies are creating additional opportunities for investors to participate. For institutions, the ability to access staking through existing custody relationships reduces operational complexity and makes participation easier to integrate into established investment structures.

The nature of institutional discussions is also changing. Kean Gilbert of the Lido Ecosystem Foundation told CoinDesk that institutions are increasingly examining validator diversification, code audits, and the proportion of fund assets committed to staking. This suggests that the market is moving beyond basic yield considerations toward more detailed assessments of infrastructure, governance, and operational risk.

Growing Participation Is Compressing Returns

The expansion in staking activity has created a challenge: as more tokens enter staking, rewards are distributed across a larger capital base. Ethereum’s average gross annualized staking yield declined to 2.63% in the third quarter, compared with 2.81% in the previous quarter. Newly issued ETH accounted for 2.53 percentage points, or 96.3% of the total return, while priority fees and transaction-ordering payments contributed the remainder.

Network activity did not translate into stronger fee income. Ethereum processed 199.3 million transactions during the quarter, an increase of 35.3% year over year. However, network fees and transaction-ordering revenue averaged 198 ETH per day, falling 40.2% from the second quarter. Greater network capacity helped reduce transaction costs, benefiting users but limiting the growth of fee-based staking rewards.

Solana experienced a similar decline through different network dynamics. Its gross staking yield fell to approximately 6%, from 6.38% in the second quarter, despite increases in activity and fees. Lower issuance and a larger staking base outweighed the improvement in other rewards. Nearly 90% of Solana’s gross staking yield still came from token issuance, according to Bitwise.

Liquidity Constraints Complicate Institutional Strategies

For professional investors, staking returns cannot be evaluated independently of liquidity requirements. Ethereum’s withdrawal process can take weeks during periods of elevated demand, creating a mismatch for funds that must meet investor redemptions within one or two days. Lido’s Kean Gilbert said some European investment products maintain staking levels of approximately 50% to 60% to preserve sufficient liquidity.

Liquid staking products offer one potential solution. Lido allows investors to stake ETH and receive stETH, a tradable token representing their staked assets and accumulated rewards. This structure can provide an alternative source of liquidity without requiring investors to wait for the underlying assets to complete the withdrawal process. However, the ability to sell these tokens depends on market liquidity and pricing conditions.

Coinbase also identified financing arrangements, liquid staking tokens, and trading staked vaults as tools institutions can consider when managing liquidity. These approaches introduce additional considerations, including counterparty exposure, market depth, and the potential difference between a liquid staking token’s market price and the value of its underlying assets.

Staking Economics Will Shape the Next Phase

Higher participation is also changing the competitive environment for infrastructure providers. Bitwise reported that Solana’s active validator count declined to 659 from 696 during the third quarter under its methodology. Larger operators may benefit from additional services and economies of scale, potentially increasing pressure on smaller validators. Ethereum’s validator count requires more careful interpretation because network upgrades allow operators to consolidate multiple validators.

Looking ahead, the central question is whether blockchain activity and transaction fees can eventually compensate for declining issuance-based rewards. Payward’s John Zettler expects Ethereum yields to face further downward pressure as more ETH enters staking. For institutions, the sustainability of participation will therefore depend not only on headline yields, but also on custody arrangements, validator reliability, withdrawal flexibility, and the quality of underlying network economics. As staking becomes more integrated into institutional portfolios, operational efficiency and liquidity management are likely to become as important as the rewards themselves.