Introducing CF Benchmarks’ Risk and Reward Framework for Ethereum Staking Returns

Finally, an institutional-grade analysis of Ethereum staking risks and rewards

CF Benchmarks, the leading cryptocurrency Benchmark Administrator, is excited to present the first comprehensive, public framework, for institutional quantification and participation in Ethereum staking rewards.

We’re launching this fresh perspective in the form of a research paper, produced by the CF Benchmarks Product team, to the highest objective standards of accuracy and integrity that befits our role as a Benchmark Administrator:

Understanding the Dynamics of Ethereum Staking Returns: Risk and Reward Framework

Critical timing

This report coincides with a critical juncture for the Ethereum network.

The listing of the first U.S. spot Ether ETFs in July was a major inflection point for adoption, enabling large institutions to gain exposure to the asset’s price for the first time.

U.S. Ether ETF vehicles are not currently permitted to stake ETH. Nevertheless, institutional participation in Ethereum staking, in a number of forms, has clearly been on the rise for some time.

The growth of staking

ETH deposited on the Beacon Chain - the Ethereum 2.0 component that enabled the network to transition to a Proof of Stake (PoS) consensus mechanism from Proof of Work (PoW) - has increased by approximately 5.7 million ETH this year, after almost doubling in 2023.

At the time of writing, around 29% of total ETH supply is staked, with a dollar value of at least $115 billion, easily the highest for any PoS blockchain.

Meanwhile, the number of validator nodes, Ethereum’s critical network function for block proposal, voting, and transaction verification, has risen from less than 450,00 in January 2023, to more than 1 million currently.

The proliferation of staking protocols in recent years complicates assessments of the institutional proportion of that growth. Still, the most popular protocol, Lido’s stETH, which accounts for some 28% of total staked ETH, grew 5% year-on-year to late October 2024, following its 93% surge in 2023.

Moreover, a survey of “institutional token holders”, published in October 2024, by Blockworks Research, showed 69.2% were staking Ethereum. Blockworks Research noted 78.8% of respondents were investment firms or asset managers.

Asymmetric awareness

Inevitably though, given the accelerating growth of institutional ETH staking, the distribution of comprehensive, up-to-date, understanding of its granular mechanics, risks, and even key aspects of its fundamental value proposition, are also, almost certainly, increasingly asymmetric.

In order to close this gap in understanding, CF Benchmarks has deployed its proven expertise in defining and quantifying the blockchain economy, towards providing the most thorough and unbiased assessment of the potential rewards and inherent risks involved in Ethereum staking available.

Our proposed framework opens a path to institutional grade risk and liquidity management of Staking rewards and associated products, meaningfully advancing the adoption cycle.

Upon completion of our paper, readers will understand the following critical aspects of Ethereum staking:

How a mix of random and deterministic rewards creates a complex probabilistic return profile for validators, balancing stable income with variable rewards
How these parameters make staking rewards dynamic, rather than static, requiring a probabilistic approach to understanding potential returns
As such, this is why staking rewards are varied and not fixed, due to both systemic factors (chiefly, the number of validators) and market conditions (e.g., tips), creating a complex reward environment that requires careful analysis
Validators need to consider these fluctuating conditions when developing staking strategies and setting expectations for returns
We provide insights into how changes in these parameters affect the associated risks and rewards, and interpret these findings through financial metrics, such as return distributions, expected value, and confidence intervals
Finally, the reader will be afforded a more enlightened comprehension of the staking consensus mechanism: to see it as not just a technical infrastructure, but as a quantifiable financial investment with measurable risks and returns