Grayscale Proposes Changes to Staking ETFs Amid Network Reforms

Grayscale has proposed changes to its Ethereum and Solana staking ETFs that will see rewards converted into cash and distributed to shareholders at least quarterly. The changes are expected to take effect around August 7.

However, the two networks are considering changes that could reduce the source of yield for these ETFs. In Solana's case, a proposal called SIMD-0550 seeks to accelerate the network's annual disinflation from 15% to 30%. This would bring the terminal inflation rate down to 1.5% in about 2.8 years, compared to 5.7 years under the current schedule.

Under this new proposal, the modeled nominal yield for staking would fall from 5.84% to 4.34% in the first year, 3.00% in the second, and 2.25% in the third. This is based on an assumption of 68% staking.

Ethereum is also considering changes, with proposal EIP-8363 providing for a growing portion of the issuance allocated to validators to be burned as the proportion of ETH in staking rises. According to the model, this burn would reach 100% when about half of the ETH supply was in staking.

The economic logic behind these changes is to reduce future token issuance while also lowering the native return from staking. This could mean less dilution for those who do not stake, but a decrease in rewards for ETF shareholders if the volume of rewards shrinks at the protocol level.