Ethereum Treasuries Embrace Staking, But Face Liquidity and Security Tradeoffs

Brokerage firm Bernstein has highlighted the potential risks of companies holding Ethereum treasuries and staking their ETH to generate additional yield, such as SharpLink Gaming and BitMine Immersion.

In a note to its clients released Monday, Bernstein said the staking strategy, while potentially lucrative, also complicates liquidity management and introduces smart contract risks. The firm said that made it more difficult to manage and riskier than the Bitcoin treasury strategy used by the likes of Michael Saylor’s Strategy.

The ETH treasury model has the benefit of actual cash flow yield driving operating earnings, however liquidity risk and security would be important considerations.

Bernstein analysts

Bernstein analysts said delays in unstaking and the use of DeFi for yield optimisation make ETH treasury strategies significantly more complex than those using Bitcoin.

“If ETH treasuries stake ETH for yield, staking contracts are generally liquid, but sometimes have days long queue to unstake,” Bernstein’s analysts wrote. 

“Thus, ETH treasury companies would have to balance ETH liquidity and yield optimization. Further, more complex yield optimization such as restaking (such as Eigenlayer restaking model) and DeFi-based yield generation would involve managing smart contract security risk.”

Related: Joe Lubin: ETH Treasury Strategies Key to Tell Ethereum’s Story to Wall Street

ETH Treasury Strategy on The Rise

There’s a growing number of companies adding ETH to their balance sheets, following the lead of companies, such as Strategy, which has focussed on Bitcoin accumulation to great success. Bernstein pointed out that just three firms — SharpLink Gaming, Bit Digital and BitMine Immersion — had accumulated 876,000 ETH throughout July.

BitMine Immersion has emerged as the largest corporate holder of ETH and now holds over US$2 billion (AU$3b) worth of the cryptocurrency, with plans to accumulate 5% of the total supply.

“At BitMine, we surpassed $2 billion in ETH holdings, just sixteen days after closing on the initial $250 million private placement,” Thomas “Tom” Lee of Fundstrat, Chairman of BitMine’s Board of Directors, said in a statement. “We are well on our way to achieving our goal of acquiring and staking 5% of the overall ETH supply.”

At its current market cap, 5% of the ETH supply equates to around US$23 billion (AU$35.2b).

The second largest corporate ETH holder, SharpLink Gaming, holds approximately US$1.3 billion (AU$1.9b) worth of ETH.

Bernstein explained in its note that the future appears bright for Ethereum:

The growth of this internet financial economy, driven by the digital dollar and tokenized assets, will drive higher transactions and user growth on the Ethereum ecosystem, including layer-2 chains run by platforms such as Coinbase and Robinhood. ETH, the underlying native asset, backed by transaction fees-driven staking yield (and ETH buyback and burn economics), should accrue value from the growth of the Ethereum financial economy.

Bernstein analysts.

Related: Rocket Ship Incoming: Arthur Hayes Sees Ethereum Blasting Off to $15K

At the time of writing, ETH was changing hands at US$3,814 (AU$5,845) according to CoinGecko, an increase of 56.2% over the past month. ETH’s recent surge has been driven by the passage of the GENIUS Act, which is generally believed to be favourable for the Ethereum ecosystem, and the rise of ETH treasury companies aggressively accumulating the cryptocurrency.