Ether (ETH) has an image problem, at least when it comes to mainstream investors.

All eyes are on the potential upcoming approval of spot ether exchange-traded funds (ETFs) in the US — following the spectacular launch of the spot bitcoin ETFs — but analysts and experts in the ETF industry don’t expect ether to steal bitcoin’s thunder.

“It’ll be a bit like gold and silver,” said Townsend Lansing, head of product at digital asset investment manager CoinShares. “The gold exchange-traded product (ETP) had a tremendous amount of interest in the United States and silver was like a little brother.”

Eight companies — including BlackRock, Fidelity, and VanEck — are vying for approval from the U.S. Securities and Exchange Commission (SEC) to launch ether ETFs. Two of those companies — Ark/21Shares and Franklin Templeton — have signaled their intention to potentially leverage the Ethereum blockchain’s staking functionality to generate additional income for the fund, capitalizing on a key differentiator between Ethereum and Bitcoin.

Read more: BlackRock’s Spot Bitcoin ETF IBIT Fastest Ever to Hit $10 Billion in Assets

Bitcoin uses an energy intensive consensus mechanism, known as proof-of-work, to validate transactions. Bitcoin miners compete to solve complex cryptographic challenges to secure the network and in return receive bitcoin as a reward. Bitcoin mining has become increasingly sophisticated in recent years and involves specialized computing equipment.

On the other hand, ether, the Ethereum blockchain’s native currency, is used to validate transactions on Ethereum via a consensus mechanism known as proof-of-stake. Validators offer ether as collateral for a chance to validate the network and earn more ether as a reward. Individuals can opt to stake ether through staking services that run validators in return for a share of the staking rewards.

The pending ether ETFs, which track the price of spot ether, in theory should be able to participate in staking by locking up the ether held in custody and earn additional income for investors in a way that the bitcoin ETFs can’t.

While staking yields can be a strong selling point for crypto investors, however, it’s unlikely to be the case for mainstream investors.

“I don’t think [staking is] a huge appeal when we were talking about your typical mainstream retail investor,” said Roxanna Islam, head of sector and industry research at VettaFi, a data and analytics-driven ETF platform. “Especially when a mainstream investor can get that income in a less risky place than you would with this.”

In Bitcoin’s Shadow

Outside of the US, many ether exchange-traded products have already integrated staking into their offerings and even so, ether still remains in bitcoin’s shadow.

“Generally speaking, if you look globally, Ethereum products are smaller than their Bitcoin counterparts,” said Ophelia Snyder, co-founder and president at crypto ETP provider 21Shares. “That’s true in Europe. That’s true in American futures markets.”

In Europe, 21Shares offers two ether ETPs, one with staking and one without. Other providers of ether ETPs in Europe include CoinShares, Wisdom Tree, and VanEck, among others. In Canada, digital asset investment fund manager 3iQ recently integrated staking into their ether ETF and closed-end fund products, which launched in 2021 and 2020 respectively.

Read more: Is Ether Heading for $3,500? 

CoinShares integrated staking in February into its ether ETP. CoinShare’s Lansing said staking rewards made the ETP marginally more attractive to investors but it wasn’t the main driver of interest.

In October of last year, ether futures exchange-traded products received approval from the SEC to start trading in the US, but the reaction from investors was muted on launch day. The nine ether ETFs saw a combined trading volume of $2 million on the first day of trading, which dwindles in comparison to the $1 billion trading volume that the ProShares bitcoin futures ETF (BITO) did on the first two days of trading.

“The [ether] futures products show pretty clearly that most of the interest remains around bitcoin in the United States,” Lansing said.

The US ether futures product launched in the crypto bear market, coinciding both with the criminal trial of Sam Bankman-Fried, the disgraced founder of bankrupt crypto exchange FTX, and the US spot bitcoin ETF race, which was starting to heat up.

Lack of Investor Appetite?

VettaFi’s Islam notes that the launch of a spot ether ETF could bring more excitement than the futures launch but it will still “pale in comparison” to the spot bitcoin ETF launch. She attributes this lack of appetite to mainstream investors not understanding the key differentiators between bitcoin and ether, highlighting that those who do understand the differences are likely to be crypto natives and buy the asset directly.

“If you were to ask just the average retail investor why they would want to invest in bitcoin, it’s [because] it’s a cool new digital asset, it plays a part in disruptive technology, it has pretty exciting price volatility,” Islam said. “You could say the same thing for ether, but if they already have it with bitcoin, why have it with ether?”

However, 21Shares’ Snyder believes crypto native investors will still be interested in allocating funds to an ether ETF. “People who are heavily invested in the crypto ecosystem [still] want to allocate part of their 401K,” Snyder said. “They can’t just withdraw from that and put it on Coinbase and buy some ether and then stake it. It doesn’t work that way with tax advantaged accounts.”

Read more: 5 Ways That Spot Bitcoin ETFs Have Smashed All Expectations

21Shares oversees the largest ether ETP in Europe by assets under management, and Snyder observes that ether is less well-known in institutional circles. Bitcoin has a 14-year history as an asset, while Ethereum launched in 2015, firstly with a proof-of-work consensus mechanism and then transitioned to proof-of-stake in 2022.

There’s also been a lot of pent-up demand for the spot bitcoin ETFs, Snyder said. The SEC denied the first spot bitcoin ETF application in 2017, which was initially filed in 2013. A lengthy public battle between the SEC and crypto enthusiasts ensued, which raised awareness about the product.

“The bitcoin ETF approvals are the single most successful ETF launch in history,” Snyder said. “That is not what the expectation is of a new ETF … that’s not something that people should expect to be replicated.”

Regulatory Hurdles

Even when the spot bitcoin ETFs were approved, the SEC showed their hesitancy toward the product. They did not allow providers to offer in-kind redemptions, which is the industry standard. Under the in-kind redemption process the underlying asset doesn’t need to be sold to keep the ETF share price in line with Net Asset Value (NAV). For the bitcoin ETFs, they must use cash-only redemptions, which means the issuer must use cash to buy bitcoin and then sell bitcoin for cash on redemptions.

Staking could come into play with respect to which applications get approved and which don’t, said VettaFi’s Islam. May 23 is the last day by which the SEC has to provide a decision on the ETF applications from VanEck and Ark/21Shares. These will be the first asset managers to come up against the final deadline.  Each issuer has four deadlines for a decision and the SEC has already delayed some decisions as issuers approach the initial deadlines.

Investment bank Standard Chartered expects the ETFs to gain approval on May 23, while analysts at research and brokerage firm Bernstein puts the chance of approval by May at 50%.

“The first iterations of ether ETFs, I doubt are going to have any sort of staking functionality embedded in them,” said Christopher Matta, president at 3iQ US, noting that staking is another layer of complexity that the SEC will have to get comfortable with.

While 3iQ were able to work through concerns with regulators, VettaFi’s Islam notes that there is a whole slew of risks for the SEC to work through related to staking from liquidity concerns to slashing, which is the process of penalizing a validator for bad behavior. She questions how open the agency will be to staking considering their reluctance toward the asset class.

“It would be a different story if they all mentioned [staking] and it was status quo,” Islam said. “The SEC did push back on the in-kind and cash redemptions for the spot bitcoin ETF, even though that was status quo. So I think they have more of a reason to push back, especially if only two of these are talking about using staking.”