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Ethereum staking yields are expected to surpass US interest rates next year, a shift that could contribute to a surge in ETH prices as investors seek more attractive returns.
As US interest rates decline and transaction fees on the Ethereum network increase, these factors are expected to narrow the gap between Ethereum staking yields and traditional risk-free rates in the coming quarters.
The gap between Ethereum’s Consolidated Staking Ratio (CESR) and the Federal Funds Rate (EFFR) has remained negative since mid-2023. However, according to institutional crypto trading and brokerage firm FalconX, two key factors could push the gap to positive territory by mid-2025, creating a “double-whammy” effect.
The Gap Between Ethereum's Consolidated Staking Ratio (CESR) and the Federal Funds Rate (EFFR) | Source: FalconX
In a note to investors on Friday, FalconX highlighted the Federal Reserve's recent decision to cut interest rates – a policy it expects to continue into next year.
According to data from CME FedWatch, the futures market shows an 85% chance that the federal funds rate will fall below 3.75% by March 2025, and a 90% chance that it will fall further to 3.5% by June.
Lower U.S. interest rates will reduce yields on traditional assets like Treasury bonds, narrowing the gap with Ethereum staking yields. Currently, Ethereum staking yields are around 3.2%, according to data.
“We have yet to see a staking yield premium over risk-free interest in a full crypto bull market for Ethereum,” David Lawant, head of research at FalconX, said in the announcement.
“The only time ETH staking yields were significantly higher than risk-free rates for an extended period of time was in late 2022, when the industry faced the FTX crash at the bottom of the previous bear market.”
Last week, Ethereum transaction fees — a factor that affects staking returns — rose to their highest level in nearly two months, according to data from YCharts. However, they have fallen to an average of $0.80 per transaction as of Sunday.
While transaction fees remain significantly lower than previous bull market peaks, FalconX notes that the recent increase reflects increased blockchain activity. Higher transaction fees should improve staking returns, creating more attractive yields for ETH stakers.
FalconX believes that the combination of falling US interest rates and rising Ethereum yields will likely push this gap into positive territory over the next two quarters, making ETH staking more competitive against traditional yielding assets.
This positive gap will increase the appeal of ETH staking, offering higher yields than other risk-free options.
However, institutional investors – the target audience for the industry – tend to access staking yields through regulated financial products, such as exchange-traded funds. “Until the U.S. Securities and Exchange Commission approves these products, demand is likely to remain limited,” said Jamie Coutts, chief crypto analyst at Real Vision.
While some high-end asset managers and private wealth management firms may begin investing directly, demand for direct investment from traditional financial institutions is likely to “develop slowly,” Coutts added.
