Experts say Ethereum staking returns are expected to exceed U.S. interest rates in the coming year, a shift that could prompt investors to pursue higher yields, driving up Ethereum prices. Market dynamics are expected to narrow the gap between Ethereum staking yields and traditional risk-free yields in the coming quarters due to falling interest rates and increasing transaction fees on the Ethereum network.
The spread between Ethereum’s synthetic staking rate and the U.S. effective federal funds rate has remained negative since mid-2023. However, two key factors could push spreads into positive territory by mid-2025, creating a “double positive effect,” according to a report from cryptocurrency trading and institutional brokerage firm FalconX.
FalconX noted in an investor memo on Friday that the Federal Reserve recently decided to lower interest rates and expects this policy to continue into next year.
There is an 85% chance that the federal funds rate will fall below 3.75% by March 2025, and a 90% chance of falling below 3.5% in June, according to FedWatch.
Falling U.S. interest rates will reduce the yields on traditional assets such as Treasury bonds, thereby narrowing the yield gap with Ethereum staking. The current Ethereum staking yield is approximately 3.2%.
However, FalconX head of research David Lawant said it remains to be seen how large the gap between staking yields and risk-free yields will be in a full cryptocurrency bull market.
“The only time the Ethereum staking yield was significantly higher than the risk-free rate for a relatively long period of time was in late 2022, when the industry was at the bottom of the bear market after the FTX collapse.”
Ethereum transaction fees reached their highest level in nearly two months last week, according to YCharts data. The fee then dropped to an average of $0.80 per transaction on Sunday.
Although current fees are well below the peak of the previous bull market, the upward trend reflects increased blockchain activity, FalconX said. Higher transaction fees drive staking yields, making returns for Ethereum stakers more attractive.
FalconX believes that the combination of falling U.S. interest rates and rising Ethereum yields could push spreads into positive territory within the next two quarters, making Ethereum staking more advantageous in competing with traditional yield assets.
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