Staking Fundamentals: Earning Rewards by Securing a Network

When an investor stakes their cryptocurrency, they lock up their coins as collateral in a digital wallet to support the network’s operations. In return, they receive rewards, often in the form of additional coins.

Staking is an integral part of proof-of-stake (PoS) networks such as Ethereum, and it differs from proof-of-work (PoW) networks such as Bitcoin, which rely on computational power rather than staking.

How Staking Works
Staking rules differ between blockchains, but users typically need to stake a minimum amount of cryptocurrency to earn rewards. Some networks allow users to delegate their cryptocurrency to a third-party validator, who stakes on their behalf for a fee. Generally, the more coins staked, the higher the chance of being selected to validate transactions and earn rewards.

Importantly, staking can include penalties: stakers can be penalized for downtime or mistakes, and validators may lose some or all of their staked coins if they break network rules (for example, by signing conflicting blocks).

Why Staking Matters for Investors
Staking allows investors to earn rewards while supporting the validation of transactions and increasing the security of the network.

Staking is also often described as more energy-efficient than mining (the backbone of PoW systems like Bitcoin) because PoS reduces the need for extensive computational power.

Three Blockchains, Three Exposure Profiles: Where Staking Fits

The staking process depends on which network an investor is accessing:

• Bitcoin (BTC): A blockchain primarily designed to store and transfer value; because it uses proof-of-work, there is no staking or income component.
• Ethereum (ETH): A programmable blockchain that uses proof-of-stake, where participants stake ETH to validate transactions and earn rewards.
• Solana (SOL): A high-performance blockchain that uses a proof-of-stake-based system, where validators can earn rewards for supporting the network.

This framework can matter when comparing crypto exchange-traded products (ETPs): Bitcoin exposures are typically price-only, while Ethereum and Solana exposures may include staking-linked rewards (and staking-linked risks), depending on product structure.

Access: Direct Staking vs. Exchange-Traded Products
For investors who may not be interested in the technicalities of staking themselves, or who don’t meet the minimum size requirements to stake their coins, crypto exchange-traded products (ETPs) that incorporate staking may be an option because they can provide exposure to staking rewards without requiring investors to manage staking directly.

More broadly, crypto ETPs are designed to provide exposure to assets such as Bitcoin, Ethereum or Solana without requiring investors to hold the digital asset directly, and they can be bought and sold through traditional brokerage accounts.

Key Risks to Highlight
Staking can offer attractive potential returns, but key risks include:

• Risk of loss due to slashing: If a validator behaves improperly, the protocol may penalize staked assets (slashing), potentially resulting in a partial or total loss.
• Liquidity mismatch: Staking may require assets to be locked for a period of time, creating potential liquidity mismatches, particularly if redemptions exceed available unstaked assets.
• High volatility: Most cryptocurrencies—staked or not—tend to be highly volatile.
• Network/protocol risks: Protocol changes or security vulnerabilities.
• Token dilution dynamics: Rewards are often paid in newly minted crypto; higher rewards may signal faster supply growth and potential dilution for non-stakers.

Key Takeaway
Crypto staking is a core feature of proof-of-stake networks that allows investors to earn rewards by helping secure blockchain networks, but it introduces distinct liquidity, volatility and protocol risks. In a three-blockchain framework, Bitcoin has no staking yield, while Ethereum and Solana support validator-based systems where staking rewards may exist—an important distinction when evaluating crypto ETP/ETF exposures.

^{IMPORTANT INFORMATION:}

^{RISK CONSIDERATIONS
Spot Crypto ETPs are exchange-based products that track the price of an asset, i.e., bitcoin, by holding the actual asset as the underlying asset.}

^{Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.}

^{Cryptocurrency (notably, Bitcoin) operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. It is not backed by any government. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. Cryptocurrency may experience very high volatility.}

^{Investing in digital assets involves risk, including possible loss of principal. An investment in Morgan Stanley Bitcoin Trust (MSBT), Morgan Stanley Ethereum Trust (MSSE) and/or Morgan Stanley Solana Trust (MSOL) (each, a “Trust” and collectively, the “Trusts”) are subject to a high degree of risk and heightened volatility. Each Trust is not suitable for any investor that cannot afford loss of the entire investment.}

^{Each Trust has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (the “SEC”) for the offerings to which this communication relates. Before you invest, you should read the relevant prospectus and other documents such Trust has filed with the SEC for more complete information about such Trust and the related offering.}