Liquid Staking
Liquid staking allows users to stake their crypto assets and receive a token representing their staked position, enabling them to use the staked assets in other DeFi applications.
Liquid staking is a process that allows users to earn staking rewards while maintaining the liquidity of their staked assets. Traditional staking locks up assets, preventing their use in other decentralized finance (DeFi) protocols. Liquid staking solves this by issuing a liquid staking derivative (LSD) token, representing the staked assets, which can then be used in other DeFi applications like lending, borrowing, or yield farming.
This innovation has gained significant traction, especially in the Ethereum ecosystem, where the transition to Proof-of-Stake (PoS) has created a large demand for staking services. Several platforms offer liquid staking solutions, each with different features, such as varying reward rates and supported assets. The growth of liquid staking reflects the broader trend of making staked assets more versatile and accessible.
The mechanics involve staking tokens through a liquid staking platform. In return, users receive an LSD token (e.g., stETH for staked ETH). This token can then be used like any other ERC-20 token, allowing users to earn additional yields or participate in various DeFi activities. The value of the LSD token is designed to track the underlying staked asset, with rewards accruing over time.
Liquid staking offers a more flexible and efficient way to participate in staking, allowing users to earn rewards and stay active in the DeFi space simultaneously.
🛡️ Trust Score
✅ Verified Technical Facts
- • Liquid staking issues a token (LST) that represents a user's staked assets.
- • LSTs allow users to maintain liquidity while participating in network consensus rewards.
- • De-pegging is a risk where the LST market price deviates from the value of its underlying assets.
- • Lido and Rocket Pool are the leading protocols for liquid staking on Ethereum.
graph LR
Center["Liquid Staking"]:::main
Pre_staking["staking"]:::pre --> Center
click Pre_staking "/terms/staking"
Pre_proof_of_stake_pos["proof-of-stake-pos"]:::pre --> Center
click Pre_proof_of_stake_pos "/terms/proof-of-stake-pos"
Pre_smart_contract["smart-contract"]:::pre --> Center
click Pre_smart_contract "/terms/smart-contract"
Rel_restaking["restaking"]:::related -.-> Center
click Rel_restaking "/terms/restaking"
Rel_defi["defi"]:::related -.-> Center
click Rel_defi "/terms/defi"
Rel_yield_farming["yield-farming"]:::related -.-> Center
click Rel_yield_farming "/terms/yield-farming"
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🧒 Explain Like I'm 5
🚜 Imagine putting your gold in a bank to earn interest, but the bank gives you a 'Gold Certificate' that everyone in town accepts as money. You earn interest on the gold in the vault, but you can still use the certificate to buy bread or trade with friends. That's liquid [staking](/en/terms/staking).
🤓 Expert Deep Dive
Liquid Staking Protocols differentiate through their architectural models: Rebase Mechanisms (e.g., stETH), where the token balance in the user's wallet automatically increases daily; and Reward-Bearing Mechanisms (e.g., rETH, cbETH), where the token's exchange rate against the underlying asset increases over time. Security concerns center on De-pegging Risk—when the LST price drops below the value of the underlying asset due to low liquidity or protocol failure—and Validator Centralization, as a few large LST protocols could gain significant control over the network's consensus. Advanced strategies involve using LSTs in Looping (borrowing against LST to buy more LST) to multiply staking yields, though this significantly increases liquidation risk.
❓ Frequently Asked Questions
Does stETH always equal 1 ETH?
Not necessarily on the market. While 1 stETH is always redeemable for 1 ETH from the protocol (after the withdrawal period), its market price can fluctuate based on liquidity and demand.
What happens if the protocol is hacked?
You could lose the underlying staked assets or the LST could lose its value entirely. Always prefer protocols with audited smart contracts and insurance funds.