What Is Liquid Staking?
Also known as: Liquid Stake, LST, Liquid Staking Token
In short
Liquid staking is a method for Proof of Stake networks in which users receive a freely transferable token representing their staked assets, which they can use in other applications, preserving liquidity while continuing to earn staking rewards.
In classic staking, assets are locked in the network and cannot be used for a set period. Liquid staking protocols instead stake the coins a user deposits to validators on their behalf and give them a liquid staking token (LST) in return. For example, on Ethereum, a user who deposits ETH with Lido receives stETH, and one who deposits with Rocket Pool receives rETH. These tokens reflect staking rewards either through a growing balance or through the token's value rising over time.
LSTs can be bought and sold on decentralized exchanges, posted as collateral in lending protocols, or used in newer structures such as restaking. This way, the same capital both contributes to the network's security and can be put to work in DeFi. This convenience has led liquid staking protocols to manage a significant share of the ETH staked on Ethereum.
Risks include smart contract vulnerabilities, validator penalties (slashing), and the LST trading below the value of the asset it represents on the market (depeg). A single protocol controlling a very large share of staked assets is also a debated issue for the network's decentralization.
Last updated: · This content is for information purposes only and is not investment advice.