Liquid Staking Overview
A key limitation of traditional staking is that funds become locked and illiquid, preventing users from accessing or utilizing their assets until the unstaking period ends.
Liquid staking solves this by allowing users to stake their tokens while maintaining liquidity, enabling them to use their staked assets in DeFi for additional yield.
When users deposit ETH into a liquid staking protocol, they receive a tokenized receipt representing their staked ETH. This receipt, known as a Liquid Staking Token (LST), can be used in various DeFi strategies while continuing to earn staking rewards. For example, Lido and Rocket Pool are liquid staking protocols that issue LSTs known as stETH and rETH, respectively.
On the backend, the liquid staking platform stakes ETH on behalf of the user and issues an LST (e.g., stETH or rETH) in return. This token accrues staking rewards and can be used across DeFi, including:
- Liquidity Provision: Depositing stETH into an stETH/ETH liquidity pool to earn trading fees and rewards.
- Lending & Borrowing: Lending out stETH to earn interest or using it as collateral to borrow USDC.
- Automated Yield Farming: Engaging in leveraged staking, which involves borrowing ETH against stETH, restaking it, and repeating the process to amplify rewards.
Related to staking and liquid staking is a concept known as restaking, which we cover in the Restaking & Liquid Restaking section.
To learn more about Staking and Liquid Staking, visit: