Liquid staking
Also called: LST · liquid staking token · liquid staking derivative
Definition
Liquid staking is a way to stake coins through a protocol that issues a tradable token, such as stETH, representing your staked position, so you earn staking rewards and can still use or sell the token.
This entry is shown in English.
How Liquid staking works
Normal staking locks your coins. With liquid staking, you deposit ETH or SOL into a protocol such as Lido, Rocket Pool or Jito. It stakes on your behalf and gives you a liquid staking token. Some tokens grow in number each day, others rise in value against the underlying coin.
You can hold the token to earn rewards, trade it on a DEX, or use it as collateral in DeFi. That flexibility is why liquid staking became one of the largest DeFi categories.
The risks: a smart contract bug in the protocol, slashing of its validators, and the token trading below the value of the coin it represents, a depeg. A depeg matters mostly if you need to sell quickly or used the token as collateral for a loan.
Example
Say you deposit 5 ETH into a liquid staking protocol and receive 5 stETH. With an illustrative 3 percent yearly reward, your balance grows to about 5.15 stETH after a year. Halfway through, you need cash and see stETH trading at 0.99 ETH on a DEX. Selling 5.07 stETH at that rate returns about 5.02 ETH, slightly less than waiting for the protocol's withdrawal queue, which can take days.
Common mistakes
- Assuming a liquid staking token is always worth exactly one unit of the underlying coin.
- Borrowing heavily against an LST, which can be liquidated if it trades below its peg.
- Not knowing whether your token rebases or grows in value, then misreading your balance.
Learn and practise
FAQ
What is the difference between staking and liquid staking?
Standard staking locks your coins. Liquid staking gives you a token that represents the staked coins and can be traded or used in DeFi.
Is stETH the same as ETH?
No. stETH is a token issued by Lido that represents staked ETH. It usually trades close to ETH but can trade at a discount.