What Is Liquid Staking?
Liquid staking lets you stake a coin and stay liquid at the same time. You deposit into a protocol, it stakes for you, and it hands back a receipt token that earns the staking yield while remaining tradable. Lido, whose stETH receipt is the largest, made the model famous on Ethereum.
How It Actually Works
- Deposit ETH into the protocol. It distributes your ETH across professional validators.
- You receive an LST, a liquid staking token like stETH, that accrues staking rewards through its balance or exchange rate.
- You can sell the LST, hold it, or use it in DeFi as collateral, all while the underlying stake keeps earning. Ordinary staking lockups stop applying to you because you can exit by selling the receipt.
The scale is institutional now. Public companies running Ethereum treasury strategies deploy hundreds of millions through liquid staking protocols to earn yield on holdings they intend to keep anyway; my learn page on corporate ETH staking walks through a live example and what it signals.
Risks and Common Mistakes
- Smart contract risk. The protocol sits between you and your coins. A bug there is a bug in your savings.
- Depeg risk. The receipt trades on the open market and can slip below the underlying's value in stress, exactly when you most want out. It has happened.
- Stacked risk in DeFi. Using an LST as collateral chains the staking risk to lending risk. Each layer looks small; the product of layers is not.
- Centralization worries. One protocol controlling a huge share of a network's stake is a systemic concern worth knowing about, whatever side you take.
When It Matters
Holders who want staking yield without lockups, and anyone reading DeFi dashboards, where LSTs dominate collateral. The aggressive extension of the idea, staking the receipt again for more yield, is restaking, with risks to match.
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