Liquid Staking Token (LST)

An LST is minted when a user deposits ETH into a liquid staking protocol, which distributes deposits across professional node operators. There are two reward-accounting models. In the rebase model, the token balance grows automatically to reflect rewards, as with Lido's stETH, which rebases daily. In the value-accruing model, the balance is fixed and the value per token rises instead, as with wstETH, Rocket Pool's rETH or Coinbase's cbETH. wstETH exists because many DeFi contracts do not support rebasing tokens, so a holder inside a pool might not capture the daily reward.

It combines staking rewards with liquidity and composability. Capital stops sitting idle and the 32 ETH minimum of solo validating disappears. An LST can then serve as collateral to mint a stablecoin or to borrow, which is the basis for restaking and stacked yield strategies. The staking APR and the protocol fee are not fixed: they vary with network conditions and through governance.

Real examples include Lido (stETH and wstETH), Rocket Pool (rETH), Coinbase (cbETH) and Frax (sfrxETH). An LST such as stETH or wstETH is accepted collateral in protocols like Aave or Sky, formerly MakerDAO, which connects it directly to overcollateralization and to liquidation when used with leverage. In the European Union, providers offering these crypto-asset services fall under the MiCA framework.