Liquid staking

Liquid staking solves the opportunity cost of native staking, where capital sits locked and cannot be used elsewhere. The user deposits the base asset, receives a Liquid Staking Token that keeps accruing rewards and can at the same time supply it as collateral in lending or in liquidity pools, keeping the composability that defines DeFi. In this way they earn both the staking yield and the yield on the position from a single unit of capital.

The reference case is Lido, the largest liquid staking protocol by assets deposited. The user deposits ETH, which the Lido DAO allocates across professional node operators, and receives stETH. stETH is a rebasing token whose wallet balance adjusts daily to reflect rewards. Its wrapped version, wstETH, is non-rebasing: the balance stays fixed and the value per token rises through a shares system, designed for protocols that do not support rebasing tokens. Other examples include Rocket Pool (rETH), with a more decentralized model, and Coinbase (cbETH).

The full liquidity of this model has been sustainable since Shapella (12 April 2023), which enabled withdrawals of staked ETH and let the derivative be redeemed for the underlying. Its technical risks deserve a precise reading: a possible de-peg of the derivative against the underlying in moments of stress, smart contract risk at the issuer, and validator concentration in few providers, an ongoing decentralization debate in Ethereum. Good practice means diversifying operators and auditing the contracts before integrating these assets.