Liquid Staking
Liquid staking means staking coins through a protocol that gives you a tradeable receipt token in return, such as stETH for ether or jitoSOL for SOL. You keep earning staking rewards while the receipt token can be sold, transferred or used in DeFi.
The problem it solves
In proof-of-stake networks, staking means committing coins to help validate transactions in exchange for rewards. Staked coins are usually tied up: you cannot sell them instantly, and withdrawing can take days or weeks depending on the network. Running a validator yourself also requires technical skill and, on Ethereum, a minimum of 32 ETH.
Liquid staking protocols pool deposits from many users, delegate them to professional validators and issue a liquid staking token that represents your share.
How it works in practice
Say you deposit 1 ETH into a liquid staking protocol. You receive about 1 unit of its receipt token. As the validators earn rewards, either your token balance grows over time (a rebasing design) or each token becomes redeemable for slightly more ETH (a value-accruing design). The protocol keeps a fee from the rewards.
Because the receipt token is an ordinary token, you can trade it on exchanges or deposit it as collateral in lending protocols, while the underlying ETH stays staked.
Why people use it
Liquid staking removes the minimum and the technical work of running a validator and keeps capital usable. This has made it one of the largest categories in DeFi on Ethereum, Solana and other networks.
Risks and common mistakes
The receipt token can trade below the value of the underlying coin. In mid-2022, stETH traded at a noticeable discount to ETH while withdrawals of staked ETH were not yet possible and some large holders were forced to sell. Smart contract bugs, slashing of the protocol's validators and governance failures are further risks.
Stacking risks is a common mistake: borrowing against a liquid staking token, buying more and staking again can lead to liquidation if the token's price slips. Large liquid staking protocols also concentrate stake, which some see as a risk to the network's decentralization.
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Frequently asked questions
Is liquid staking safer than regular staking?
Not necessarily. It adds smart contract and depeg risk on top of the usual staking risks, in exchange for flexibility and convenience.
What is the difference between stETH and ETH?
stETH is a token issued by a liquid staking protocol that represents staked ETH plus rewards. It usually trades close to ETH but is a separate token with its own risks.
Can I lose money with liquid staking?
Yes. Losses can come from the receipt token trading at a discount, a protocol hack, validator slashing, or falling prices of the staked coin itself.
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