Liquid staking
A method of staking in which a protocol stakes tokens on a user's behalf and issues a transferable token representing the staked position and its accruing rewards.
Also called: Liquid staking token (LST), liquid staking derivative
With liquid staking, a user deposits tokens such as ether into a protocol, which delegates them to validators. The user receives a liquid staking token, or LST, that either rises in value against the underlying or rebases to reflect rewards. The LST can be traded, lent or used as collateral while the original tokens remain staked.
Liquid staking solves the illiquidity of native staking, which often involves lockups or withdrawal queues, and has become one of the largest categories of decentralized finance. Risks include smart contract failures, validator slashing, the LST trading below the value of the underlying during stress, and concentration of stake among a few providers, which raises network decentralization concerns.
For allocators, LSTs can provide staking yield with more flexibility, but add protocol and liquidity risk on top of the asset itself. Example: a fund deposits ether into a liquid staking protocol, receives an LST, and posts it as collateral in a lending market while continuing to earn staking rewards.
Related terms
Part of the BlockWest Glossary, plain-language definitions for markets, AI and digital assets. Educational content, not investment advice.