Liquid Staking
What Is Staking?
Staking is a very core concept in any blockchain network that runs on Proof of Stake (PoS) or its variants. Staking in the simplest sense, allows cryptocurrency holders to lock their tokens to support network operations such as, transaction validation, governance and security. In exchange, participants are rewarded, in most cases with the same token they staked. Unlike Bitcoin type Proof of Work systems which require energy intensive mining, Proof of Stake networks ensure participation by staking assets. This process makes PoS more energy efficient and scalable.
What Is Liquid Staking?
Traditional staking, which normally requires users to lock up tokens for a certain duration, is different from liquid staking, where participants can stake their assets while keeping them liquid. Users get liquid staking tokens (LSTs) in exchange for their staked assets. These LSTs can be swapped, used in DeFi protocols, and traded meaning that staked assets remain usable whilst earning rewards.
Liquid staking is the bridge between staking rewards and keeping flexibility with your assets.

How Does Liquid Staking Work?
Liquid staking introduces a simple yet revolutionary concept:- They stake their tokens on a liquid staking protocol.
- The protocol issues liquid staking tokens (LSTs) at a 1:It’s 1 ratio, and that’s the staked assets.
- Delegating your staked tokens to validators will earn you staking rewards.
- Meanwhile, users can use LSTs in decentralized finance (DeFi) for trading, lending or yield farming.
For instance, if you lock up 10 ETH on a liquid staking platform, you may be given 10 stETH (staked ETH) that you can use across various DeFi platforms, and earn staking rewards at the same time.
Traditional Staking vs. Liquid Staking
Feature |
Traditional Staking |
Liquid Staking |
---|---|---|
Liquidity | Locked assets | Liquid via LSTs |
Use of Assets | No use until unstaked | Usable in DeFi applications |
Rewards | Earned but illiquid | Earned while maintaining liquidity |
Unstaking Period | Requires waiting time | No waiting; tradable tokens |
Liquid staking removes the inefficiencies of traditional staking, making it a preferred option for both retail and institutional investors.
What makes Liquid Staking so popular?
Liquid staking is rapidly gaining traction due to its significant advantages:
- Improved Liquidity: Liquid staking tokens enable users to continue having access to their capital.
- Integration with DeFi: LSTs can be used to lend, borrow, trade and yield farm.
- Maximized Rewards: Staking rewards are earned by users while they are also using their assets.
- Flexibility: You don’t have to wait for unstake periods to get liquidity.
- Growing Adoption of PoS Networks: As Ethereum moves to Proof of Stake (Ethereum 2.0) we’re excited to see liquid staking protocols getting mainstream attention.
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Liquid Staking Risks and Limitations
While liquid staking offers numerous benefits, it is not without risks:
- Smart Contract Risks: Liquid staking protocols have bugs or vulnerabilities which can make users lose funds.
- Slashing Risk: Slashing is the reduction of staked funds if validators misbehave.
- Market Volatility: In some cases, a liquid staking token does not always keep a 1:1 peg with the underlying asset.
- Centralization Concerns: Validator centralization could come from a few large liquid staking platforms.
- Regulatory Risks: Regulations around staking and DeFi are unclear and could make it difficult for participants.
By understanding these risks, users can make informed decisions regarding liquid staking adoption.
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Protocols and Staking Liquid Tokens
With the increase in liquid staking, several protocols have been developed that provide liquid staking services. Instead, these protocols issue liquid staking tokens (LSTs) denoting staked assets.
Most Popular Liquid Staking Tokens:
stETH (Staked ETH): stETH, one of the most widely used liquid staking tokens, is issued by Lido Finance.
rETH (Rocket Pool ETH): Rocket Pool’s rETH is a decentralized alternative to stake ETH with minimal centralization risk.
bLUNA: bLUNA represents staked LUNA on Terra and allows users to enjoy all the DeFi benefits of staking while not having to lock up their LUNA.
stATOM: Liquid staking for Cosmos’ ATOM is offered by Stride Protocol’s stATOM.
mSOL (Marinade Staked SOL): For liquid staking on the Solana blockchain.
SLEX Staking. Get up to 20% APR

SLEX is among the largest and most secure staking intermediaries to stake SLEX (SLEX). By depositing your SLEX to SLEX.io, you can also earn some of the highest SLEX interest rates in the industry, at an estimated up to 20% APY.
Centralized vs. Decentralized Liquid Staking
Liquid staking can be offered through both centralized and decentralized platforms:
Aspect |
Centralized Liquid Staking |
Decentralized Liquid Staking |
---|---|---|
Control | Managed by a centralized entity | Managed through smart contracts |
Trust | Requires trust in the provider | Trustless; code governs actions |
Examples | Exchanges like Binance or Coinbase | Lido, Rocket Pool, Marinade |
Transparency | Limited visibility | Fully transparent and auditable |
Risk | Custodial risks | Smart contract risks |
While centralized platforms offer convenience, decentralized protocols align more with the ethos of blockchain—trustlessness and decentralization.
Conclusion
Liquid staking is changing staking as we know it today, by adding liquidity, flexibility, and maximization of return for users. Liquid staking bridges traditional staking with DeFi ecosystem by enabling the users to stake their assets and earn reward on them while doing other financial activities.
With the growing popularity of PoS networks, protocols such as Lido Finance, Rocket Pool, Marinade will keep leading the liquid staking market. While users need to be watchful of risk such as smart contract vulnerability and centralization.
Liquid Staking is the future of staking and it’s a win win for both token holders and blockchain networks. Liquid staking is a must have in the changing crypto economy whether you are a retail investor or an institutional player.
Author

James Roy. An expert in trading and cryptocurrency at our company, leveraging his extensive experience to develop a deep understanding of market dynamics and trends. Also a prolific author, using his expertise to create insightful content for our company blog, where he shares valuable knowledge with the community and contributes to the ongoing conversation in this rapidly evolving industry.