Liquid Staking
In simple terms
Liquid staking lets you stake and still hold something you can move or sell. You get a receipt token that tracks your staked balance and rewards, instead of your capital being locked and unusable.
Definition
Staking an asset while receiving a transferable token representing the staked position.
In depth
A liquid staking protocol pools deposits, runs or delegates to validators, and mints a receipt token whose value accrues rewards either by rebasing the balance or by appreciating against the underlying. The receipt trades freely and is widely accepted as collateral, which is what makes staked capital reusable. The trade-offs are concentration — a large provider controlling a significant share of validators is a decentralisation concern for the network itself — plus smart-contract risk in the protocol, and the possibility of the receipt trading below the underlying when exit queues are long.
How does Liquid Staking work?
A user deposits the native asset and receives the receipt token immediately. The protocol distributes deposits across validators and collects rewards, net of a fee. The receipt can be held, traded, or supplied elsewhere as collateral. Redeeming for the underlying goes through the network's exit queue, which can take days, so most holders exit by selling the receipt on the open market instead.
An example
Depositing an illustrative 10 ETH returns roughly 10 units of a receipt token that gradually becomes redeemable for more than 10 ETH as rewards accrue. During a period of heavy exits the receipt might trade at 0.98 of the underlying, so selling immediately realises less than redeeming and waiting would.
Figures are illustrative only.
What beginners get wrong
- Assuming the receipt always trades at parity. It can and does trade at a discount when exit demand is high.
- Layering the receipt into a leveraged position without accounting for that discount, which is how a de-peg becomes a liquidation.
- Overlooking that this adds a smart-contract counterparty on top of ordinary staking risk.
Related terms
Part of
What is DeFi, and how does decentralized finance work? — the subject page for defi, with all 18 of its definitions in one place.
Educational only — not financial advice.