Liquid Staking
In short: Liquid staking allows users to stake their tokens and still use them in the DeFi ecosystem. When you stake through a liquid staking protocol, you receive…
Liquid staking allows users to stake their tokens and still use them in the DeFi ecosystem. When you stake through a liquid staking protocol, you receive a separate token that represents your staked coins and the rewards they earn.
Why it matters
Normal staking locks coins up, and on some networks withdrawing them takes time, so the owner cannot sell or use them in the meantime. Liquid staking removes much of that trade-off: the receipt token can be traded, lent or used as collateral while the original coins keep earning staking rewards. The convenience adds its own risks, including smart contract bugs, penalties applied to the underlying validators, and the receipt token trading below the value of the coins it represents.
Example
A user stakes coins on a proof-of-stake network through a liquid staking protocol and receives a liquid staking token in return. They deposit that token as collateral in a lending protocol and borrow a stablecoin, while the staked coins continue to earn rewards. To exit, they repay the loan and then redeem or sell the liquid staking token.