What Is Liquid Staking and Why Does It Matter?
Staking has long been a cornerstone of Proof of Stake blockchains, allowing users to earn rewards while helping secure the network. However, traditional staking often comes with a major drawback: once assets are staked, they are typically locked and unusable elsewhere. Liquid staking emerged as a solution to this limitation, unlocking new flexibility for both users and the broader DeFi ecosystem.
Understanding Liquid Staking
Liquid staking is best described as the tokenization of staked assets. Instead of locking tokens away and waiting for an unbonding period to end, users receive a liquid representation of their stake. This allows them to maintain exposure to staking rewards while still being able to move, trade, or deploy value elsewhere.
In a conventional setup, staking assets on a Proof of Stake network means committing them for a fixed period. During this time, the assets are illiquid and cannot be used for trading or decentralized finance. Liquid staking changes that dynamic by keeping value mobile.
One common implementation involves liquid staking tokens, often referred to as LSTs. When users stake assets through a protocol such as Lido, they receive a token like stETH that represents their staked ETH plus accrued rewards. These tokens can then be used across DeFi while the underlying assets remain staked.
Another approach is native liquid staking, where the blockchain itself supports staking without requiring a derivative token. A notable example is Cardano, where staked ADA remains transferable and usable without breaking the staking process.
Why Liquid Staking Is Important
The biggest problem liquid staking solves is illiquidity. Traditional staking forces users to choose between earning rewards and keeping assets flexible. Liquid staking removes that trade-off, making staking more attractive to a wider range of participants.
