Bitget App
Trade smarter
Buy cryptoMarketsTradeFuturesCopyBotsEarn

Liquid Staking

Intermediate
share

What Is Staking?

Staking involves using cryptocurrency tokens as collateral to secure a network or smart contract, or to accomplish a particular objective. In a broader sense, staking is a cryptoeconomic model designed to encourage the proper behavior of network participants through penalties and rewards, ultimately enhancing the security of the network. This model is utilized by various Web3 protocols, including proof-of-stake blockchain networks such as Ethereum and individual DeFi applications like MakerDAO.

What Is Liquid Staking?

Liquid staking involves the tokenization of staked assets, representing a significant shift primarily related to Proof of Stake (PoS) networks. In traditional staking, individuals lock their cryptocurrency holdings to contribute to the security and functionality of a blockchain. However, liquid staking advances this idea by enabling users to tokenize their staked assets, offering a more adaptable and dynamic method for engaging in staking ecosystems.

Advantages of Liquid Staking

- Enhanced Liquidity: Staked tokens in networks like Ethereum are typically locked and cannot be traded or used as collateral. Liquid staking tokens unlock the inherent value of staked tokens, allowing them to be traded and used as collateral in DeFi protocols.

- Interoperability in DeFi: By representing staked assets as tokens, they can be utilized across the DeFi ecosystem in various protocols, including lending pools and prediction markets.

- Reward Potential: While traditional staking offers users the chance to earn rewards for validating transactions, liquid staking allows users to continue receiving these rewards while also earning additional yield through different DeFi protocols.

- Outsourcing Infrastructure Requirements: Liquid staking providers enable individuals to partake in staking rewards without the need to maintain complex staking infrastructure. For instance, even if a user lacks the minimum required to be a solo validator in the Ethereum network, liquid staking allows them to still share in block rewards.

Centralized vs. Decentralized Liquid Staking

The comparison between centralized and decentralized liquid staking involves protocols like Lido and Rocket Pool for decentralized options, and exchanges for centralized services. The crucial distinction lies in the custody of users' staked assets, with decentralized services being non-custodial and centralized services retaining full control. Decentralized services are susceptible to smart contract vulnerabilities, while centralized services carry their own set of risks.

What Is Liquid Restaking?

Liquid restaking adds an additional level of functionality. During this procedure, users deposit their liquid staking tokens (LSTs) into EigenLayer's smart contracts and receive liquid restaking tokens (LRTs) in exchange. LRTs represent not only the staked token and staking rewards, but also the restaking rewards obtained through active participation in EigenLayer operations.

Liquid Staking vs. Liquid Restaking

Although liquid staking and liquid restaking share similar features, they diverge in key aspects. Liquid staking focuses on tokenizing staked assets to provide liquidity and flexibility without the need to wait for the staking period to conclude. In contrast, liquid restaking extends this concept by integrating rewards from both Ethereum staking and EigenLayer operations, potentially providing users with an added layer of profit.

Download app
Download app