Liquid staking

Liquid staking lets you stake proof-of-stake coins and receive a tradable token in return that represents your staked position and its rewards. For example, staking ETH through Lido gives you stETH, and Rocket Pool gives you rETH. You keep earning staking rewards while still being able to sell, lend or use the token in DeFi.

It solves two problems of ordinary staking: running a validator requires technical skill and, on Ethereum, 32 ETH, and staked coins can be slow to withdraw. Liquid staking protocols pool deposits from many users and spread them across professional node operators.

The risks include smart-contract bugs, misbehaving node operators being slashed, and the liquid token trading below the value of the underlying asset during market stress, as stETH did in 2022. Liquid staking also raises decentralisation concerns: Lido at times controlled close to a third of all staked ETH, which some see as too much for one protocol.