What is Liquid Staking?

You may have heard the term, but what does it mean? Let's dive in.

Staked Assets are Locked Right? Not with Liquid Staking!

When assets are staked, they generally can’t be used for other things. This creates some capital inefficiency.

Enter Liquid Staking, a developing in the staking ecosystem that allows staked assets to be leveraged to earn additional yield.

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How Does it Work?

Liquid staking generally works by creating a smart contract that pools the stakeable asset.

The smart contract then stakes these assets with various providers.

The delegator receives a token that represents a claim on the staked assets. This is a token that can be used and transferred without limitations, opening up new possibilities to leverage your staked assets.

These are known as Liquid Staking Tokens (LSTs) or Liquid Staking Derivatives (LSDs) and open up new ways to maximize the benefits of your staked assets.

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What are the Advantages of Liquid Staking?

Liquid staking allows quite a few benefits such as:

• Selling the staked asset instantly without going through an unbonding or unstaking period.

• Use the asset as collateral to borrow against it.

• Providing the staked asset as liquidity in exchanges and earning trading fees as well as staking rewards at the same time.

These are only a few examples of what LSTs can do. There are a variety of DeFi platforms out there where users can get creative with how to maximize the utility of their staked assets.

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Restaking & Types of Liquid Staking

Restaking

Restaking refers to using already staked assets (or their derivatives) to secure additional networks or participate in other staking mechanisms, effectively “stacking” staking opportunities.

Example:

• EigenLayer or Symbiotic enable restaking of staked osETH through OPUS Pool to secure new protocols known as AVS's (Actively Validated Services).

Benefits:

• Increased capital efficiency.

• Enhanced security for emerging networks and bootstrapping potential.

Considerations:

• However, in some cases this can lead to Increased risks since slashing could impact the same asset across multiple protocols.

Liquid Staking Tokens (LSTs)

LSTs are tokens that represent staked assets in a liquid form. They allow users to continue earning staking rewards while maintaining the flexibility to trade, transfer, or use the tokens in other DeFi applications.

Use Case:

• If you stake ETH on a liquid staking platform like OPUS Pool, you receive osETH, which can be used across certain DeFi protocols while your original ETH remains staked.

  • Alternatively, it can be restaked to a protocol like EigenLayer or Symbiotic.

Benefits:

• Liquidity for staked assets.

• Access to DeFi opportunities like lending, borrowing, and trading.

• Continued earning of staking rewards.

Liquid Staking Derivatives (LSDs)

LSDs are a subtype of LSTs that represent not only the staked asset but also the accumulated staking rewards.

This means the value of the LSD increases over time, reflecting both the staked amount and the rewards earned.

Example:

• With rETH from Rocket Pool, the token’s value grows as staking rewards are added, eliminating the need for separate reward distribution.

Benefits:

• Simplicity in managing staking rewards.

• This can be better suited for long-term holding in DeFi strategies.

• It can help reduce operational complexities for liquid staking platforms.

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Questions?

Feel free to reach out to our Support Team if you would like any clarification.

For direct support, please create a ticket on our support platform.

A link for a support request can also be found along the top of this webpage as well as many other Chorus One resources including OPUS Pool, The Chorus One SDK, and our Blog.

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About Chorus One

Chorus One is one of the largest institutional staking providers globally, operating infrastructure for over 60 Proof-of-Stake (PoS) networks, including Ethereum, Cosmos, Solana, Avalanche, Near, and others.

Since 2018, we have been at the forefront of the PoS industry, offering easy-to-use, enterprise-grade staking solutions, conducting industry-leading research, and investing in innovative protocols through Chorus One Ventures.

As an ISO 27001 certified provider, Chorus One also offers slashing and double-signing insurance to its institutional clients. For more information, visit chorus.one or follow us on LinkedIn, X (formerly Twitter), and Telegram.