Clear DefinitionsLiquid Staking Token
1 min read
Pronunciation
[lih-kwid stay-king to-ken]
Analogy
Think of a Liquid Staking Token like a certificate of deposit that you can trade on the stock market even though your money is locked in the bank.
Definition
Key Points Intro
Liquid Staking Tokens enable liquidity for staked assets through:
Key Points
Represented value: 1:1 peg to the underlying staked token.
Tradability: Can be used in DeFi (lending, trading) while stake remains locked.
Composable: Integrates with yield farming and liquidity pools.
Redemption: Redeemable for underlying asset plus accrued rewards after unbonding.
Example
A user stakes 32 ETH in Lido and receives 32 stETH, which they then supply to a lending protocol to earn additional yield.
Technical Deep Dive
When a user stakes ETH via a liquid staking protocol, the protocol’s smart contract locks ETH in the beacon chain deposit contract. It mints the corresponding Liquid Staking Token (e.g., stETH) on Ethereum mainnet. Rewards from validators accrue to the pool, and the exchange rate between stETH and ETH slowly increases. Redemption involves burning stETH and queuing in the unbonding process.
Security Warning
Smart‑contract vulnerabilities in the liquid staking protocol can lead to loss of both principal and rewards; audit status is critical.
Caveat
Redemption may be delayed by the underlying unbonding queue; token price can trade at a discount or premium to NAV.
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