Liquid staking

Liquid staking, also known as staking derivatives, refers to the process of allowing users to stake their cryptocurrency holdings and receive staking rewards, while simultaneously retaining the ability to trade or transfer these staked assets without any waiting period.

In traditional staking, when a user stakes their cryptocurrency, such as a proof-of-stake (PoS) token, it becomes locked in a smart contract for a predetermined period. During this time, the staked tokens cannot be used for other purposes, such as trading or transferring. Liquid staking solutions aim to address this limitation by creating tradable representations of staked assets, known as staked tokens or staking derivatives.

These staked tokens are pegged 1:1 to the underlying staked assets and are issued to users who stake their tokens. Users can then freely trade, transfer, or use these staked tokens as collateral for borrowing or other DeFi activities, while still earning staking rewards on their original staked assets.

Liquid staking offers several benefits:

• Increased Liquidity: Users can unlock the liquidity of their staked assets and use them in various DeFi applications or trade them on exchanges.
• Flexibility: Stakers have the flexibility to participate in staking while retaining the ability to manage their assets without waiting for unstaking periods.
• Maximization of Yield: Users can potentially maximize their yield by staking their assets while also participating in other DeFi activities using staked tokens.

Examples of liquid staking solutions include projects like Lido Finance, which allows users to stake Ethereum (ETH) and other PoS tokens and receive liquid tokens representing their staked assets.