Liquid staking: what it is and how it works
Liquid staking lets you stake crypto and get a tradable token for your staked position. The token can be used in DeFi, and it carries some risks.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
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- You stake crypto and get a tradable token.
- It solves regular staking's lockup problem.
- The token can be traded, lent or used in DeFi.
Liquid staking lets you stake crypto and receive a tradable token for your staked position. A protocol handles the validator work.
What problem does liquid staking solve?
Regular staking usually locks your coins until you unstake them. Liquid staking gives you a tradable token for that position.
How does liquid staking work?
You deposit crypto into a liquid staking protocol, and it stakes the pooled crypto through validators. You receive a receipt token. It represents your claim and earns staking rewards.
- The protocol pools deposits and stakes them.
- You hold the receipt token in your wallet.
- Rewards accrue to the pool and the token.
What can you do with liquid staking tokens?
A liquid staking token can be traded, lent, or used as collateral in DeFi.
What are the main risks of liquid staking?
Liquid staking adds risks. A smart contract bug can put the pooled crypto at risk, and a validator that breaks the rules can be slashed. The receipt token can trade below the staked crypto, and withdrawals can face delays.
How is liquid staking different from regular staking?
Regular staking usually locks your coins until you unstake them. Liquid staking keeps the coins staked but gives you a tradable receipt token.
Frequently asked questions
The IRS treats crypto as property, and staking rewards are generally taxable income.
A smart contract exploit can put the pooled crypto at risk and pause withdrawals.
The token trades on an open market, so it can fall below the staked value.
Yes. A smart contract exploit, slashing, or a protocol failure can destroy part of the stake.
