What is liquid staking ?
Liquid staking is a mechanism that enable users to participate in cryptocurrency staking without the complexities of running validator nodes and hardware management.
Users can stake directly on a proof of stake network such as Ethereum, Solana or Cosmos network among others, deposit their POS cryptocurrencies into a smart contract such as Lido, Marinade for Solana or Stride for the Cosmos Hub and then receive a newly minted liquid staking token.
While in regular staking, you fund must be lock for a certain amount of times and you need to wait for your tokens to be unbonded before you can sold them, with liquid staking, your tokens are liquid and can be used in DeFi, traded or transfered to someone else.
Of course, this mechanism comes also with some risk as you will need to trust the smart contract provider, and hope that the the liquid stake tokens keep its pegged with the underlying asset.
Up to date, liquid staking remains the largest DeFi category in terms of Total Value Locked (TVL), amounting to $25B+ per DeFiLlama, with more than 70% related to Ethereum.
The different forms of liquid staking tokens
If you choose to use liquid staking tokens, you have several choices in the current market. Depending the protocol, you can either choose centralised players such as Coinbase for example who launched cbETH their ETH liquid staking tokens or decentralised actors such as Lido (stETH) or RocketPool (rETH) for Ethereum.
Furthermore, liquid staking tokens can also be subcategorised in three mechanisms:
Rebase tokens: these are the most common form of liquid staking tokens out there. It grow as you stake. Rebase are done automatically based on deposits and rewards, and users will not see any transactional activity associated with the rebase.
For example: if you stake 100 ETH at Lido, it will give you 100 stETH, which after one year should amount to about 103.5 stETH (at today’s 3.5% APR).
Rewards bearing tokens: these tokens gain in value over time against the staked asset. The amount of liquid tokens you own will remain the same however the rate will change.
For example: if you stake 100 ETH at RocketPool, it will give you 91,46 rETH, which after one year will be the same amount of rETH but worth 103.41 ETH (at today’s 3.4% APR).
Wrapped tokens: some liquid staking tokens can also be wrapped. By being wrapped, LST stop rebalancing and becomes rewards bearing tokens. This form of tokens are popular among investors due to their high volume and they are also often used in DeFi protocols.
For example: if you wrap 100 stETH, it will give you 87,14 wstETH, which after one year will be the same amount of wstETH but worth 103.75 ETH.
Dual token model: This is the last form and less common form of liquid staking tokens. In this model, one of the tokens maintains the 1:1 ratio to
the staked asset, and the other represents the rewards. Some providers such as Stakewise or Frax use this kind of separation.
For example: if you deposit 100 ETH at Frax, it will give you 100frxETH. If you decide to stake them, you will have 100 sfrxETH, and after 1 year these 100 sfrxETH you be valued 104 ETH. (at today’s 4,00% APR)
Liquid staking providers
Liquid staking is starting to become more and more popular. So it’s not surprising that more and more providers are emerging. Even if up to date more providers are operating on Ethereum mostly, some new players focus on emerging chains such as Marinade or Jito for Solana or Stride for the Cosmos hub.
Here are a list of the main providers:
Lido
Lido is the largest liquid staking providers in term of both Total Value Locked and ETH deposited. Benefiting from its first mover advantage, Lido offers stETH or stMATIC or their wrapped versions and it’s nowadays very used in DeFi protocols.
More than 30% of staked ETH are currently staked through Lido.
By locking there tokens into Lido smart contract, users are able to enjoy the staking rewards on Ethereum or Polygon without the complexity of running and maintaning the node infrastructure.
Rocket Pool
Rocket Pool is a decentralised staking protocol providing liquid & node staking products for the Ethereum ecosystem.
As Lido, Rocket pool is pretty straightfoward. You only need Metamask and you can start staking ETH starting at 0.01 ETH rather than the 32 ETH required to operate a Ethereum validator.
By using RocketPool, users will receive rETH, a reward bearing tokens representing their staked ETH that use RocketPool.
rETH/ETH exchange rate is updated every 24 hours based on the rewards earned by Rocket Pool node operators.
rETH:ETH ratio = (total ETH staked + Beacon Chain rewards) / (total rETH supply)
Frax
Frax is a famous DeFi project. It offers multiple solutions, such as stablecoin (FRAX stablecoin), lending (Fraxlend), DEX (Fraxswap), and liquid staking (Frax Ether). The latter includes a dual-token mechanism with frxETH, a stablecoin pegged to ETH, and Staked Frax Ether (sfrxETH), which accrues staking yield.
Profits from Frax Ether validators go to sfrxETH holders, creating a way to earn interest on ETH.
Ankr
Ankr is a one of the most famous infrastructure company in the crypto space. It provides various products and services for Web3 such as RPC/REST API, advanced API through smart contract automation, scaling services but also staking, liquid staking, and gaming.
Ankr offers access to reward-bearing liquid staking derivatives. There is an impressive list of available collateral as the protocol accept assets as ETH, MATIC, BNB, FTM, AVAX, and DOT.
Stader
Stader is a non-custodial smart contract-based staking platform that helps you conveniently discover and access staking solutions. Stader is building key staking middleware infra for multiple PoS networks for retail crypto users, exchanges and custodians.
Stader offers seven blockchains to choose from: Ethereum, Polygon, Hedera, BNB, Fantom, Near, and Terra 2.0.
StakeWise
StakeWise is a liquid Ethereum 2.0 staking service that allows anyone to benefit from the yields available on the Beacon Chain.
It was one of the very first non-custodial liquid staking solutions (on Ethereum and Gnosis), enabling users to access proof-of-stake yields while maintaining flexibility. Indeed, StakeWise runs secure and stable institutional-grade infrastructure, combined with unique tokenomics, to provide the highest possible staking yields for its users.
Like Frax, StakeWise use a dual rewards model using sETH2 (staking ETH) and rETH2 (reward ETH), solving the capital dilution issues seen across single token models in the pre-Shapella environment.
Marinade Finance
Marinade Finance is a staking protocol built on Solana.
You can stake your SOL tokens with Marinade using an automated staking strategy expertly designed by the Marinade core team with influence from MNDE and mSOL holders.
When native staking with Marinade, you receive an equivalent value of “marinated SOL” tokens (mSOL) that can be used in decentralized finance (DeFi).
Once staked, mSOL split your stake in a pool of 100+ high-performing Solana validators.
Jito
Jito is the only liquid staking service for Solana that distributes MEV (maximum extractable value) rewards to holders.
The Jito Stake Pool enables users to stake their Solana tokens in exchange for a liquid stake pool token (JitoSOL). The JitoSOL token provides liquidity while earning a combination of staking rewards and MEV rewards.
The token allows users to earn yield while also maintaining capital efficiency via DeFi integrations. JitoSOL holders can earn yield while also accruing interest in lending protocols or yield farming.
By using JitoSOL users are also able to accumulate points that may be used for a potential airdrop.
Benqi
BENQI Liquid Staking is a liquid staking protocol built on Avalanche.
It tokenizes staked AVAX and allows users to freely use it within Decentralized Finance dApps such as automated market makers (AMMs), lending & borrowing protocols, yield aggregators, etc.
By tokenizing the staked AVAX into sAVAX (BENQI Staked AVAX), users will now be able to utilize the asset within the Avalanche DeFi protocols while earning passive returns for securing Avalanche.
Stride
Stride is a Cosmos “zone” that provides liquidity for staked tokens. Using Stride, you can earn both staking and DeFi yields across the Cosmos IBC ecosystem.
By staking through Stride, users receive staked tokens immediately when they liquid stake. Rewards accumulate in real time to staked token holders. These staked tokens can be freely traded, and can be redeemed with Stride at any time to receive back native tokens plus staking rewards.
On the backend, Stride permissionlessly stakes these tokens on the host chain and compounds user rewards. Users continue to earn staking yield, and can earn additional yield by lending, LPing, and more.
Others
These are the main liquid staking providers. But we can see that some exchanges such as Coinbase decided to launch their own version of liquid staking token with cbETH.
It exists also other smaller provider such as Stafi, Liquid collective, Etherfi, Swell that is even backed by Mark Cuban or Diva Staking.
With the emergence of liquid staking derivatives, we are also assisting to the birth of several subcategory such as restaking with Eigen Layer or even Ethereum L2 with native yield for ETH and stablecoins on top of it such as Blast.io.
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