What Is Liquid Staking?
Liquid staking allows users to stake and use tokens in the DeFi ecosystem.
This is achieved by wrapping the staked tokens and providing users with wrapped tokens representing their claim on the underlying collateral.
These wrapped tokens can be transferred and generate yield.
Liquid staking allows users to stake and unstake their coins without being bound by a lock-up period.
It enhances capital efficiency and liquidity on proof-of-stake blockchains, allowing users to maximize the benefits of staking and DeFi simultaneously.
Additionally, liquid staking contributes to network security on PoS chains.
Benefits of Liquid Staking
Liquid staking offers several unique advantages:
- Capital Efficiency: Liquid staking allows DeFi protocols and blockchains to utilize the same amount of capital more effectively. With regular staking, the staked amount is locked and unavailable for use in DeFi protocols, reducing liquidity. Liquid staking enables blockchain ecosystems to grow faster with the same capital investment.
- Chance to Earn Yield: Liquid staking provides an opportunity to earn an additional yield on idle capital. Investors can add extra yield to the blockchain’s staking rewards by using wrapped staked tokens as yield-bearing assets. This benefits both stakes and the underlying blockchains.
- Flexibility: Unlike traditional staking, liquid staking allows users to access their capital without delay. This flexibility is crucial, particularly during heightened market volatility, as investors can quickly respond to market conditions.
Drawbacks of Liquid Staking
There are a few drawbacks associated with liquid staking:
- Smart Contract Risk: Liquid staking involves an additional layer of smart contract interaction through the wrapping process, which introduces potential smart contract risks and vulnerabilities that could be exploited.
- Divergence in Collateral Value: There can be temporary divergences between the value of the wrapped token and the underlying collateral. However, these divergences typically resolve themselves as market volatility subsides.
Where Can You Liquid Stake?
Liquid staking is available on several blockchains, including:
- Ethereum
- BNB Chain
- Solana
- Cosmos
- Fantom
Liquid Staking on Ethereum
On Ethereum, users can use liquid staking by depositing ETH into third-party applications that interact with Ethereum staking contracts.
These applications provide wrapped tokens such as stETH (Lido) and RETH (Rocket Pool), which can be used across the DeFi landscape. Both Lido and Rocket Pool offer liquid staking services on Ethereum.
Liquid Staking on Solana
On Solana, the leading liquid staking protocol is Marinade (MNDE).
Staking SOL generates Marinade staked SOL (MSOL), which can be utilized across the Solana ecosystem. Other liquid staking options on Solana
include Socean (SCNSOL) and Raydium.
Liquid Staking on Fantom
Fantom employs proof of liquid staking (PoLS), allowing a single validator to stake tokens on behalf of multiple delegators.
Liquid Staking on Cosmos
With the upgrade to Cosmos 2.0, native liquid staking will be enabled.
Previously, liquid staking of ATOM was available through providers like pStake and Osmosis.
The Cosmos 2.0 upgrade will further enhance yield opportunities and engagement within the Cosmos ecosystem.