Liquid Staking Token
A token representing staked assets that can be traded or used in DeFi while the underlying assets remain staked and earning staking rewards.
Liquid staking tokens (LSTs) let users stake while retaining liquidity. Example: Stake 1 ETH in Lido, receive 1 stETH. stETH represents staked ETH plus accumulated rewards. You can trade stETH, use it as collateral, or earn yield in DeFi. LSTs solve the liquidity lock problem of staking. They enable capital efficiency by letting staked assets work across protocols. LSTs are core DeFi primitives and a major source of yield.
How LSTs Work
Mechanics:
Stake Asset: User stakes base asset (e.g., ETH) with liquid staking protocol.
Mint LST: Protocol mints LST (e.g., stETH) 1:1 with staked asset.
Rewards Accrue: LST value increases or rebases to reflect staking rewards.
Redemption: User can redeem LST for underlying staked asset (subject to exit queue).
LSTs represent claims on staked assets.
LST Models
Different designs:
Rebasing Tokens: Balance increases over time (stETH).
Value Accrual: Token price increases while balance stays constant (rETH).
Hybrid: Some protocols use hybrid models.
Each model has different accounting and tax implications.
LST Use Cases
Applications:
Collateral: Use LSTs as collateral in lending protocols.
Liquidity Pools: Provide LST liquidity for additional fees.
Restaking: Use LSTs in restaking protocols (EigenLayer).
Structured Products: LSTs as base yield for fixed-income products.
LSTs unlock DeFi composability for staked assets.
Risks
Key risks:
Smart Contract Risk: Liquid staking protocol could be hacked.
Validator Risk: Slashing events reduce LST value.
Peg Risk: LST may trade below 1:1 (depeg events).
Centralization: Dominant LST providers can centralize staking.
Liquidity Risk: LST liquidity can dry up during market stress.
LSTs are powerful but risky.
LST Market Examples
Real LSTs:
stETH (Lido): Largest LST by market cap.
rETH (Rocket Pool): Decentralized LST.
cbETH (Coinbase): Centralized LST.
frxETH (Frax): Hybrid LST model.
LST market is large and growing.
LST vs Native Staking
Tradeoffs:
Liquidity: LSTs are liquid, native staking is locked.
Security: LSTs add smart contract risk.
Rewards: LSTs may charge fees (lower rewards).
Composability: LSTs are composable in DeFi.
LSTs trade simplicity for flexibility.
Career Opportunities
LST ecosystem roles:
Protocol Engineers earn $130,000-$320,000+.
Staking Infrastructure roles earn $120,000-$300,000+.
Risk Analysts earn $110,000-$260,000+.
DeFi Strategists earn $120,000-$300,000+.
Best Practices
Using LSTs:
Check Provider Risk: Understand staking provider model.
Monitor Peg: Watch LST price vs underlying.
Diversify: Use multiple LSTs to reduce risk.
Use Audited Protocols: Prefer audited LSTs.
The Future of LSTs
Trends:
Restaking Growth: LSTs used in restaking protocols.
Cross-Chain LSTs: LSTs across multiple chains.
Decentralization: More decentralized LST providers.
Risk Tooling: Better risk monitoring for LSTs.
Unlock Staking Liquidity
Liquid staking tokens make staking liquid and composable. They are core to DeFi and staking infrastructure. If you’re interested in staking, explore staking careers at staking providers and protocols.
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