What is Liquid Staking?

Liquid staking lets crypto holders earn staking rewards without locking away their assets. Learn how it works and how it compares to other staking options.

What is staking?

Staking is the process of locking cryptocurrency into a proof-of-stake blockchain to help validate transactions and secure the network. In return, users receive staking rewards, usually paid in the blockchain’s native token. Ethereum, Solana, Avalanche, and Sei are all examples of networks that use staking as part of their consensus system.

What is liquid staking in crypto?

Liquid staking is a way for crypto holders to stake their assets while maintaining liquidity.

Normally, staking requires locking tokens into a validator network to help secure the blockchain. During that period, the assets cannot generally be traded or used elsewhere.

Liquid staking changes this by issuing a derivative token that represents the staked asset. For example, when users stake ETH through Lido, they receive stETH in return. That token can then be used in lending protocols, decentralized exchanges, or restaking platforms while the original ETH continues earning staking rewards.

The model became especially popular on Ethereum because traditional ETH staking initially involved long lock-up periods and technical requirements.

What are liquid staking tokens?

Liquid staking tokens are digital assets issued to users when they stake through a liquid staking protocol. These tokens represent ownership of the underlying staked crypto and usually continue accumulating staking rewards over time.

For example, staking ETH through Lido gives users stETH, while staking SOL through Jito gives users JitoSOL. Instead of sitting idle in a validator contract, these tokens can still be traded, lent, or used across DeFi applications.

Liquid staking tokens are one of the main reasons the sector exploded in popularity, as they effectively unlocked capital efficiency for staked crypto.

What are liquid staking derivatives?

Liquid staking derivatives, often shortened to LSDs, are simply another name for liquid staking tokens.

The term became popular across Ethereum DeFi as protocols like Lido, Rocket Pool, and Ether.Fi expanded. Examples include stETH from Lido, WBETH from Binance, eETH from Ether.Fi, and rETH from Rocket Pool.

These derivatives represent the underlying staked asset plus accrued staking rewards, allowing users to maintain liquidity while still earning yield.

Traditional staking vs. liquid staking

Traditional staking and liquid staking both allow users to earn rewards from proof-of-stake networks, but they differ in how accessible and flexible those funds remain.

Traditional staking is generally simpler and may involve fewer moving parts. Liquid staking, however, became popular because it allows users to keep capital active while still collecting staking rewards.

Liquid staking vs. staking pools

Liquid staking and staking pools both make staking easier for users, but they are not the same thing.

A staking pool combines user deposits to meet validator requirements and distribute rewards across participants. However, assets in a staking pool are often still locked during the staking period.

Liquid staking protocols also pool user funds, but they issue liquid staking tokens in return. That means users maintain access to a tradable asset while their crypto remains staked in the background.

In practice, many liquid staking platforms operate similarly to staking pools under the hood, but the addition of transferable derivative tokens is what separates the two models.

What are liquidity pools?

Liquidity pools are smart contract-based pools of crypto assets locked into decentralized exchanges or DeFi protocols.

These pools help facilitate trading, lending, borrowing, and yield generation without relying on traditional order books. Users who provide liquidity typically earn fees or rewards in return.

Liquid staking tokens are commonly used in liquidity pools. For example, users may pair stETH with ETH on decentralized exchanges to earn additional yield while still collecting staking rewards.

How does liquid staking work?

Liquid staking protocols pool user deposits and delegate those assets to validators operating on a proof-of-stake blockchain. In exchange, users receive a token tied to their deposit.

That token represents ownership of the staked asset and usually accumulates staking rewards over time. Depending on the protocol, rewards may increase the token’s value or appear as additional token balances.

Because the token remains transferable, users can continue participating in DeFi staking opportunities while their original assets stay staked in the background.

Lido provides one of the simplest examples. When a user deposits ETH into Lido, the protocol stakes that ETH across validator operators and issues stETH in return. The user continues earning Ethereum staking rewards while being free to trade or use stETH elsewhere in DeFi.

Liquid staking mechanics

Liquid staking tokens generally track the net asset value, or NAV, of the underlying staked asset plus accrued rewards.

Protocols use different methods to distribute those rewards. Some use rebasing tokens, where the token balance in a user’s wallet automatically increases over time.

Others use accrual-based or cToken-style mechanics, where the number of tokens stays fixed while the token’s value gradually increases relative to the underlying asset.

Both systems achieve the same end goal of reflecting staking rewards, but they differ in how balances and accounting are displayed to users and DeFi applications.

Liquid staking vs. restaking

Liquid staking and restaking are closely connected, but they serve different purposes.

Liquid staking focuses on unlocking liquidity for staked assets. Users stake crypto and receive a liquid token that represents their position.

Restaking takes things further by allowing already-staked assets or liquid staking tokens to secure additional protocols or services. Platforms like EigenLayer made this model popular by enabling ETH stakers to earn extra rewards beyond standard validator yields.

Many liquid staking tokens are now used directly in restaking protocols, creating a layered yield system across Ethereum DeFi.

Decentralised liquid staking vs. centralised liquid staking

Decentralised liquid staking protocols rely on smart contracts and distributed validator networks instead of centralized custody.

Platforms like Lido, Rocket Pool, Ether.Fi, and StakeWise spread validator operations across multiple operators, reducing reliance on a single entity.

Centralised liquid staking platforms are usually operated by exchanges. Binance staked ETH is one of the biggest examples because users can stake directly through the Binance platform.

Centralised platforms typically offer simpler onboarding and smoother user experiences, while decentralised protocols are often viewed as more transparent and resistant to censorship.

Is liquid staking safe?

Liquid staking is generally considered safer than many DeFi strategies, but there are still risks.

Smart contract vulnerabilities remain one of the biggest concerns. If a protocol’s contracts are exploited, users could lose funds. Validator performance also matters because poorly performing validators may face slashing penalties.

There is also liquidity risk. Liquid staking tokens are designed to track the value of the underlying asset, but they can temporarily trade below peg during periods of market stress.

Restaking introduces another layer of complexity because users are extending their security exposure to additional networks or services beyond the base blockchain.

Users should also consider decentralization risks, validator concentration, and the reputation of the protocol they are using.

What blockchains support liquid staking?

Liquid staking has expanded far beyond Ethereum and is now supported across most major proof-of-stake ecosystems.

Ethereum

Ethereum remains the largest liquid staking market by far. Protocols like Lido, Rocket Pool, Ether.Fi, and StakeWise dominate the ecosystem, with stETH becoming one of the most widely used assets in DeFi.

Solana

Solana has built one of the fastest-growing liquid staking ecosystems outside Ethereum. Protocols like Jito and Jupiter allow users to stake SOL while continuing to participate in Solana DeFi.

Sei

Sei also supports liquid staking through emerging protocols built around the network’s growing DeFi ecosystem. As Sei adoption increases, liquid staking is becoming a larger part of the chain’s infrastructure.

Avalanche

Avalanche supports liquid staking through protocols such as Benqi Liquid Staking, which allows users to stake AVAX while maintaining liquidity.

Polkadot

Polkadot liquid staking has expanded through protocols like Acala and Bifrost, giving DOT holders access to staking rewards without fully locking assets.

What are the best liquid staking protocols?

Several platforms now dominate the liquid staking market, particularly across Ethereum and Solana.

Lido remains the largest protocol overall thanks to the widespread adoption of stETH across Ethereum DeFi. Binance Staked ETH continues to grow through centralized exchange onboarding, while EigenLayer helped create the booming restaking sector.

Ether.Fi has emerged as one of the biggest liquid restaking platforms tied to EigenLayer, and Babylon Protocol is expanding staking infrastructure into the Bitcoin ecosystem.

Other major protocols include Rocket Pool, Jito, StakeWise, Jupiter, and Kelp DAO.

For a full breakdown of the biggest platforms in the market, check out our guide to the best liquid staking protocols in 2026.

Don't forget the tax bill...

Your liquid staking is taxable, and the tax can get complicated depending on your transactions and where you live. Learn more in our DeFi tax guide, or sign up for Koinly free to calculate your liquid staking taxes automatically.