What is liquid staking in crypto DeFi?

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What is liquid staking in crypto DeFi?

Direct from the desk of Dane Williams.



Liquid staking in crypto DeFi essentially grants you access to your money, even when it's staked.

Liquid staking is an extremely popular, yet underappreciated term that offers you the best of both worlds.

First of all, liquid staking allows you to earn staking rewards by locking your crypto in various platforms..

But the liquid staking magic comes via the issuance of a tokenised version, or derivative if you will.

As the name suggests, this derivative offers you liquidity.

Meaning that this new token can be openly transferred, staked, spent or traded as one would any other cryptocurrency.

Magic!

A liquid drop representing the concept of liquidity within liquid staking in crypto DeFi.

Liquid staking on Ethereum

Much of the interest around liquid staking in 2022 comes from the fact that Ethereum (ETH) is moving from a Proof of Work (PoW) consensus model, to Proof of Stake (PoS).

Consider this.

When you stake your crypto on a PoS network such as Ethereum, you receive a new token in its place.

A staked version of your original token if you will.

You can think of this new token in the same way you’d think of receiving a receipt for a purchase.

This receipt shows all of the details of your stake such as:

  • How much you staked.
  • When you staked.
  • How much yield it will accrue.

An example of liquid staking on Ethereum would be staking ETH on Lido.

By staking your ETH on the platform, you will receive a new token called stETH in return.

stETH allows you to maintain your ETH liquidity, meaning you can use that ETH as you please, but still gain all the benefits of having your tokens staked.

Such as earning staking rewards.

With that in mind, there are actually a huge range of DeFi protocols and platforms available to put your stETH to work.

All with the prospect of earning higher yields… with varying levels of risk to accompany them of course.

An additional 4% is on offer for adding your stETH to Curve Finance and MakerDAO gives you the opportunity to use stETH as collateral to mind DAI.

The USD pegged stablecoin which you can use to chase higher yields by pooling with other cryptocurrencies.

Liquid staking in crypto DeFi opens up an entire world of opportunities.

Liquid staking on Terra

An alternative to Ethereum is liquid staking on Terra (LUNA) through what thy call bonded assets.

Or simply bAssets for short.

bAssets on Terra function exactly the same way as staked assets on Ethereum that we just spoke about in the section above.

Again, Lido allows you to stake your LUNA on their platform as well, at a rate of 8.42%.

Like stETH, the bLUNA you receive for staking your native LUNA, can then be put to work elsewhere in the Terra ecosystem.

The most popular being using your bLUNA to mint UST and then staking your UST on Anchor.

Just like on Ethereum, you can see that liquid staking on Terra opens up an equally large world of opportunities.

Final thoughts on liquid staking in crypto DeFi

Anyway, that’s a simple to understand rundown of liquid staking in crypto DeFi.

In a nutshell, liquid staking in crypto DeFi essentially grants you access to your money.

Even when it's staked!

Now use your newfound knowledge and go forward and conquer the markets.

Best of probabilities to you.

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55 comments
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I might have to look at those ETH staking possibilities. Would be nice to find something for BTC too.

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But isn't the whole idea of buying Bitcoin that you have a secure asset that you hold in a cold wallet?

Why do you want to expose it to DeFi risk?

And if you do, why not just buy assets offering higher yield?

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If there is a way to keep the ownership of my Bitcoin and get some yield it may be interesting as I still want to be long Bitcoin.

But I agree, Bitcoin is an important pillar in my crypto strategy that I don't want to expose to any other unnecessary risks.

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I know people must have their reason for not appreciating liquid staking but for me I think it is a nice concept and that is why I into it.

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This is basically new to me. It would be nice to find one to stake some ETH :)

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Interesting concept indeed. I'm not familiar with Lido bit it does seem worth checking out

!hivebits

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We've gotta do a LeoFinance Crypto Guide on Lido.

It's awesome when you start reading deeper into the project.

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Am I right in assuming that the number of bLUNA you receive won't change but the ratio underneath might change? In a way, similar to how xPolyCUB works with its ratio.

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I think it is a very good development,it's just as if it's a creation for more money making opportunity although ain't really familiar with it,just hearing of it for the first time ,but I think it worth trying.

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Yeah, that's more like it. Liquid staking. But what are the risks..? It looks good enough to research further for sure

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What are the risks of liquid staking in crypto?

Liquid staking in crypto and asset-backed securities share similar risks.

And we all know what happened to mortgage backed securities during the GFC...

Well, staking your crypto create a new layer of abstraction that tends to distract people from the health of the underlying assets.

Which in crypto are obviously extremely high risk on their own.

Always do your own research and fully understand the risks involved.

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I'll have to re-read the post. I was under the impression liquid staking was something else maybe.

Are we talking g about liquidity pools then?

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Hopefully Hive can Have something like that where using the tokens as liquid while stake.
I wonder what else will come to DEFI next?
Hard to see the true meaning of crypto.
Value will always find the space to grow.

!BEER

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Locking up your tokens for 13 weeks when powering up is too much.

I've fully come around to the fact there needs to be a mechanism to unlock early (for a fee).

With the fees being paid back to existing HP holders.

Liquidity is key!

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(Edited)

Alcohol is one of the best liquids for defi staking in the crypto industry because when you start suffering impermanent losses, you'll need it to cope 😄

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Good to learn. Is there the possibility of getting such functionalities in PolyCUB or Hive dieselpools?

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Now use your newfound knowledge and go forward and conquer the markets.

And this, I'll do. Thanks @forexbrokr for putting forth this new knowledge for us. Well appreciated. 💚

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What happens when you un-stake, I suppose you must give back your stETH. I also suppose you cannot sell your stETH. I must say I don't understand much of all this!!

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Obviously you can't unstake until you have paid off what is essentially a loan.

Worth looking a little deeper into if you're interested :)

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Thanks for the feedback.

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