What it is
Liquid staking is a method of staking cryptocurrency, particularly on Proof of Stake networks like Ethereum, where users receive a liquid staking derivative (LSD) token in exchange for their staked assets. This LSD token represents their staked ETH plus any accumulated rewards, while remaining tradable or usable in other decentralized finance (DeFi) protocols. This mechanism addresses the illiquidity drawback of traditional staking, which typically locks up assets.
Protocols like Lido Finance or Rocket Pool are prominent liquid staking providers. Users deposit ETH into these protocols, which then run validators, and in return, users receive tokens like stETH or rETH. These LSDs can be used as collateral for loans, traded on DEXs, or supplied to liquidity pools, enabling users to earn additional yield. Retail investors use liquid staking to maintain liquidity and compound returns within the DeFi ecosystem.
Why it matters
Liquid staking offers flexibility by providing a tradable token for your staked assets, allowing you to earn additional yield in DeFi.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice