Liquid staking
In short Liquid staking lets you stake proof-of-stake coins and get a tradable receipt token back, so your staked funds can still be used in DeFi.
Liquid staking lets you stake coins on a proof-of-stake network and receive a receipt token you can still move, sell, or use in DeFi. Regular staking locks your coins and often adds an unbonding delay before you can withdraw. With liquid staking, a protocol stakes for you and hands back a liquid staking token (LST) that represents your deposit plus the rewards it earns.
Mechanically, you send ETH, SOL, BNB, or another stakeable asset to the protocol's smart contract, which delegates the funds across validators. Some LSTs are rebasing, so your wallet balance grows as rewards arrive. Others are value-accruing: your token count stays flat, but each token redeems for more of the underlying asset over time. To exit, you use the protocol's withdrawal queue, which can take days, or sell the LST on a DEX.
This matters because the LST keeps working while the underlying coins earn rewards. You can post it as collateral in a lending protocol, pair it in a liquidity pool, or hold it as a base asset. If you trade small tokens, you will run into LSTs as trading pairs and collateral. An LST should trade near the underlying asset multiplied by its redemption rate, but the market price can drift from that.
The risks stack. You carry the smart contract risk of the LST protocol and of every DeFi app you plug it into. If many holders sell in a panic while the withdrawal queue is slow, the LST can trade at a discount to the underlying asset; stETH did this in 2022. Validators can also be slashed for misbehavior, which cuts the value behind your token, and the protocol takes a fee from rewards.
Before depositing, check how redemption works and how long it takes. Look at the LST's liquidity depth on DEXs, since thin liquidity means heavy slippage on exit. Verify the contract address from the protocol's own documentation, because fake LSTs with copied names exist. Be careful with looped positions, where an LST is used as collateral to borrow more of the underlying asset and stake again, since a small depeg can trigger liquidation.