What Is “Liquid Staking” and How Does It Affect Token Utility?
Liquid staking allows users to stake their tokens while simultaneously receiving a derivative token (a "liquid staking derivative" or LSD) that represents their staked position plus accrued rewards. This LSD remains liquid and can be used in other DeFi protocols (e.g. as collateral), enhancing the utility and capital efficiency of the original staked token.
It mitigates the opportunity cost of locking tokens.
Glossar
Capital Efficiency
Leverage ⎊ Capital efficiency, within cryptocurrency and derivatives, fundamentally represents the maximization of risk-adjusted returns relative to the capital at risk, demanding strategic asset allocation and precise risk parameterization.
Liquid Staking Derivatives
Yield ⎊ Liquid staking derivatives represent a novel mechanism within the cryptocurrency ecosystem, enabling capital efficiency for Proof-of-Stake blockchains by tokenizing staked assets.
Liquid Staking
Mechanism ⎊ Liquid Staking is a decentralized finance primitive that allows users to stake their tokens in a Proof-of-Stake protocol while simultaneously receiving a liquid, tradeable derivative token representing their staked position and accrued rewards.