What Is ‘Liquid Staking’ and Its Risks?
Liquid staking is a mechanism that allows users to stake their coins while receiving a tradable token (a derivative) representing their staked assets. This derivative token can then be used in DeFi protocols, providing liquidity while the original assets are locked.
The risks include smart contract risk, de-pegging of the derivative token, and centralization of staking providers.
Glossar
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.
Liquid Staking Tokens
Yield ⎊ Liquid Staking Tokens represent a novel mechanism within the cryptocurrency ecosystem, enabling holders to earn rewards on staked assets while maintaining liquidity.
Derivative Token
Valuation ⎊ Derivative Tokens represent contractual claims on underlying assets, often cryptocurrencies, whose value is derived from the performance of those assets or a benchmark.