Liquid staking as a way to multiply crypto assets without locking funds

One of the most common issues with traditional staking is the inability to use locked assets. Imagine your tokens are frozen for months, while the market offers new earning opportunities. Liquid staking solves this dilemma by allowing you to earn rewards from your original deposit and simultaneously use a tokenized version of your assets in other DeFi protocols. Today, more than $18 billion are involved in this system, and the number of participants grows every day.

From Concept to Revolution: Why Ethereum Switched to PoS

When Ethereum was created in 2015, it inherited the consensus model from Bitcoin — proof-of-work (PoW). Although secure, this system requires enormous computational power. Each new transaction incurs colossal fees, throughput was low, and energy consumption was catastrophic.

Vitalik Buterin saw a solution in transitioning to proof-of-stake (PoS). Instead of competition among miners, validators take turns confirming transactions. The process began in December 2020 with the launch of the Beacon Chain and concluded in September 2022. The result is impressive: energy consumption decreased by 99.9%.

Traditional Staking: Three Main Options and Their Limitations

Before diving into liquid staking, it’s important to understand the classic approaches.

Solo Staking: Maximum Control, High Requirements

To become a validator on Ethereum, you need 32 ETH (at current prices of about $2.02K, roughly $64.6K). But this isn’t just a deposit — validators risk their capital. If an error or network failure occurs, the staked amount can be slashed in half. Additionally, assets can only be withdrawn after a set period. For most, this is unfeasible due to the amount and technical complexity.

Exchange Staking: Balance of Accessibility and Risk

Centralized platforms allow depositing any amount without a minimum. Withdrawals are possible almost at any time. But there’s a catch: you don’t control your assets; the platform could be hacked or shut down, and fees will eat into your profits.

Fixed Lockup Staking: For Disciplined Users

Funds are completely inaccessible for a period of one to three months. In return, rewards are higher. Suitable only for those confident they won’t need the assets soon.

Why Liquid Staking Is Revolutionary

Here’s where the magic begins. Imagine depositing 1 ETH into a liquid staking protocol. Instead of full lockup, you receive a derivative token — for example, stETH. This token has a 1:1 ratio with the original asset but can be freely transferred, sold, and used.

Meanwhile, your original ETH continues to accrue rewards. You can, for example, send stETH to a DeFi liquidity pool to earn additional fees or use it as collateral for a loan. This creates a double or even triple income stream from a single asset.

Technically, it works like this: the platform accepts your assets, locks them in smart contracts, and issues a tokenized equivalent. All operations happen on DeFi escrow accounts, ensuring full transparency and no central controlling authority.

Liquid Staking vs. Traditional: Key Differences

Top Liquid Staking Platforms: From General to Specialized

Lido: The Leader of Liquid Staking

Lido Finance has dominated the market since its launch in 2020. The platform supports Ethereum, Solana, Polygon, Polkadot, and Kusama. Users receive stETH, stSOL, and other derivative tokens.

Rewards range from 4.8% to 15.5%, depending on the network. Lido also manages a DAO via the LDO token (current price $0.34). The fee is 10% of earnings. Derivative tokens are used in over 27 DeFi applications.

Rocket Pool: Focus on Decentralization

Founded in 2016, Rocket Pool works exclusively with Ethereum but offers two options. Regular users receive rETH with an annual reward of 4.16%. Node operators can start with just 16 ETH (instead of the required 32) and earn 6.96% plus variable rewards in the RPL token (current price $1.51).

Tempus Finance: Fixed Returns

This protocol allows fixing future growth or estimating it. Supports stETH, yvDAI, xSUSHI, and aUSDC on Ethereum and Fantom. No staking fees, but you pay for swaps in AMM.

Hubble Protocol: Lending with Collateral

Popular for its lending features. Users can borrow against crypto assets and use the proceeds for margin trading up to 11x. Fee is 0.5% of the loan amount.

Meta Pool: NEAR Specialist

Liquid staking service for the Near network. Users receive stNEAR and can then use it on the Aurora platform. Reward rate is 9.76% annually. Instant withdrawal is possible but with a 0.3% fee.

OKTC: Easy Way to Start Earning

Service from OKX for the OKT Chain offers maximum simplicity. Deposit OKT, receive stOKT (KIP-20 standard). Tokens are freely exchangeable within the OKTC ecosystem. Additional income from swap fees on OKTC Swap.

Where Liquid Staking Is Used: From Basic Math to Advanced Strategies

The simplest application is just holding the derivative token and earning automatic rewards. But experienced traders go further.

Crypto Farming: Send stETH to a liquidity pool to earn fees from each trade.

Lending: Use stETH as collateral in Aave (current AAVE price $109.60) to borrow USDC, then invest in higher-yield assets.

Arbitrage: If the derivative token trades below parity, profit from the difference.

Combined Strategies: Participate simultaneously in multiple protocols, creating complex income streams.

Why Liquid Staking Is Risky: Main Threats

Detachment from the Original Asset

History shows that stETH once traded significantly below ETH. The reason was excess supply and market panic. Derivative tokens can lose their buyers.

Smart Contract Vulnerabilities

These programs may contain bugs exploited by hackers. If the platform is hacked, assets could be lost permanently.

Commercial Risks

The platform could be shut down by regulators. Users would lose access.

Recovery Errors

If you lose your derivative token, restoring the original asset is only possible by acquiring an equivalent amount.

Liquid Staking: Conclusion for Experienced Investors

It’s not just an improvement over traditional staking — it’s a completely new paradigm for asset utilization. Instead of waiting, you get a tool for active portfolio management.

However, it requires understanding DeFi mechanics, risk control, and constant monitoring. Beginners should start with smaller amounts and simple strategies. Experienced traders will find huge opportunities for combining income streams and optimizing returns.

Liquid staking is a next-generation tool. Its future depends on how quickly the DeFi ecosystem develops and how regulators respond to innovations. But one thing is clear: locking assets in the 21st century is becoming less attractive. The choice in favor of flexibility and liquidity is a choice for efficiency.