Liquid Staking Token (LST)
A Liquid Staking Token (LST) is a tokenized representation of staked assets — most commonly ETH — that remains transferable and usable across DeFi while the underlying stake continues to earn validator rewards. Examples include stETH, rETH, and similar tokens on other proof-of-stake chains.
✦ Key Insight
LSTs solved the core trade-off of staking: lock-up versus liquidity. They have become foundational DeFi collateral, dominant in lending markets and LPs. For traders, LST mechanics, peg stability, and exit queue dynamics are essential to understand before using them at leverage.
✕ Common Misconceptions
Assuming LST = ETH for risk purposes — peg deviations and exit delays are real.
Levering up LST collateral without modeling depeg scenarios.
Ignoring validator and operator centralization risk in the chosen LST.
Detailed Explanation
How It Works: A user deposits ETH with a staking protocol. The protocol runs validators (or delegates to operators), accumulates rewards, and issues an LST whose value grows relative to ETH over time — either through rebasing (token balance grows) or accruing (exchange rate grows). The user can redeem the LST for ETH through the protocol's exit queue or sell it on the open market.
FAQs:
Are LSTs safer than just staking directly? They add smart-contract and peg risk on top of staking risk, in exchange for liquidity.
Why do LSTs sometimes trade below ETH? Withdrawal delays, market stress, or exits being congested.
In Practice
Dig Deeper
DeFi
Short for “Decentralized Finance,” it refers to financial applications built on blockchain networks that operate without traditional intermediaries.
Liquid Restaking Token (LRT)
A Liquid Restaking Token (LRT) is a token that represents a position in a restaking protocol — like EigenLayer — where staked ETH (or LSTs) is re-pledged to secure additional services beyond Ethereum itself. Holding the LRT is equivalent to holding restaked exposure that remains liquid and transferable.
Real Yield
Real yield is yield paid to token holders from actual protocol revenue (fees, interest, MEV captured) rather than from token emissions. The distinction matters because emissions are dilutive — they pay yield by printing more of the same token — while real yield is value brought in from users.
Tokenomics
Tokenomics is the study of a token’s economic design, including supply, utility, distribution, incentives, and unlocks.