Liquid staking is the mechanism by which you deposit your tokens in a protocol, it stakes them for you on the network (Ethereum, Solana, etc.), and in exchange issues you a liquid token representing your staked position. That liquid token (stETH, mSOL, etc.) you can sell, use in DeFi, or post as collateral, while your original stake keeps generating yield.
It's one of the pillars of modern DeFi and solved one of staking's big problems: illiquidity. Before LSDs, staking ETH meant locking it. Now it doesn't.
How it works technically
Take the Lido case (Ethereum):
- Deposit ETH in the Lido contract.
- Lido pools the deposits and stakes them with a curated set of node operators (~30 top operators).
- Issues you stETH 1:1 with your deposit.
- stETH is a rebasing token: your balance grows automatically each day reflecting accumulated yield.
- When you want to exit, you can:
- Sell stETH for ETH on a DEX (fast, minimal slippage).
- Withdraw natively by burning stETH and receiving ETH 1:1 (takes 1-5 days depending on queue).
The price of stETH usually stays within 0.998-1.002 ETH (practically parity) due to arbitrability: if stETH falls much below ETH, there's incentive to buy it and withdraw natively.
For Solana with Jito it's similar but tokens are non-rebasing: you keep the same jitoSOL balance but its price in SOL increases with yield.
Main protocols
Ethereum
Lido (leader with ~30% of total Ethereum staking):
- Token: stETH (rebasing) / wstETH (non-rebasing)
- Yield: ~3-4% APR
- Fee: 10% on generated yield
- Operators: 30+ curated professionals
- Centralization: high market share is controversial
Rocket Pool:
- Token: rETH (non-rebasing)
- Yield: ~3% APR net
- Differentiator: operators must put own collateral (16 ETH + 1.6 RPL). More decentralized.
- Size: ~10% of Ethereum LSD market share
Frax (sfrxETH):
- Token: frxETH (no rebasing) / sfrxETH (with yield)
- Yield: typically higher than Lido (4-5%)
- Model: leverages Frax ecosystem incentives
EigenPie, Renzo, Kelp, Puffer (LRT - Liquid Restaking):
- Receive your stETH/ETH, restake it on EigenLayer, and give you a token (ezETH, rsETH, pufETH) capturing both staking and restaking yield.
- Yield: 3-4% (staking) + 1-3% (restaking) + AVS airdrops = 5-10% APR estimated.
- More detail in Restaking on EigenLayer.
Solana
Marinade Finance:
- Token: mSOL (non-rebasing, price rises with yield)
- Yield: ~6-7% APR
- Model: automatic stake to ~100 diversified validators
- "Directed stake" version: choose your validators
Jito:
- Token: jitoSOL
- Yield: ~7-8% APR (higher due to captured MEV)
- Differentiator: jitoSOL captures MEV via Jito Bundles
- Most-used LSD on Solana in 2026
Sanctum:
- Platform enabling multiple interchangeable LSTs
- Token: INF + specific LSTs
Other chains
- Tenderize (Polygon, BNB)
- Stride (Cosmos chains)
- pSTAKE (multi-chain)
How to use liquid staking — step by step
Lido on Ethereum (most common case):
- Have ETH in your wallet (Rabby or MetaMask).
- Go to stake.lido.fi. Always verify the URL.
- Connect wallet, enter amount.
- Confirm transaction. Reserve 0.01 ETH for gas.
- Receive stETH in ~1 transaction.
- stETH appears automatically in wallets like Rabby. If not, import the contract (
0xae7ab9652...).
More detail in How to stake on Lido step by step.
Marinade on Solana:
- Have SOL in a Solana wallet (Phantom).
- Go to marinade.finance.
- Stake.
- Receive mSOL.
Advanced strategies with LSDs
Looping to amplify yield
Common strategy:
- Stake ETH → stETH (3.5% APR).
- Use wstETH as collateral on Aave.
- Borrow USDC at 4% APR.
- Convert USDC to ETH (on DEX).
- Stake that ETH too.
- Repeat.
Result: amplified yield 1.5-3x depending on leverage. Risk: liquidation if stETH depegs.
LP in wstETH/ETH pools
Curve and Balancer have wstETH/ETH pools with combined yield of:
- wstETH base yield (~3.5%)
- Pool trading fees (~1-3%)
- Extra incentives (CRV, BAL)
Total: 5-9% APR. Risk: low impermanent loss (wstETH ≈ ETH).
Yield tokenization with Pendle
Deposit wstETH on Pendle. The protocol separates:
- PT (Principal Token): represents principal without yield. Buying PT at discount gives you fixed yield until maturity.
- YT (Yield Token): represents only yield. Speculation on variable yield.
Useful for fixing your yield at a specific percentage until a certain date. See PT vs YT yield tokenization.
Restaking with EigenLayer
Deposit stETH or wstETH on EigenLayer to secure additional AVSs. Extra yield + potential airdrops. More detail in Restaking EigenLayer.
Liquid staking risks
1. Smart contract risk
Protocol contracts can have bugs. Lido has 5+ years without major exploits but the risk always exists.
2. Slashing risk
If node operators fail their duties (downtime, double signing), the protocol can be slashed. Serious LSDs have insurance but the risk is real.
3. stETH/mSOL depeg
stETH can temporarily separate from ETH:
- 3AC and Celsius crisis (2022): stETH fell to 0.93 ETH for months.
- Recovery after enabled withdrawals (May 2023): parity restored.
In extreme market conditions it can happen again. If you need ETH urgently and depeg is active, you'll lose something in the swap.
4. Staking centralization
Lido controls ~30% of total Ethereum staking. This worries the community:
- If Lido were compromised, it would be a systemic problem.
- Concentration of power in few hands in a supposedly decentralized network.
Some choose Rocket Pool for its more decentralized model, although with slightly lower yield.
5. Regulatory risk
Liquid staking can be regulated as "security" in some countries. In the US there were regulatory threats but they haven't fully materialized. Changing situation.
6. Operator collusion
If node operators collude, they could attempt to attack the network. Lido has 30+ diverse operators to mitigate this.
Ethereum LSD comparison
| Protocol | Token | Yield | Fee | Pros | Cons |
|---|---|---|---|---|---|
| Lido | stETH/wstETH | ~3.5% | 10% | Max liquidity, DeFi integration | Centralization |
| Rocket Pool | rETH | ~3% | ~15% (via RPL) | More decentralized | Less integration |
| Frax | sfrxETH | ~4-5% | 10% | Higher yield | More complex smart contract |
| EigenPie | egETH | 4-6% | varies | Restaking included | Newer |
| Renzo | ezETH | 4-6% | varies | Automated restaking | Newer |
Solana LSD comparison
| Protocol | Token | Yield | Pros | Cons |
|---|---|---|---|---|
| Jito | jitoSOL | ~7-8% | MEV captured, leader in usage | Validator concentration |
| Marinade | mSOL | ~6-7% | Auto-diversified, veteran | Slightly lower yield |
| Sanctum | multiple | variable | Multiple interoperable LSTs | Newer |
LSD or native staking?
LSD if:
- You have <32 ETH (can't run native validator)
- You want to use your staking in DeFi
- You prefer professional delegation
- You value liquidity
Native staking if:
- You have 32+ ETH and technical knowledge
- You want maximum decentralization
- You don't mind illiquidity
- You want to run a node (also a contribution to the network)
For most: LSD is the practical option.
FAQ
Is stETH a real depeg risk? It happened in 2022. After enabling native withdrawals in 2023, the risk is much lower but not zero. For passive holding: very safe. For DeFi use with leverage: be careful with liquidations if it depegs.
Can I lose money with liquid staking? Under normal conditions: no. In extreme scenarios (hack, massive slashing, depeg) yes you could lose part of the principal.
How are rewards reported to taxes? Each stETH rebase (when your balance increases) is a reportable yield event. For mSOL/jitoSOL, yield is captured in price, so it's a capital gain on sale. More detail in crypto taxes.
What's the difference between stETH and wstETH? stETH is rebasing (balance grows). wstETH is non-rebasing (price rises). wstETH is preferable for DeFi because many protocols don't support rebasing tokens.
Is restaking stETH on EigenLayer safe? Adds an additional risk layer (slashing for AVS failure). Yields are higher but you assume more risk. Don't restake all your stETH.
Conclusion
Liquid staking transformed staking from an illiquid activity with a high barrier into an accessible and composable financial product. Staking ETH or SOL with Lido, Rocket Pool, Marinade, or Jito is probably the first DeFi operation any holder should do.
The natural progression: stake → use the liquid token in lending → eventually explore leveraged staking and restaking. Each level adds yield but also risk.
As a practical rule: the first tranche of your ETH/SOL position stake in vanilla LSD is the simplest and safest. Only when you understand the risks well, consider more complex strategies. The extra yield from looping/restaking may not compensate the risk if you don't know what you're doing.
