What is Liquid Staking & How Does it Work?

What is liquid staking? Staking with no strings attached. When you stake your crypto, it’s locked up – you earn rewards but can’t touch your funds until the staking period ends. Annoying right? That’s where liquid staking flips the game.

How liquid staking works is simple; instead of locking your tokens away, you get a liquid staking token (LST) in return. That LST earns rewards just like staked crypto, but here’s the kicker – you can trade it, lend it out or use it in DeFi to earn even more.

This idea started around 2020 with Lido Finance and Ethereum staking. Fast forward to today, and blockchains like Solana, Polkadot, and Avalanche are getting in on the action. One of the biggest liquid staking benefits is flexibility – you’re not stuck watching your staked crypto collect dust – you can actually put it to work.

When looking at liquid staking vs. traditional staking, the difference is night and day. Traditional staking locks you in – you can’t do anything with your assets. Liquid staking? It keeps your crypto moving, earning and working for you while still securing the network.

What is Liquid Staking? Summary

In this guide, we’ll break down liquid staking in a simple way—how it works, why it’s gaining traction, and how it’s different from regular staking. Instead of locking up your crypto, liquid staking lets you keep earning rewards while still being able to use your assets.

We’ll cover the benefits, the risks, and the top platforms making it happen. If you’re looking for a way to grow your crypto without giving up flexibility, this guide has everything you need to know.

What is Liquid Staking in Crypto?

Staking coins is a popular way to earn rewards in crypto, but traditionally, it meant locking up your tokens. Once staked, you couldn’t access them until the staking period ended, making it less attractive—especially for those who wanted to keep their funds available.

Liquid staking changes this by letting you stake your crypto while still being able to use it. Instead of locking up your tokens completely, liquid staking platforms give you Liquid Staking Tokens (LSTs) in return. These tokens represent your staked assets and can be traded, used in DeFi, or even stacked for extra rewards—all while still earning staking income. This makes staking much more flexible, allowing users to benefit from passive income without losing access to their funds.

Why Liquid Staking is Growing?

Liquid staking is becoming more popular because it solves a big problem: locked-up funds. Instead of having to choose between staking and using your crypto, users can now do both. Platforms like Lido Finance have led the way, making it easier for people to stake without giving up liquidity.

This growth is happening because more investors—especially institutions—want flexible staking options. Traditional staking locked up funds for long periods, limiting what investors could do with their assets.

Liquid staking removes this problem, making staking more attractive for individuals and big investors alike. Institutions, in particular, like that they can stake assets and still have liquidity available for portfolio management and risk control.

How Liquid Staking Evolved?

When staking platforms first became popular, many people realized that its biggest downside was how rigid it was. Crypto holders wanted staking rewards, but they also wanted to keep their funds available for other opportunities. The rise of DeFi made this problem even clearer, as people saw ways to earn returns through lending, borrowing, and yield farming—but couldn’t take advantage of them if their assets were locked.

Liquid staking was developed to fix this. It allows users to keep earning staking rewards while still participating in the broader crypto ecosystem. This not only made staking more accessible but also opened the door for institutional investors, who needed a more flexible way to stake without tying up too much capital.

How Liquid Staking Works?

Liquid staking allows you to earn staking rewards while still being able to use your crypto elsewhere. Unlike traditional staking, where your assets are locked up and inaccessible, liquid staking gives you a tradeable version of your staked tokens. This means you can continue earning rewards while also using your assets in DeFi.

Stage 1: Staking Your Tokens

When you decide to stake your crypto, you typically have to lock it into the network, making it unavailable for anything else until the staking period ends. Liquid staking changes this by letting you deposit your tokens into a liquid staking protocol, which then stakes them on your behalf. These protocols help secure the blockchain while allowing you to remain flexible with your assets. It’s similar to putting money in a fixed deposit at a bank—the bank uses your funds but still provides you with a return over time.

Stage 2: Getting a Liquid Staking Token (LST)

Once you stake your tokens through a liquid staking protocol, you receive a Liquid Staking Token (LST) in return. This token represents your staked assets and can be freely used in other parts of the crypto ecosystem. For example, staking ETH with Lido gives you stETH, a liquid token that holds the same value as your staked ETH. It’s like getting a receipt from the bank when you make a deposit—proof that you still own your money, even if it’s being used elsewhere.

Stage 3: Earning Staking Rewards

Your original tokens remain staked in the network, continuing to generate rewards over time. Unlike traditional staking, where you wait to claim your earnings, these rewards are automatically reflected in your LST balance. This means the value of your liquid token increases over time, much like how a fixed deposit earns interest that gets added to your balance. If you hold stETH, for example, its value grows over time as staking rewards accumulate.

Stage 4: Using Your Liquid Staking Tokens

One of the biggest advantages of liquid staking is that you’re not stuck waiting months to access your funds. Instead, you can use your LSTs in various ways, whether it’s trading them, lending them out, or using them as collateral for loans. They can also be put to work in DeFi strategies like yield farming, allowing you to earn even more on top of your staking rewards. This flexibility makes liquid staking much more appealing than traditional staking, where your assets are locked up with no way to use them.

Stage 5: Redeeming Your Staked Tokens

When you decide to withdraw your original tokens, you can return your LSTs to the staking protocol in exchange for your staked assets. Depending on the blockchain, there might be a short waiting period before your tokens are released, but once the process is complete, you receive your original stake plus any earned rewards. This works much like a fixed deposit—you get back your initial amount along with the interest you accumulated over time.

Examples of Liquid Staking

Liquid staking has become a key part of the DeFi ecosystem, giving users the best of both worlds—staking rewards without locking up their assets. Instead of choosing between earning yield and having access to your crypto, liquid staking lets you do both. Two of the biggest platforms making this possible are Lido Finance and Rocket Pool, each offering a unique approach to liquid staking.

Lido Finance

Lido Finance is one of the most popular liquid staking platforms, especially for Ethereum holders. Normally, staking ETH requires locking up at least 32 ETH and running a validator node, which is expensive and technically complex. Lido removes these barriers by allowing anyone to stake any amount of ETH without having to worry about managing a node.

When you stake ETH through Lido, you receive stETH, a liquid staking token that represents your staked ETH. The big advantage of stETH is that it accrues staking rewards automatically, meaning its value increases over time. Unlike traditional staking, where your ETH is locked and unusable, stETH remains liquid—you can trade it, sell it, or use it across DeFi platforms. Many users deposit stETH into lending protocols to earn even more yield or use it as collateral for loans, effectively doubling their earning potential while still benefiting from staking rewards.

Rocket Pool

Rocket Pool offers a slightly different approach, with a stronger focus on decentralization and community involvement. Just like Lido, it allows users to stake ETH and receive a liquid staking token in return—in this case, rETH. rETH functions similarly to stETH, growing in value as staking rewards accumulate, while still being usable across the DeFi ecosystem.

One of Rocket Pool’s standout features is that it lets users run their own validator nodes with just 16 ETH instead of the usual 32 ETH. The remaining ETH needed to meet the staking requirement comes from other users, allowing more people to participate in Ethereum’s security and staking process. This setup makes staking more accessible while also improving the decentralization of the network, since more independent validators mean a stronger, more secure blockchain.

Ankr

Ankr takes liquid staking a step further by offering support across multiple blockchains, not just Ethereum. Unlike platforms like Lido and Rocket Pool, which focus mainly on Ethereum staking, Ankr allows users to stake assets on networks like Binance Smart Chain, Polygon, and more. This multi-chain approach gives stakers more options and flexibility, making it easier to earn rewards without being tied to a single ecosystem.

When you stake through Ankr, you receive aTokens, which represent your staked assets. These tokens keep earning staking rewards just like traditional staking, but with one big difference—they stay liquid. That means instead of waiting for a lock-up period to end, you can trade, lend, or use your aTokens in various DeFi applications while your original assets continue to generate rewards. It’s like having your money in a high-yield savings account while still being able to spend it.

By making staking more accessible and flexible, Ankr gives users a way to maximize the utility of their crypto without sacrificing liquidity. Whether you’re staking Ethereum, BNB, or MATIC, you’re not just earning passive rewards—you’re staying active in the broader DeFi ecosystem. This makes Ankr a great option for those who want to make their crypto work for them without giving up control over their assets.

What are Liquid Staking Tokens (LSTs)?

Liquid Staking Tokens (LSTs) are changing how crypto investors earn passive income by making staking more flexible. Normally, when you stake assets on Proof-of-Stake (PoS) networks, your tokens get locked up to help secure the network.

That’s great for network security, but it also means you can’t use your assets elsewhere while they’re staked. LSTs solve this problem by giving you a tokenized version of your staked assets, letting you earn staking rewards while still being able to use them in decentralized finance (DeFi).

Take Ether (ETH), for example. If you stake ETH through Lido Finance, you get stETH in return. This stETH still earns staking rewards, but you can also use it for lending, borrowing, or trading in DeFi. Other platforms like Rocket Pool and Ankr offer their own versions, such as rETH and aETHc, each with slightly different features but the same core idea—keeping your assets liquid while they’re staked.

There’s an ongoing debate about whether liquid staking tokens should be classified as financial instruments. A Mondaq article points out that LSTs issued by third parties might be considered debt instruments under EU regulations (MiFID II). Since the staked tokens can be compared to the purchase price of a bond, and the staking rewards resemble interest payments, some regulators might view LSTs as falling under traditional financial rules.

But right now, institutional adoption is still lagging behind. Laurian Gabel, CEO and Co-founder of Figment, put it bluntly during a Tokyo FinTech panel discussion:

“I think liquid staking is probably like 12 to 24 months away for a lot of those institutions, at least that come from the TradFi side.” – Laurian Gabel, CEO and Co-founder of Figment

While crypto-native investors have jumped in, many traditional financial firms are still on the sidelines, unsure how to approach liquid staking.

Part of the problem comes down to a lack of understanding from regulators. Colin Verhagen, Head of APAC at Kiln, explained the issue:

“The big hurdle is still education. Sometimes regulators don’t even know or don’t even try to know the difference between lending and borrowing and staking, liquid staking, restaking. So in my opinion, we’re still far away from TradFi and regulators fully embracing this.”

Verhagen continued, saying,

“I think we’re not even seeing the first big wave, and there’s a way bigger tsunami coming when real institutions and regulators start to understand and hopefully unblock many of the restrictions or fears they have when it comes to staking.”

On the other side of the debate, some believe LSTs are already proving their worth. Marin Tvrdic, Master of Protocol Relations at Lido DAO, sees them as a powerful form of collateral in DeFi. As he put it during the Tokyo FinTech panel,

“I still think liquid staked tokens are the best collateral out there because they’re accruing rewards while you passively hold them.”

So, are LSTs just another financial product, or are they something completely new? That’s the big question regulators and investors are still trying to figure out. But one thing is clear—liquid staking is here to stay, and as more institutions start to understand it, we’re likely to see even bigger waves of adoption.

Why Are LSTs Gaining Popularity?

One of the biggest reasons behind the rise of LSTs is that they make your money work harder. Traditional staking is great for earning passive income, but the downside is that your funds are stuck. With LSTs, you can take those staked assets and put them to work in lending, trading, or yield farming.

This means more opportunities to grow your holdings without waiting for the long unstaking process.

Another huge factor driving LST adoption is the shift towards Proof-of-Stake (PoS) blockchains. Ethereum, for example, moved to PoS with its big upgrade, and staking has exploded as a result. Lido’s stETH token went from just $20 million in market cap in 2021 to over $15 billion by mid-2023. That shows how much demand there is for a way to keep assets liquid while staking.

Now, let’s talk 2024, because things have gone into overdrive. Ethereum’s liquid restaking protocols saw a massive spike in total value locked (TVL), jumping from just $284 million at the start of the year to a mind-blowing $17.26 billion by December. That’s nearly a 6,000% increase.

Over on Solana, the liquid staking scene also took off, hitting $8 billion in market cap. JitoSOL is leading the pack with 41.5% market dominance, followed by mSOL and jupSOL. These numbers show that more and more people are looking for ways to earn staking rewards without giving up access to their funds.

Another reason LSTs are blowing up is that DeFi projects are integrating them in new ways. A lot of platforms now accept LSTs as collateral, meaning you can use your staked assets to take out loans or trade, all while still earning rewards. This makes DeFi even more attractive, as users can do more with their crypto without having to unstake it.

That being said, LSTs aren’t perfect. Their value can fluctuate depending on demand, staking rewards, and liquidity. Sometimes, an LST might trade at a slight discount to the underlying asset because of market conditions.

If staking rewards are low or there isn’t much trading volume, the price gap between the LST and the actual staked crypto can widen. On the flip side, when more people get interested and trust the system, that gap narrows, making LSTs even more appealing.

Liquid staking tokens give people the flexibility to earn passive income while still being able to move their assets around in DeFi. And with 2024 seeing record-breaking growth in both Ethereum and Solana’s LST ecosystems, it’s clear that this trend isn’t slowing down anytime soon. If anything, liquid staking is on track to become a core part of the crypto economy.

Benefits of Liquid Staking?

Liquid staking isn’t just about making staking more flexible—it’s about getting more out of your assets. Instead of locking up your crypto, you can keep it liquid, earn rewards, and still use it in DeFi for lending, borrowing, or yield farming.

It also lowers risks like long lockup periods and validator penalties, making it a win-win for both individual users and institutions. Here’s a breakdown of the biggest benefits:

How Much Profit Liquid Staking Provides?

Liquid staking allows you to earn rewards by staking your cryptocurrency while still being able to use your funds in other ways. Instead of locking up your crypto like traditional staking, liquid staking gives you a special token that represents your staked assets. You can then use this token in different DeFi platforms to earn extra rewards.

Returns are typically calculated as an annual percentage rate (APR). The amount of profit you can make depends on the cryptocurrency and the platform you choose. For example, if you stake Ethereum through Lido, you might earn around 4.2% per year.

Other platforms like Mantle or Rocket Pool offer similar rates, usually between 3.17% and 4.61%. If you stake Solana, the rewards are often higher, with some platforms offering around 8% per year. These numbers can change over time depending on how many people are staking and how rewards are distributed.

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Your actual profit depends on a few things. First, platforms take a small fee from your staking rewards. Lido, for example, takes 10%, while some exchanges might take even more. Second, staking rewards go up and down based on how many people are staking at the same time. Some centralized exchanges charge up to 25%, like Coinbase.

If too many people are staking, the rewards get smaller. Third, you can use your liquid staking tokens in DeFi apps to try and earn even more, but that comes with extra risks.

While liquid staking is a great way to earn passive income, it’s important to choose a trusted platform and understand the risks involved. The value of your staked token might change, and smart contracts can have security issues. However, if done right, liquid staking is a good way to make your crypto work for you while keeping it flexible.

Centralized vs. Decentralized Liquid Staking

Not all liquid staking platforms work the same way. Some are centralized, meaning a single company manages the staking process and issues the tokens. These platforms tend to be easier to use and offer customer support, but you have to trust them to manage your funds properly, which introduces counterparty risk.

Decentralized platforms, on the other hand, use smart contracts and distribute control across multiple participants, making them more secure and less reliant on a single entity. The tradeoff? They can be a bit more complex to use, requiring a better understanding of blockchain mechanics.

Liquid Staking Tokens (LSTs) & Liquid Staking Derivatives (LSDs)

Liquid Staking Tokens (LSTs) and Liquid Staking Derivatives (LSDs) both let you stake your crypto while keeping it liquid, but they work a little differently. Let’s dive deep with a quick breakdown and some easy-to-follow examples.

LSTs are pretty straightforward. When you stake your crypto with a liquid staking protocol, you get an LST in return—basically a token that represents your staked assets. This means you still earn staking rewards, but you can also use your LST in DeFi to lend, borrow, or trade.

For example, if you stake ETH with Lido, you get stETH, which you can use across different platforms while your original ETH stays staked.

Imagine you have 10 ETH and decide to stake it through a liquid staking protocol like Lido. Normally, if you stake directly with Ethereum, your ETH is locked up, and you can’t touch it until the unlock period ends. But with LSTs, things are different. Lido gives you 10 stETH, a token that represents your staked ETH.

This stETH keeps earning staking rewards, and you can also use it in DeFi—maybe to provide liquidity on a DEX, lend it out for interest, or even swap it back for ETH if you need quick access to funds. It’s like getting a receipt for your deposit, but that receipt itself can be used to make more money.

LSTs vs. LSDs: A Comparative Analysis

Now, let’s look at LSDs and how they’re different. While they also represent staked assets, they often come with extra financial features like leverage or hedging. This makes them more appealing to advanced investors who want to maximize their returns or manage risk more strategically.

Some protocols issue LSDs that give users more flexibility, but they can also be more complex than regular LSTs.

Say you use another liquid staking platform that issues LSDs instead of basic LSTs. When you stake 10 ETH, you might receive something like 10 xETH—but this isn’t just a one-to-one representation of your staked ETH. This LSD could have extra benefits, like letting you leverage your position.

For example, you might be able to use xETH as collateral to borrow even more ETH, which you can then stake again, effectively compounding your rewards. Or, maybe the LSD platform has a built-in mechanism to hedge against slashing risks, reducing the chances of losing funds if a validator gets penalized.

In simple terms, LSTs are the beginner-friendly option—they let you stake, stay liquid, and use your assets in DeFi. LSDs take things further by adding extra financial tools like leverage, hedging, or custom reward strategies, which are great for advanced users but might be a bit more complex.

Both LSTs and LSDs give you the freedom to keep using your crypto while staking, but if you just want a simple way to earn rewards and still have liquidity, LSTs are the way to go. If you’re looking to maximize profits with more advanced financial strategies, LSDs could be a better fit.

Difference Between Staking and Liquid Staking?

Staking and liquid staking both let you earn rewards by helping secure a blockchain via Proof of Stake, but they work differently. With traditional staking, you lock up your cryptocurrency for a set period, and during that time, you can’t use or move it.

This is great for earning rewards, but the downside is that your crypto is stuck, and you can’t do anything else with it until the staking period ends.

Liquid staking, on the other hand, solves this problem by giving you a special token in exchange for your staked crypto. This token represents your staked assets and can be used in different ways while your original crypto continues earning rewards. You can trade the token, use it in DeFi apps, or even lend it out to make extra returns. This means you get the benefits of staking while still having access to your funds.

The main advantage of liquid staking is flexibility. Instead of being locked away, your staked crypto is still working for you in multiple ways. However, this approach comes with added risks, such as potential issues with the smart contracts that manage the process or the value of the liquid staking token fluctuating.

In short, traditional staking is simple but restrictive, while liquid staking gives you more options but also introduces additional risks.

How Liquid Staking is Different From Restaking?

The main difference between liquid staking and restaking comes down to what they do with your staked assets. Liquid staking is all about keeping things flexible—you stake your crypto, but instead of locking it up, you get a token that you can still use in other ways, like trading or earning extra rewards in DeFi. It’s like putting your money in a high-interest savings account while still being able to spend a digital version of it.

Restaking, on the other hand, is about taking things a step further. Instead of just earning rewards from staking, restaking lets you use those same staked assets again to help secure other blockchain services, earning even more rewards. Think of it like renting out a property you own, then using that rental income to invest in even more properties—your original investment keeps working for you in multiple ways.

For example, if you stake ETH with Lido, you get stETH, which you can use in DeFi while still earning staking rewards. But if you restake that stETH on a platform like EigenLayer, and receive a liquid restaking token (LRT) in return it’s now also helping secure other protocols, and you’re stacking up even more rewards on top.

So, the big difference is this: liquid staking makes your staked assets usable in other ways, while restaking finds ways to use those assets again to earn even more. Liquid staking gives you flexibility, while restaking focuses on squeezing the most rewards out of your stake.

Limitations of Liquid Staking

Liquid staking is a great way to earn staking rewards while keeping your assets flexible, but it does come with some risks and limitations that you should be aware of.

Is Liquid Staking Safe?

Liquid staking is generally safe if you choose a reliable platform and understand the risks involved. Well-established platforms like Lido, Rocket Pool, and Frax have built strong security measures, but no system is 100% risk-free.

If you’re considering liquid staking, it’s important to do some research. Choose platforms that have been around for a while and have audited smart contracts. Also, keep in mind that even though liquid staking lets you use your assets in DeFi, taking too many risks—like using LSTs for high-risk yield farming—can lead to losses.

Overall, liquid staking is a solid way to earn passive income in crypto while keeping your assets flexible, but it’s not completely risk-free. Understanding the potential downsides will help you make better decisions and protect your investments.

Best Liquid Staking Platforms

In this section, we’ll break down the best liquid staking platforms, what they offer, and which blockchains they support.

Lido

Lido is a liquid staking platform that lets users stake their crypto without locking it up. Instead of being stuck, your staked assets remain usable through special tokens.

Instead of running your own validator or meeting high staking requirements, you can deposit your tokens into Lido and receive a liquid staking token in return—like stETH for Ethereum. These tokens represent your staked assets and keep earning rewards, but the best part is that you can still use them in DeFi, whether for lending, trading, or yield farming.

Originally built for Ethereum, Lido has since expanded to support Solana, Polkadot, Kusama, and Polygon.

Lido Pros and Cons

In short, Lido makes staking flexible and easy, allowing you to earn rewards without losing access to your crypto. However, as with any DeFi tool, it’s important to be aware of the risks, especially around centralization and smart contract security.

Jito Network

Jito Network is a liquid staking platform built on Solana that lets users stake their SOL tokens while still keeping them accessible. When you stake with Jito, you receive JitoSOL tokens, which represent your staked assets and can be used in DeFi.

What makes Jito stand out is its use of Maximum Extractable Value (MEV) strategies—a technique that helps validators earn more, which in turn increases rewards for stakers. Right now, Jito is only available on Solana and doesn’t support other networks.

Jito Network Pros and Cons

Jito Network offers a unique liquid staking experience on Solana, combining staking rewards with MEV strategies to maximize profits. Its non-custodial and open-source nature makes it secure and transparent, while the ability to use JitoSOL in DeFi adds extra flexibility. However, users should be aware of the risks tied to MEV and the fact that it’s currently exclusive to Solana.

Marinade Finance

Marinade Finance is a decentralized, non-custodial liquid staking platform built on the Solana blockchain. It lets users stake their SOL tokens while still keeping them accessible by issuing “marinated SOL” (mSOL) tokens in return.

These mSOL tokens can be used in DeFi platforms to earn extra yield while still collecting staking rewards. Unlike some other liquid staking platforms, Marinade Finance is currently exclusive to Solana and doesn’t support other blockchains.

Marinade Finance Pros and Cons

Marinade Finance makes staking on Solana more liquid. Its automated staking and user-friendly features make it a strong option for earning staking rewards while staying active in DeFi. However, like all DeFi platforms, it comes with some risks, so users should be aware of potential smart contract issues and slippage when unstaking.

Ankr

Ankr is a decentralized liquid staking platform that lets users stake crypto across multiple blockchains like Ethereum, Binance Smart Chain, and Polygon while keeping their assets accessible.

Instead of locking up tokens, users receive liquid staking tokens that can be used in DeFi applications, allowing them to earn rewards while maintaining flexibility.

Additionally, by distributing stakes across several validators, Ankr also reduces centralization risks while ensuring optimal staking efficiency.

Ankr Pros and Cons

Ankr is a great option for users who want staking rewards without giving up liquidity. Its multi-chain support and deep DeFi integration make it ideal for those looking to maximize their earning potential while keeping their assets flexible. However, users should be aware of platform risks, smart contract vulnerabilities, and fluctuating staking returns. If you’re comfortable navigating DeFi, Ankr offers a powerful alternative to traditional staking with more freedom and utility.

Binance

Binance, one of the biggest crypto exchanges, offers liquid staking through Binance Earn, making it easy for users to stake assets without locking them up. Instead of traditional staking, where funds are inaccessible for a set period, Binance gives users wrapped tokens like WBETH for Ethereum.

These tokens not only represent staked assets but also keep earning rewards, all while being tradable or usable in DeFi applications.

What makes Binance stand out is its centralized but user-friendly approach. Unlike decentralized staking, where users pick validators and manage technical details, Binance takes care of everything behind the scenes. It supports multiple blockchains, including Ethereum and Binance Smart Chain (BSC), offering a multi-chain staking experience without the usual complexity.

Binance Pros and Cons

Binance’s liquid staking is a hassle-free way to earn rewards while keeping funds accessible, making it ideal for users who want staking benefits without restrictions. However, since it’s centralized, users must trust Binance with their assets, and regulatory risks could impact its services. For those looking for simplicity and flexibility, Binance is a solid choice, but those who prefer full control may want to explore decentralized alternatives.

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How to Choose the Right Liquid Staking Platform?

Picking the right liquid staking platform is important if you want to maximize your rewards, keep your assets secure, and ensure you have enough flexibility to use your funds when needed.

Not all platforms are the same—some offer better security, lower fees, or more blockchain support than others. Here’s what you should look at before deciding where to stake your assets.

Reputation and Security

Security should always come first when choosing a liquid staking platform. Since staking involves smart contracts and validators, you want to be sure the platform you’re trusting with your assets is reliable, well-audited and has a strong reputation in the industry.

The best platforms are upfront about how they secure your funds, how they choose their validators, and whether they’ve undergone third-party security audits. For example, Ankr strengthens security by spreading stakes across multiple validators, lowering the risk of any single validator failure. Sticking with trusted, audited platforms will help you avoid unnecessary risks.

Supported Blockchains and Tokens

Not every staking platform supports every cryptocurrency, so make sure the one you choose allows you to stake the tokens you actually own. Some platforms are Ethereum-focused, while others offer multi-chain support, letting you stake assets across networks like Solana, Binance Smart Chain, and Polygon.

For instance, Lido, Ankr, and Binance support a variety of blockchains, giving users more options if they want to stake different assets in one place. If you plan on diversifying your staking, a platform with wide blockchain compatibility is a better choice.

Rewards and Fees

Staking rewards are a big part of the decision, but they don’t tell the full story. Some platforms offer high returns but take a big chunk in fees, while others provide steady earnings with fewer hidden costs.

Before committing, compare the staking reward rates, platform fees, and any additional charges that could eat into your profits. Sometimes, a platform with slightly lower rewards but stronger security and lower fees is the smarter long-term choice. Understanding both the earnings and the costs upfront will help you avoid surprises later.

Liquidity and Derivative Token Use

One of the biggest benefits of liquid staking is that your assets aren’t completely locked up. Instead, you receive liquid staking tokens (LSTs), which can be used in DeFi platforms for lending, trading, or earning extra rewards.

For example, Ankr issues liquid staking tokens that can be used across different DeFi platforms, giving users the flexibility to compound their earnings while still earning staking rewards. If you want to use your staked assets beyond just earning passive rewards, choose a platform with strong liquidity and DeFi integrations.

Transparency and Governance

A good liquid staking platform should be clear about how it operates and give users some say in its future. Some platforms operate as Decentralized Autonomous Organizations (DAOs), where token holders can vote on major decisions, protocol upgrades, or fee structures.

A platform that communicates openly, has clear rules, and involves its users in governance is often more trustworthy than one that operates behind closed doors. If you like the idea of having a voice in the platform’s decisions, look for one that values transparency and community participation.

How to Participate in Liquid Staking?

Well, getting started with liquid staking on Binance is simple.

For this example, we’ll use Binance, so follow these steps to stake your crypto while keeping your funds liquid.

1. Create or Log In to Your Binance Account

• If you don’t have an account yet, sign up at binance.com and complete the verification process. If you’re already a user, just log in.

2. Deposit the Cryptocurrency You Want to Stake

• Make sure you have the crypto you want to stake (e.g., ETH, BNB) in your Binance wallet. You can deposit it from an external wallet or buy it directly on Binance.

3. Go to the Staking Section

• On the Binance homepage, hover over the “Earn” tab and select “ETH Staking” or the relevant staking option for your asset.

4. Select Liquid Staking

• If you’re staking Ethereum, choose ETH Staking to receive WBETH, Binance’s liquid staking token for ETH. Other assets may have their own liquid staking tokens.

5. Stake Your Crypto

• Enter how much you want to stake and confirm. Binance will then issue liquid staking tokens (like WBETH), which represent your staked funds.

6. Use Your Liquid Staking Tokens

• You can hold these tokens to keep earning rewards or use them in DeFi for extra earning opportunities, such as lending or yield farming.

Popular Cryptocurrencies That Support Liquid Staking

Several major blockchains support liquid staking, each offering unique benefits depending on their network design and ecosystem.

Let’s break down some of the most popular ones and what makes them stand out.

Ethereum

Ethereum is one of the most widely used blockchains for liquid staking, especially after its shift to Proof-of-Stake (PoS). Normally, staking ETH requires locking up 32 ETH and running your own validator, but liquid staking removes that barrier, making it accessible to anyone.

Platforms like Lido, Rocket Pool, and Coinbase allow users to stake any amount of ETH and receive liquid staking tokens like stETH or rETH. These tokens earn staking rewards automatically and can be used in Ethereum’s huge DeFi ecosystem, making them incredibly versatile.

What makes Ethereum’s liquid staking special? It has the deepest DeFi integration of any blockchain. You can use your liquid staking tokens for lending, liquidity mining, and yield farming on platforms like Aave, Curve, and Uniswap—all while your ETH keeps generating staking rewards. This double-earning potential is why Ethereum remains a top choice for liquid staking.

Solana

Solana is known for high-speed transactions and ultra-low fees, making it one of the most efficient networks for liquid staking. Unlike Ethereum, where transactions can be costly, Solana keeps fees low, making it easier to move liquid staking tokens around.

Platforms like Marinade Finance, Jito, and Socean allow users to stake SOL and receive mSOL or JitoSOL, which can be used across Solana’s DeFi ecosystem for lending, trading, and other yield-generating activities.

The main advantage of liquid staking on Solana? Speed and cost-efficiency. Transactions settle in seconds, and fees are a fraction of a cent, making it much more practical for DeFi users who want to frequently move their assets.

Polkadot

Polkadot is designed for cross-chain interoperability, allowing multiple blockchains (called parachains) to connect and share security. This makes liquid staking on Polkadot unique because it helps secure multiple networks at once.

Platforms like Ankr and Stafi let users stake DOT and receive liquid staking tokens that can be used across Polkadot’s DeFi ecosystem. The relay chain structure of Polkadot also means that staked DOT can help secure multiple parachains, adding an extra layer of utility to the staking process.

Why consider Polkadot for liquid staking? It’s one of the best options for users interested in cross-chain functionality. As more parachains go live, liquid staking tokens could become even more valuable across different ecosystems.

Avalanche

Avalanche has gained popularity thanks to its fast finality and efficient staking process. Unlike Ethereum, where transactions can take longer to confirm, Avalanche’s consensus mechanism allows near-instant finalization, making it an excellent option for liquid staking.

Platforms like BENQI and Yield Yak enable users to stake AVAX and receive sAVAX, which can be used across Avalanche’s DeFi platforms for lending, borrowing, and liquidity mining.

Avalanche’s key strength? Its speed and efficiency. Transactions settle in seconds, making it one of the fastest networks for both staking and DeFi activities. If you’re looking for a blockchain with low latency and strong staking incentives, Avalanche is a solid choice.

Top Mythbusters: Liquid Staking

Liquid staking is still misunderstood by many in the crypto space, leading to several myths and misconceptions. Let’s clear things up and separate fact from fiction.

Myth 1: Liquid staking isn’t real staking

Debunked: Liquid staking works just like traditional staking—your crypto assets are still securing a PoS network and earning rewards. The difference? You get a liquid token in return, which can be used elsewhere while your original stake keeps working for you. This opens up new opportunities for earning additional rewards in DeFi.

Myth 2: Liquid staking is too risky

Debunked: Like any investment, liquid staking comes with associated risks, but that doesn’t mean it’s unsafe. Reputable platforms undergo thorough research and security audits to minimize potential risks. The real risk comes from choosing the wrong platform or mismanaging your assets—always store your staking tokens in a secure wallet and do your due diligence.

Myth 3: Liquid staking gives lower APY than traditional staking

Debunked: Liquid staking can actually lead to higher returns than traditional staking because it allows you to use your staked assets in DeFi. You still earn staking rewards, but you can also put your liquid tokens to work in lending, yield farming, or liquidity pools, boosting your overall APY.

Myth 4: Liquid staking is only for advanced users

Debunked: While it may seem complex at first, many platforms make liquid staking beginner-friendly. If you can stake normally, you can stake liquid tokens—it’s just a matter of choosing a good platform, staking your assets, and receiving a liquid token in return. With the right approach, even newcomers can take advantage of liquid staking’s benefits.

Myth 5: Liquid staking removes the risks of staking

Debunked: Liquid staking improves flexibility, but it doesn’t eliminate volatility or other risks. The value of liquid staking tokens can fluctuate, and if a validator gets penalized (slashing), it could impact your earnings. Understanding these potential risks is key to making informed decisions.

By debunking these myths, it’s clear that liquid staking isn’t just hype—it’s a practical way to maximize your crypto assets while keeping them accessible. Just remember: thorough research is the best way to protect your investment.

Future of Liquid Staking

Liquid staking is evolving fast. More people are using it, new blockchains are jumping on board, and there’s an ongoing debate about security, liquidity, and where it’s all headed. Some experts see huge opportunities, while others warn about serious risks.

Take Solana, for example. According to a tweet by Web3insights.io, a recent report by Messari Crypto shows that liquid staking on Solana has been exploding, growing 33% quarter-over-quarter with tokens like JitoSOL, bnSOL, and mSOL are showing the highest growth.

But despite the surge in adoption, there are still some roadblocks. On the Unqualified Opinions podcast, Steimetz Kinji pointed out that liquidity issues are holding liquid staking tokens back. He explained how Sanctum is working to solve this problem by making it easier for new liquid staking tokens to gain traction and be widely used in DeFi.

🎙️ New Episode Alert!

Solana is booming, but liquid staking is underperforming. In the latest episode of The Unqualified Opinions podcast, @SteimetzKinji explains how @sanctumso aims to solve the liquidity problem for new liquid-staked tokens, making it easier for them to grow. pic.twitter.com/pN0THTV6XT

— Messari (@MessariCrypto) July 24, 2024

 

And it’s not just Ethereum and Solana anymore—other blockchains are starting to embrace liquid staking too. In a tweet, user Crypto Eri (@sentosumosaba) recently explained out how XRP-Fi is introducing liquid staking for XRP holders, allowing them to stake their assets while using liquid staking tokens for yield farming, lending, and even cross-chain swaps.

👀Liquid Staking will be a new DeFi offering for the #XRP holders. Utilize your XRP for rewards but get liquid staking tokens (LSTs) to use elsewhere. Trade, invest, or hold these while still earning, keeping your XRP both liquid and profitable. https://t.co/dc13apoRNg pic.twitter.com/UC2losiCCf

— 🌸Crypto Eri 🪝Carpe Diem (@sentosumosaba) January 7, 2025

 

Over in the Sui Network, research from Volo suggests that liquid staking will play a key role in DeFi’s expansion, with platforms like Aftermath and Haedal already making waves.

But not everyone is convinced that liquid staking is the future. Rex from R89Capital has been vocal about the security risks, arguing that DeFi is still vulnerable to hacks and that most users should avoid liquid staking altogether.

My true opinion is most of you should not touch liquid staking.

For one thing, DeFi will continue to get hacked on a pretty regular basis.

Also, most of you are stupid and will lose all your money. Just leave it staked and don't do anything till 2025.

NFA.

— Rex (@R89Capital) October 4, 2023

 

His concerns aren’t unfounded—smart contract vulnerabilities and protocol risks remain a real challenge. As liquid staking grows, so does the risk of potential exploits, which is something users need to be aware of.

Still, it’s clear that liquid staking is gaining momentum. More networks are actively pushing for adoption, and as better liquidity solutions emerge, it could become a core pillar of DeFi. But security concerns, liquidity issues, and regulatory uncertainty still need to be addressed before liquid staking can fully go mainstream.

For now, it remains an exciting yet evolving space, full of both promise and risks.

Conclusion: What is Liquid Staking?

Think of liquid staking as staking on your terms. Normally, when you stake your crypto, it’s locked up—you earn rewards, but you can’t touch it until the staking period ends. Liquid staking flips the script. It lets you stake your assets and still use them by giving you a liquid staking token (LST) in return.

That means you can keep earning staking rewards while also using your tokens for trading, lending, or yield farming in DeFi. It’s like getting paid for holding your crypto without losing access to it.

Sounds like a win-win, right? Well, almost. There are still risks to consider, like smart contract bugs, liquidity challenges, and potential security threats. Not every platform is created equal, so choosing a reliable one is key.

As liquid staking continues to grow, it’s quickly becoming a core part of DeFi, giving users more ways to put their assets to work. If you’re in crypto for the long haul, this is one trend you’ll want to keep an eye on.

See Also:

• Bitcoin Staking: How to Earn Rewards by Staking Crypto?
• XRP Staking: How to Earn Rewards With XRP in 2025

Frequently Asked Questions

How does liquid staking work?

Liquid staking lets you stake your crypto and earn rewards without locking up your assets. Instead, you get a liquid token that represents your staked funds, which you can use in DeFi for extra earning opportunities.

How is liquid staking different from traditional staking?

With traditional staking, your funds are locked and can’t be used until the staking period ends. Liquid staking, on the other hand, gives you a tokenized version of your staked assets that you can trade, lend, or use in DeFi while still earning staking rewards.

Are there any risks involved in liquid staking?

Yes, like anything in crypto, there are risks. These include smart contract vulnerabilities, the risk of validator penalties (slashing), and price fluctuations of the liquid staking tokens. Always do your research before choosing a platform.

Which cryptocurrencies support liquid staking?

Many major cryptocurrencies support liquid staking, including Ethereum (ETH), Solana (SOL), Polkadot (DOT), and Avalanche (AVAX). Different platforms offer support for various assets, so it’s worth checking before staking.

What are staking derivative tokens?

Staking derivative tokens are the liquid tokens you receive when you stake through a liquid staking platform. They represent your staked crypto and can be used in DeFi while your original assets continue earning rewards.

Can I lose my funds in liquid staking?

Your original staked assets are generally safe unless there’s a validator penalty (slashing) or a major issue with the platform’s smart contracts. However, the value of your liquid staking tokens can fluctuate, so there’s always some risk.

What are the best platforms for liquid staking?

Some of the most popular liquid staking platforms include Lido, Ankr, and Rocket Pool. Each has different features, supported blockchains, and fees, so it’s a good idea to compare them before making a choice.

Is liquid staking suitable for beginners?

Yes, liquid staking is beginner-friendly since it removes the hassle of managing validators and lock-up periods. That said, it’s important to understand the risks and how liquid staking tokens work before diving in.

References

• Cornell Law School. “Annual Percentage Rate (APR).” Legal Information Institute, https://www.law.cornell.edu/wex/annual_percentage_rate_(apr).
• BNB Chain. “What Is Liquid Restaking? Liquid Staking vs. Liquid Restaking.” BNB Chain Blog, https://www.bnbchain.org/en/blog/what-is-liquid-restaking-liquid-staking-vs-liquid-restaking.
• Ethereum Foundation. “Proof-of-Stake (PoS).” Ethereum.org, https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/.
• Mondaq. “Liquid Staking Tokens: Financial Instruments or Crypto Assets?” Mondaq, https://www.mondaq.com/fin-tech/1443328/liquid-staking-tokens-financial-instruments-or-crypto-assets.
• YouTube. “Liquid Staking & Restaking Explained.” YouTube, uploaded by [Channel Name], https://www.youtube.com/watch?v=kosotEYfF1U.
• Wiley Online Library. “Future of Liquid Staking in Crypto Markets.” Journal of Futures Markets, https://onlinelibrary.wiley.com/doi/full/10.1002/fut.22556.