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Liquid Staking Explained

Liquid Staking explained by DezentralizedFinance.com

What is Liquid Staking?

Liquid Staking is the next step in the evolution of the proof of stake market.

Users can earn passive income by staking funds. 

The returns can be more than 15% – depending on the protocol. 

Unfortunately, there are some restrictions: 

  • locked-up funds
  • different locked-up periods
  • minimum amount to take part in the proof of stake mechanism

In times of high volatility, this can lead to a loss. You cannot move the funds due to illiquidity. 

If you want to take part in the switch towards Ethereum 2.0 and stake your ETH, you have to deal with these challenges. 

How does Liquid Staking work?

Liquid Staking brings flexibility and liquidity to your staked funds.
You deposit f.e. ETH via a third-party application into a smart contract (deposit contract). 

In return, you receive an issued tokenized version of your funds – a sort of derivative or wrapped token. This minted token represents your ETH. Now it can be transferred, stored, spent, or traded like a regular token.


You can also use this wrapped token for:

  • collateralization
  • lending
  • And for much more

Everything is possible while you are still earning your Ethereum staking rewards.
You can unstake your derivative token at any time. This is possible through the use of stETH-ETH liquidity pools.


Liquid Staking makes interacting with DeFi more flexible.

Liquid Staking and the Lido DAO

The Lido DAO is a Liquid Staking provider and a Decentralized Autonomous Organization.


Lido DAO governs and enables liquid staking solutions.


Lido DAO does that for different blockchains such as:

  • Ethereum 2.0
  • Terra
  • Solana

More blockchains are coming soon.


We recommend testing Liquid Staking at the beginning with a small number of your funds. Then, dive deeper into this exciting topic! So, try to understand all the risks connected with Liquid staking services!

Get more important links about Liquid Staking and the Lido DAO:

Conclusion Liquid Staking

Receiving passive income via Staking is very attractive. But there are downsides like illiquidity of assets. That can scare away potential investors. 

Liquid Staking is the next evolution in the staking market. It allows investors to get a lot of benefits from staking. In addition to that, it limits most of its restrictions.

By tokenizing the funds, users can now stay liquid and use these wrapped tokens (e.g., stETH). Thus, users can access DeFi and manage their positions better. 

Liquid Staking will be the future of the staking economy!

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