Liquid staking - slisBNB

What is liquid staking?

Liquid staking tokens represent a user's staked assets on a blockchain network. These tokens allow users to participate in Proof-of-Stake (PoS) networks without sacrificing liquidity.

Traditionally, when a user stake their cryptocurrency in a PoS network, the assets are locked up for a certain period and cannot be used. Liquid staking introduces a tokenized version of these staked assets that users can trade, sell, or use in decentralized finance (DeFi) applications while they're still staked.

These liquid staking tokens are usually issued at a 1:1 ratio to the staked assets and earn rewards in the same way as the original staked assets. Therefore, they allow users to simultaneously secure the network, earn staking rewards, and have the flexibility to participate in other parts of the crypto economy.

Benefits of Liquid staking

As the name suggests, one of the key advantages of liquid staking is liquidity, as it allows users to stake their tokens while retaining the flexibility to trade or use them in decentralized finance (DeFi) applications without waiting for lock-up periods to end. This flexibility enhances capital efficiency and enables users to capitalize on market opportunities quickly.

In general, liquid staking provides 3 key advantages within the current DeFi ecosystem:

Increased Capital Efficiency

Traditional staking provides users with the opportunity to receive rewards for verifying transactions. Liquid staking allows users to continue earning these rewards while also generating additional yield through various DeFi protocols. This approach maximizes the utility of staked assets by enabling simultaneous participation in staking rewards and other DeFi activities.

Unlocked Liquidity

Unlike traditional staking protocols that often require long “unbonding” periods, Liquid Staking Tokens (LSTs) provide the flexibility to exit positions or engage in market activities promptly. By converting staked assets into tokens, LSTs unlock their inherent value, allowing them to be traded and used as collateral across DeFi protocols.

Composability in DeFi:

LSTs enhance flexibility by allowing users to stake on one platform while leveraging their LSTs on another. These tokens represent receipts for staked assets, making them compatible with a wide range of DeFi applications, including lending pools and prediction markets.