In the world of decentralized finance(DeFi), the concept of staking has been one of the most popular tools for generating passive returns. However, users often face a dilemma: locking their assets for rewards or keeping liquidity to take advantage of market opportunities. This is where Liquid Staking comes into play, offering the best of both worlds: the ability to earn returns without compromising the liquidity of your assets.
According to recent information from DefiLlama, the total value locked in (TVL) in liquid staking has reached impressive figures, exceeding $43 billion globally. This growth reflects the rapid adoption of this innovative tool within the DeFi ecosystem, similar to the boom in the yield farming sector in its early days.
In this article, we will explore in depth how liquid staking is revolutionizing the way investors manage their digital assets, combining flexibility and profitability in an innovative way. We will also analyze the main platforms leading this trend, such as Lido, Rocket Pool, Marinade Finance, Frax Finance, and the solutions provided by Coinbase and Binance.
Top Liquid Staking protocols (DefiLlama)
Liquid staking is a process that allows users to participate in the staking of their cryptocurrencies for rewards without having to lock up their assets for an extended period of time. Unlike traditional staking, where funds are immobilized due to the needs of its consensus protocol Proof of Stake (PoS)liquid staking tokenizes the locked assets, allowing these tokens to be used in other activities within the DeFi ecosystem, such as trading, lending, or yield farming.
These representative tokens, often called "staking derivatives," hold a value that reflects both the underlying asset and the staking's accumulated rewards, providing a flexible and highly liquid solution for investors.
The idea of liquid staking emerged as a response to the limitations of traditional staking. In the early days of DeFi, users wishing to participate in staking had to commit their funds, often for long periods, which prevented them from taking advantage of other investment opportunities or reacting to market volatility.
Projects such as Lido and Rocket Pool pioneered the implementation of liquid staking on networks like Ethereum 2.0, allowing users to stake their ETH while maintaining the ability to move and use their tokens on other DeFi platforms. This approach has not only democratized access to staking, but also increased staking adoption by removing the barrier of asset lock-in.
Over time, other platforms such as Marinade Finance in Solana and Frax Finance have further expanded the possibilities of liquid staking, offering solutions tailored to different blockchain ecosystems and user needs. In addition, centralized exchanges such as Coinbase and Binance have introduced their own versions of liquid staking, facilitating access to this functionality for a wider audience.
The liquid staking process is based on the issuance of derivative tokens that represent the staked assets. For example, when staking ETH on a liquid staking platform, the user receives a derivative token, such as stETH in the case of Lido. This token is a representation of the staked ETH plus the accumulated rewards, and can be used in other DeFi applications.
Users can:
Liquid Staking Protocol (Chainlink)
| Appearance | Traditional Staking | Liquid Staking |
| Immobilization of Assets | Locked assets, not available during the staking period. | Locked assets, but liquid derivative tokens are issued. |
| Access to Liquidity | There is no access to liquidity until the end of the staking. | Access to liquidity through derivative tokens. |
| Risk and Complexity | Less complex, but with risks related to the validator. | Increased complexity and risks associated with smart contracts. |
| Usability at DeFi | Limited, assets cannot be used in other DeFi applications. | Alta, the derived tokens can be used in multiple DeFi applications. |
| Flexibility and Control | Less flexible, assets are locked during the staking period. | Greater flexibility, derived tokens can be exchanged or used at any time. |
In this section, we will explore some of the most prominent platforms in the liquid staking space, analyzing how each contributes to the growth and development of this innovative sector within DeFi.
Lido is one of the most popular and widely used liquid staking solutions, especially on the Ethereum network. It has an LTV of more than 50% of the industry's total, exceeding $25 billion. The platform allows users to stake any amount of ETH, eliminating the 32 ETH barrier required to become a validator on Ethereum 2.0. This democratizes access to staking, allowing both retail and institutional investors to participate and earn rewards without the need for complex technical infrastructure.
When staking ETH through Lido, users receive stETH, a token representing their staked ETH plus accumulated rewards. This token is highly liquid and can be used in a variety of DeFi applications, including lending platforms such as Aave and yield farming protocols. This allows users to generate additional returns on their staked assets, optimizing their investment strategies and taking full advantage of the DeFi ecosystem.
Lido operates with a robust security model, distributing the ETH stake among multiple trusted validators to minimize risks and ensure network stability. In addition, the platform is governed by the Lido DAO, a decentralized organization that allows LDO token holders to participate in key decisions about the development and direction of the protocol. This transparent and participatory approach strengthens community trust and ensures that the system evolves according to the interests of its users.
Beyond Ethereum, Lido has expanded its liquid staking services to other blockchain networks such as Solana (stSOL), Polygon (stMATIC), and Polkadot (stDOT). This expansion reflects Lido's commitment to providing flexible and accessible staking solutions across multiple ecosystems, facilitating user participation in diverse networks and contributing to the overall growth of the DeFi space.
Rocket Pool is positioned as a highly decentralized liquid staking solution for Ethereum. Unlike some centralized platforms, Rocket Pool allows anyone to operate a node and contribute to the security of the network, promoting a more equitable and resilient distribution of staking. This community-based approach strengthens Ethereum's decentralization and provides opportunities for more participants to become actively involved in maintaining the network.
When staking ETH through Rocket Pool, users receive rETH, a liquid token representing their staking participation plus accumulated rewards. rETH is compatible with multiple DeFi protocols, allowing users to use it as collateral, trade it or invest it in yield farming strategies. The platform also offers competitive and dynamically adjusted rewards, incentivizing continued participation and providing flexibility for investors to manage their assets efficiently.
Rocket Pool facilitates the operation of staking nodes with lower deposit requirements (16 ETH instead of the standard 32 ETH), allowing more individuals to participate as validators and contribute to the security and scalability of the Ethereum network. The platform also implements protection and insurance mechanisms to mitigate risks associated with node operation, providing an additional layer of trust and security for participants.
The development of Rocket Pool is driven by an active and engaged community, with a focus on transparency and open collaboration. Updates and enhancements to the protocol are collectively discussed and decided upon, ensuring that the platform evolves in a way that reflects the needs and desires of its users. This community governance model strengthens the resilience and adaptability of the protocol in the dynamic DeFi environment.
Marinade Finance is the leading liquid staking platform in the Solana network, offering users the possibility to stake SOL and obtain mSOL, a liquid token representing their stake plus the rewards generated. Solana, known for its high speed and low commissions, benefits greatly from solutions like Marinade, which increase staking participation and thus the security and decentralization of the network.
The mSOL token is widely accepted in various DeFi applications within the Solana ecosystem. Users can use mSOL as collateral on lending platforms such as Solend, participate in liquidity pools on Raydium or Saber, and take advantage of yield farming opportunities. This allows investors to maximize their returns and manage their assets more dynamically and efficiently within the vibrant Solana ecosystem.
Marinade Finance prioritizes decentralization by distributing the SOL stake among a wide range of validators, selected using an algorithm that considers performance and reliability. This approach not only improves the security and stability of the Solana network, but also supports smaller validators, encouraging a more equitable and robust distribution of staking across the network.
The platform operates under a decentralized governance model, where MNDE token holders can participate in important decisions about the future of the protocol. This includes the selection of validators, fee adjustments and the development of new features. Active community participation ensures that Marinade evolves in a way that reflects the interests and needs of its users, while maintaining a high degree of transparency and accountability.
Frax Finance is known for introducing the first algorithmic fractional fractional stablecoin, FRAX, which combines collateralization and algorithms to maintain its value stability. More recently, Frax has forayed into the liquid staking space with the launch of Frax Ether (frxETH), expanding its ecosystem and offering new opportunities for generating returns.
Frax Ether is a two-token system that provides a liquid staking solution for Ethereum:
This dual system allows users to choose between maintaining maximum liquidity with frxETH or maximizing returns with sfrxETH, providing unique flexibility in managing their assets.
The introduction of frxETH integrates seamlessly with the broader Frax ecosystem, which includes stablecoins, lending protocols and liquidity pools. Users can use frxETH in a variety of strategies within the ecosystem, such as providing liquidity in trading pairs or using it as collateral for loans, expanding revenue generation and risk management possibilities.
Frax Finance focuses on maintaining the stability and scalability of its products. With frxETH, the protocol implements mechanisms to ensure that the token maintains a value close to that of ETH, while sfrxETH enables the secure and efficient accumulation of staking rewards. This approach ensures that users can rely on the robustness and reliability of the system, even in volatile market conditions.
Frax Finance governance is community-driven through the FXS token, allowing users to participate in key decisions about the development and direction of the protocol. This participatory model ensures that ecosystem enhancements and expansions, including those related to frxETH, are aligned with user interests and needs, promoting sustainable, community-centric development.
Coinbase and Binance, two of the world's largest and most recognized cryptocurrency exchanges, have introduced their own liquid staking solutions: Coinbase Wrapped Staked ETH (cbETH) and Binance Staked ETH (BETH), respectively. These platforms offer users a simple and reliable way to participate in Ethereum staking, leveraging the infrastructure and security provided by established exchanges.
Both cbETH and BETH tokens seek to extend their usability beyond their respective platforms through integrations with different DeFi protocols. This allows users to participate in activities such as lending, yield farming and trading, expanding opportunities for yield generation and investment diversification.
Advantages:
Considerations:
The liquid staking solutions offered by Coinbase and Binance play an important role in the mass adoption of this technology by facilitating access to a wider and more diverse audience. These platforms can serve as a gateway for new users to the world of DeFi, providing a simplified user experience and educational resources to help understand and leverage the benefits of liquid staking.
Liquid staking represents a significant evolution in the way returns are generated within the DeFi ecosystem. By combining the profitability of staking with the flexibility of liquidity, this innovative approach allows investors to optimize their strategies without sacrificing opportunities. Platforms such as Lido, Rocket Pool, Marinade Finance, Frax Finance, along with centralized exchange solutions such as Coinbase and Binance, are leading this transformation, offering diverse options tailored to different needs and risk profiles.
