Feb 15 2024
The lingo used to describe blockchain networks can be confusing. Many different names or acronyms might exist for the same definitions. Unfortunately, this often ends up being the case for the terms used to describe different types of staking participation.
- ETH staking is the process of participating in staking on Ethereum, locking tokens (ETH) and contributing to network security
- Liquid staking is a technological solution that allows anyone to participate in ETH staking, with access to liquidity
- Liquid ETH staking is one common way to participate in liquid staking on Ethereum
Participating in ETH staking not only contributes to the Ethereum network's integrity, but also offers the potential to receive ETH network rewards. However, traditional staking methods have presented challenges, notably a lack of liquidity due to Ethereum’s variable withdrawal period. Liquid ETH staking has emerged as a solution that improves flexibility and accessibility for stakers.
What is ETH staking and liquid ETH staking?
Staking in the context of Ethereum involves depositing ETH to Ethereum’s deposit contract, comparable to a form of security deposit for participating in the network's validation process. Validators are selected to propose and vote on blocks, come to consensus on the state of the chain, or perform other relevant duties, and can receive ETH network rewards for doing so. While this process secures the network and rewards participants, it traditionally locks the staked assets, preventing their use elsewhere.
Liquid staking addresses this limitation by offering a software solution: participants receive a liquid staking token (LST) to evidence ownership of the ETH they stake. This token is a receipt representing the staked ETH plus any ETH network rewards received, and can be traded, sold, or used as collateral in decentralized finance (DeFi) applications, thereby maintaining liquidity.
Why is liquid ETH staking important?
Liquid staking is important for Ethereum for a number of reasons:
- Access to liquidity: liquid ETH staking provides stakers with access to liquidity, allowing them to utilize their LSTs in DeFi applications without sacrificing participation in Ethereum’s network security.
- Expanded participation: By lowering the barriers to entry, more users are incentivized to stake, enhancing the network's decentralization and security.
- Potential risk mitigation: Liquid staking can offer programmatic solutions to mitigate some of the risks of participating in ETH staking, such as how the Liquid Collective protocol offers access to a robust Slashing Coverage Program, and has Node Operator Performance SLAs in place to require acceptable validator performance.
You can learn more about why liquid staking is important in our post here.
Liquid Staked ETH (LsETH) - Liquid Collective’s liquid staking token
Liquid Staked ETH (LsETH) is the LST programmatically minted when a user participates in liquid ETH staking with Liquid Collective. LsETH represents ownership of one’s staked ETH plus ETH network rewards.
You can think of Liquid Staked ETH (LsETH) as a token that keeps track of your staked Ether and its rewards in a straightforward way. In addition, LsETH allows users to directly participate in ETH staking while also maintaining the ability to use their LsETH elsewhere in decentralized finance (DeFi), or to transfer ownership of their staked tokens by transferring their LsETH.
Learn more about liquid ETH staking
- What is liquid staking? - Liquid Collective’s overview of liquid staking, a rapidly growing solution for locking up a user's tokens and contributing to the security of proof of stake blockchains
- What are Liquid Staking Tokens (LSTs)? - A deep-dive into the technological innovation allowing participants in proof of stake networks to access liquidity while staking
- The need for a liquid staking standard - As liquid staking grows in popularity, exploring the need for a composable, decentralized, and secure liquid staking standard
- Direct staking design for expanding participation in network security - Exploring the design choices for solving the challenge of reaching 32 ETH to activate an Ethereum validator
- What are Liquid Staking Tokens (LSTs)? Mike Selig and Alison Mangiero discuss at ETHDenver - A discussion of LSTs, the POSA white papers on the regulation and taxation of liquid staking in the US, fostering industry growth, and more
- Building with liquid staking tokens (LSTs) - An exploration of the DeFi innovations unlocked by composable, reward-bearing LSTs
