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Liquid staking allows you to stake an asset while receiving a liquid token that represents your staked position.
When you deposit into a liquid staking protocol, you receive a liquid staking token (often called an LST) that tracks your stake plus accrued rewards. Because the LST is transferable, you can use it in other DeFi strategies while still benefiting from staking rewards.
This additional flexibility comes with added risk, because you now depend on both the underlying blockchain staking mechanics and the liquid staking protocol’s smart contracts. The LST can also trade at a discount relative to the underlying asset if liquidity dries up or market confidence drops, which is known as depeg risk. If you reuse the LST in other protocols, risks compound further, especially during high volatility.