Direct from the desk of Dane Williams.
Liquid staking in crypto DeFi essentially grants you access to your money, even when it's staked.
Liquid staking is an extremely popular, yet underappreciated term that offers you the best of both worlds.
First of all, liquid staking allows you to earn staking rewards by locking your crypto in various platforms..
But the liquid staking magic comes via the issuance of a tokenised version, or derivative if you will.
As the name suggests, this derivative offers you liquidity.
Meaning that this new token can be openly transferred, staked, spent or traded as one would any other cryptocurrency.
Magic!
Liquid staking on Ethereum
Much of the interest around liquid staking in 2022 comes from the fact that Ethereum (ETH) is moving from a Proof of Work (PoW) consensus model, to Proof of Stake (PoS).
Consider this.
When you stake your crypto on a PoS network such as Ethereum, you receive a new token in its place.
A staked version of your original token if you will.
You can think of this new token in the same way you’d think of receiving a receipt for a purchase.
This receipt shows all of the details of your stake such as:
- How much you staked.
- When you staked.
- How much yield it will accrue.
An example of liquid staking on Ethereum would be staking ETH on Lido.
By staking your ETH on the platform, you will receive a new token called stETH in return.
stETH allows you to maintain your ETH liquidity, meaning you can use that ETH as you please, but still gain all the benefits of having your tokens staked.
Such as earning staking rewards.
With that in mind, there are actually a huge range of DeFi protocols and platforms available to put your stETH to work.
All with the prospect of earning higher yields… with varying levels of risk to accompany them of course.
An additional 4% is on offer for adding your stETH to Curve Finance and MakerDAO gives you the opportunity to use stETH as collateral to mind DAI.
The USD pegged stablecoin which you can use to chase higher yields by pooling with other cryptocurrencies.
Liquid staking in crypto DeFi opens up an entire world of opportunities.
Liquid staking on Terra
An alternative to Ethereum is liquid staking on Terra (LUNA) through what thy call bonded assets.
Or simply bAssets for short.
bAssets on Terra function exactly the same way as staked assets on Ethereum that we just spoke about in the section above.
Again, Lido allows you to stake your LUNA on their platform as well, at a rate of 8.42%.
Like stETH, the bLUNA you receive for staking your native LUNA, can then be put to work elsewhere in the Terra ecosystem.
The most popular being using your bLUNA to mint UST and then staking your UST on Anchor.
Just like on Ethereum, you can see that liquid staking on Terra opens up an equally large world of opportunities.
Final thoughts on liquid staking in crypto DeFi
Anyway, that’s a simple to understand rundown of liquid staking in crypto DeFi.
In a nutshell, liquid staking in crypto DeFi essentially grants you access to your money.
Even when it's staked!
Now use your newfound knowledge and go forward and conquer the markets.
Best of probabilities to you.