The essence and evolution of liquid staking

Innovative Approaches to Solve Liquidity Challenges

Staking of cryptocurrencies is a mechanism in Proof of Stake (PoS) based blockchain networks where users lock their tokens to contribute to the security of the chain. However, traditional staking has significant limitations. During the staking period, assets are completely locked, preventing them from being sold or utilized for other purposes.

Liquid staking is the answer to this problem. By tokenizing staked assets, users can earn staking rewards without losing liquidity.

The Mechanism of Liquid Staking Tokens (LST)

In liquid staking, when users lock PoS tokens such as Ethereum, they receive liquid staking tokens (LST) in return. This LST represents both the original staked amount and the corresponding staking rewards.

This tokenization greatly expands the options available to users. LST can be freely traded at any time, and it can also be used as collateral within decentralized applications (dApps) or to participate in liquidity mining. There is no need to wait for the staking period to end, and it can be instantly liquidated as needed.

EigenLayer and Next-Generation Restaking

The evolution of liquid staking has progressed to a new stage with EigenLayer. This protocol, built on the Ethereum network, not only optimizes staking but also implements a mechanism to maximize staking rewards.

EigenLayer allows for seamless staking and restaking of held assets. Users can devise highly flexible staking strategies that cater not only to Ethereum but also to other blockchain networks through this protocol.

Liquid Staking: Diversification of Rewards

The emergence of EigenLayer has given rise to a new concept called “liquid restaking.” In this process, users deposit liquid staking tokens (LST) into EigenLayer's smart contracts and, in return, receive liquid restaking tokens (LRT).

The feature of LRT lies in the multilayered rewards. In addition to the original staking rewards, by actively utilizing the services of EigenLayer, additional restaking rewards are generated. In other words, a mechanism has been established to create multiple sources of rewards from the same asset.

Differences Between Liquid Staking and Liquid Re-staking

The two are closely related, but there are important differences.

The main purpose of liquid staking is to provide liquidity for staking assets. Users can effectively utilize their assets even during the lock-up period, avoiding opportunity loss.

On the other hand, liquid restaking focuses on maximizing rewards. By earning additional rewards from EigenLayer in addition to Ethereum's staking rewards, users can aim for higher yields. In other words, it can be seen as a more advanced mechanism that achieves a balance between Liquidity and profitability.

Future Development

The introduction of liquid staking and liquid re-staking has fundamentally changed the way participants engage with blockchain networks. Users have evolved from being mere staking participants to being active contributors to the ecosystem while enjoying Liquidity.

These innovative mechanisms are expected to invigorate the staking market, allowing more users to participate in maintaining the network's security.