Liquid staking presents key benefits for ETH holders hoping to maximize yield while maintaining transferability. However, users should understand its unique risks – and the importance of decentralizing this rapidly emerging ecosystem.
ETH staking enables users to earn rewards while securing the world’s second-largest blockchain network.
However, staking has critical barriers that require validators to run software and lock more than 32 ETH in the process.
Stakers are then unable to transfer funds while these capital, operational, and technical requirements may deter new participants.
Liquid staking has emerged as a popular solution – surpassing $20 billion in 2023.
As thoughtful stewards in the vibrant Ethereum ecosystem – we’ve developed a Quest Collection for diving into liquid staking. We encourage users to explore different liquid staking protocols.
Rocket Pool is a popular liquid staking that secures ETH worth more than $1.7 billion as of September 2023.
Users can easily deposit any amount greater than 0.01 ETH to mint rETH – representing the value of staked funds + accrued rewards – in return.
Rocket Pool operates a decentralized network of validators who safeguard funds and rewards in a non-custodial fashion.
While other protocols distribute rewards daily via new tokens sent directly to holders, rETH’s deposits + rewards are reflected in its exchange rate.
By prioritizing stability, security, and DeFi interoperability – Stakewise has grown to over $150 million worth of liquid staked ETH in 2023.
On Stakewise, users can stake ETH to receive two different tokens in return: sETH2 (staking ETH) and rETH2 (reward ETH).
The dual token model sets Stakewise apart – and is used to redeem staked ETH and rewards at a 1:1 ratio respectively.
By holding sETH2, users receive staking rewards in the form of rETH2 tokens sent continuously and directly to their address.
With over $75 million staked in 2023, Swell liquid staking has gained popularity with its non-custodial and easy-to-use protocol.
Users can stake any amount of ETH for swETH – which actively reflects deposited ETH + accrued rewards in its exchange rate.
By prioritizing DeFi accessibility, swETH yield opportunities can be found across many of Ethereum’s top apps.
Lido is the liquid staking pioneer and has amassed nearly $14 billion ETH staked as of September 2023.
Users can stake any amount of ETH for stETH – which is a so-called “rebasing token.”
Your stETH token balance automatically increases daily (or “rebases”) according to the value of deposited ETH + staking rewards.
Like other liquid staking tokens, stETH yield opportunities can be found across the broader DeFi ecosystem.
Unlocking the barrier to entry, users with any amount of ETH can stake and mint a freely transferable token in the process.
Popular liquid staking pools such as Lido and Rocket Pool have made staking seamless and broadly accessible with easy-to-use applications.
By minting liquid tokens representing staked ETH + rewards — users can freely stake while maximizing yield across the DeFi ecosystem.
Exchange rate risk (liquid tokens may trade lower than fair value)
Liquid token smart contracts may be vulnerable
Rewards can be slashed if the protocol falls short
Dominant protocols may pose centralization risks
Recently, Lido’s dominance has raised alarms in the crypto community. Danny Ryan, who co-developed Ethereum’s staking protocol, recently warned “Lido is a Systemic Risk." Granted, it has earned its standing by pioneering innovation and ease-of-use.
However, it’s in all Ethereum users’ best interest to explore different liquid staking providers – and promote decentralization in the process.
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