Liquid Staking is a form of staking where a user can access their locked tokens for activity across different networks while you are still earning rewards from the original deposits. Liquid staking can be achieved through various methods, such as wrapping the staked tokens into an ERC-20 token or using a tokenized representation of the staked assets.
In this article we’re going to deep-dive into What is Liquid Staking and will try to answer all the questions one might have regarding the same.
Also Read: What are Liquid Staking Derivatives?
Why do we need Liquid Staking?
There are several reasons why liquid staking is becoming increasingly popular in the blockchain ecosystem:
Liquidity: Traditional staking locks up tokens for a set period of time, which can limit their liquidity. Liquid staking allows users to earn staking rewards without sacrificing liquidity, as the tokens remain available for trading or other purposes.
Flexibility: With Liquid staking, users can stake their tokens and still use them for other purposes, such as collateral for loans or trading on other platforms. This increases the flexibility and utility of staked tokens.
Accessibility: Liquid staking also makes staking more accessible to a wider range of users. Traditional staking may require a large amount of capital to participate, but liquid staking can allow users to stake smaller amounts of tokens.
Network Security: Staking is an important part of securing blockchain networks, and liquid staking can help increase the number of tokens being staked, which can lead to a more secure network.
Token Utility: Staking is often used to govern and participate in decentralized applications and protocols. Liquid staking can increase the utility of staked tokens by allowing them to be used for these purposes while still earning staking rewards.
Overall, What is liquid staking? It provides a way for users to earn staking rewards without sacrificing liquidity or flexibility, while also increasing the security and accessibility of blockchain networks.
How to Use Staderlabs for Liquid Staking?
You can stake your token with no minimum value required and no lockups on Stader. You can stake and earn staking rewards on our platform in the given simple steps:
- Stake your Matic for daily staking rewards. Use Token’s chain to stake with Best-in-class validators.
- Once you Stake your Token on Stader, you’ll get a Stader token for your staked token chain which accrues, autocompounds rewards and grows in value.
- You can then use your Stader token to explore other exciting opportunities through trading or lending or any other activity you think while earning staking rewards through which you get the best of both worlds.
Also Read: How to Stake ETH
Protocols on which you can stake on Stader
Currently at Stader, we have 7 Protocols where you can stake your tokens:
- Polygon : You can stake Matic and get MaticX in return. You can access instant liquidity and explore exciting DeFi opportunities across the Polygon ecosystem.
- Hedera : You can stake your HBAR token and get HBARX in return. You can earn the exciting rewards and also stake across Hedera ecosystem.
- BNB : You can stake and grow your BNB with Stader's liquid staking token, BNBx. Earn staking rewards, get instant liquidity and also explore exciting trading opportunities across the BNB ecosystem.
- Fantom : Stake your FTM token on Stader and use Stader's liquid staking token, sFTMX through which you can earn staking rewards and also explore exciting trading opportunities across the chain.
- Near : You can stake your Near token and get Stader's liquid staking token, NearX in DeFi while earning staking rewards.
- Terra 2.0 : Get LunaX for staking your Luna token with which you can get additional opportunities to earn reward opportunities while earning staking rewards across the Terra2.0 chain network.
- Ethereum : Stake your ETH token to get Stader's liquid staking, ETHx with which you can earn staking rewards and also participate in DeFi activities across the Ethereum ecosystem.
Benefits of Liquid Staking
Some of the most attractive benefits of Liquid Staking are:
- Increased Liquidity: Liquid staking provides stakers with the ability to earn rewards while still having the option to use their staked tokens for other purposes, such as trading or lending. This improves the liquidity of staked tokens and allows stakers to benefit from staking rewards without having to wait for their tokens to become available.
- Improved Flexibility: By allowing stakers to use their tokens for other purposes, liquid staking provides greater flexibility in managing staked assets. This enables stakers to optimize their portfolios and manage risk more effectively.
- Wider Participation: Liquid staking makes staking more accessible to a wider range of users by reducing the minimum requirements for staking. This makes staking more democratic and opens up staking to a larger pool of potential participants.
- Increased Security: By increasing the amount of staked tokens on a network, liquid staking can help to increase the security and stability of the network. This can make the network more resistant to attacks and increase confidence in its overall security.
- Greater Utility: Liquid staking can enhance the utility of staked tokens by allowing them to be used in other applications and protocols. This can increase the demand for staked tokens, leading to increased value and potentially higher returns for stakers.
Overall, liquid staking provides a number of benefits that make staking more attractive to a wider range of users. By increasing liquidity, flexibility, participation, security, and utility, liquid staking can help to build a more robust and sustainable staking ecosystem.
Also Read: What is Ethereum Merge?
What are the Risks and Cons Involved in Liquid Staking?
Liquid Staking also has a few risks and downsides associated with it such as:
- Smart Contract Risks: Smart Contracts are basically the programs that are determined to run if the conditions are met. Liquid Staking Protocols are based on Smart Contracts which are subject to vulnerabilities and risks. If a smart contract is exploited, it can cause the loss of staked tokens or rewards.
- Centralization Risks: Liquid Staking relies on the validators to perform the staking functionalities of the network. If you have a group of validators who have the majority of staked tokens, it could lead to centralization and potentially effect the decentralization of the network.
- Counterparty Risk: Liquid Staking involves the users to trust the protocol provider and other third party service providers involved in the process. So, if the provider becomes bankrupt or there’s some insolvency issue, user can be at a risk of losing their staked tokens or rewards.
- Slashing Risks: Validators can be penalized, or "slashed," for malicious behavior or network issues that could harm the network. If a validator is slashed, it can result in the loss of staked tokens or rewards.
What’s next for Liquid Staking in the future?
With Liquid Staking gaining popularity due to its benefits, here are some potential future scope for Liquid Staking:
- Increased User-base: As more and more users become aware of Liquid Staking and its benefits, the user base would likely expand which could lead to a larger pool of staked tokens and increased liquidity in the market for these tokens.
- Interoperability: Liquid Staking Protocols could be operable with various Blockchain Networks which could allow the users to stake tokens in multiple networks simultaneously. This could also reduce the difficulties faced by stakers.
- Enhanced Governance: Liquid staking protocols could enable more robust governance, which can allow the stakers to have a greater say in the Decision making process.
- Better Security: As the technology gets better for Liquid Staking, there would be an improvement in terms of security that would make Liquid Staking even more attractive for the users.
Also, if you're looking to liquid stake your cryptocurrencies where you can earn staking rewards as well as at the very same time access the DeFi protocol, Stader Labs can be a good option where you will get Stader's Liquid Staking Tokens (LSTs) in return for your staked cryptocurrencies.
Frequently Asked Questions On What is Liquid Staking:
Q) What is Liquid Staking?
Ans) Liquid Staking is a form of Staking where a user can access their locked funds for activity across different networks while they are still earning rewards from the original deposits.
Q) What is the main difference between Traditional Staking and Liquid Staking?
Ans) Traditional Staking and Liquid Staking are both very much similar but in Traditional Staking, you’ll have to freeze your tokens in a wallet and it cannot be used for any further activity whereas in Liquid Staking you could still use your locked tokens for trading or any other purpose.
Q) Is Liquid Staking too risky?
Ans) Like any other Investment involved, Liquid Staking also has its risks and downsides associated with it. However, many consider that rewards in Liquid Staking outweigh the risks. Nevertheless, we should always consider the risks and rewards before undertaking liquid staking.
Q) What is Liquid Staking's main disadvantages?
Ans) The main disadvantages or the risks involved in Liquid Staking are:
- Smart Contract Risks: Liquid Staking Protocols are based on Smart Contracts which are subject to vulnerabilities and risks. If a smart contract is exploited, it can cause the loss of staked tokens or rewards.
- Centralization Risks: If you have a group of validators who have the majority of staked tokens, it could lead to centralization and potentially effect the decentralization of the network.
- Slashing Risks: Validators can be penalized, or slashed, for malicious behavior or network issues that could harm the network. If a validator is slashed, it can result in the loss of staked tokens or rewards.
- Counterparty Risk: if the Protocol Provider becomes bankrupt or there’s some insolvency issue, user can be at a risk of losing their staked tokens or rewards.