In the world of blockchain and decentralized finance (DeFi), capital efficiency is key. While staking has become an increasingly popular way for crypto holders to earn rewards, it traditionally requires locking up assets for extended periods. This hampered token utilization in other areas of the ecosystem.
Liquid staking is a groundbreaking innovation that decouples the staking process from token lockup. By allowing users to stake their assets while still retaining liquidity, liquid staking protocols have unlocked significant capital flows into DeFi.
Delegated Liquid Staking: Rather than directly staking tokens on a blockchain's validator nodes, liquid staking involves depositing tokens into a liquid staking protocol. The protocol then stakes the combined token pool across validators, generating staking rewards.
In return, the protocol mints derivative tokens (e.g. cbETH, stETH) representing the staked assets plus rewards. Users can freely transfer or use these liquid staking tokens across DeFi applications while continuing to earn staking rewards.
This disintermediates traditional staking, where assets are locked into a solo validator until the unstaking period. Liquid staking abstracts away this lockup, providing users with enhanced capital efficiency.
