Bitaigen Research In the crypto space, liquid staking products refer to solutions where assets are locked to earn rewards while still remaining in token form, allowing them to stay tradable, collateralizable, or lendable within the DeFi ecosystem.
In this article we systematically explain the basic concepts and operational flow of liquid staking, helping readers understand how assets can generate staking yields while remaining freely circulating in DeFi. Through case studies you will learn how tokenized receipts are created, where the returns come from, and how they are applied across multiple scenarios. To explore the flexibility and associated risks further, keep reading.
What is a liquid staking product?
Liquid staking (also called “soft staking”) is a mechanism where funds are deposited into a DeFi protocol and the user receives an equivalent tokenized receipt. The original asset stays in the protocol and continues to earn rewards, while the tokenized receipt can be used elsewhere.
- Tokenization: The deposited asset is minted into a transferable token (e.g., stETH) that represents the corresponding stake.
- Revenue source: The underlying asset keeps generating network validation rewards within the original protocol.
- Use cases: The tokenized receipt can serve as collateral, be supplied to lending platforms, provide liquidity, or be traded.
According to data from Blockdaemon, roughly 20 % of Ethereum 2.0 staking contracts (about USD 7.5 billion) employ liquid‑staking solutions, markedly increasing the flexibility of staked capital.
How does liquid staking work?
The following example follows Alice’s actions to illustrate a typical liquid‑staking workflow:
- Choose a platform and deposit assets
- Alice researches several liquid‑staking platforms, evaluates security and fees, then deposits 1 ETH into her selected protocol.
- Receive the tokenized receipt
- Upon receiving the ETH, the protocol mints an equivalent amount of stETH (or another tokenized asset) and sends it to Alice.
- Dual earnings
- Original ETH: Remains in the protocol participating in PoS validation, continuously earning block rewards.
- stETH: Alice can deploy it across any DeFi ecosystem—adding liquidity, posting it as collateral for borrowing, or trading—to capture additional yields.
- Redeem the original asset
- If Alice wishes to withdraw her original ETH, she must hold the full 1 stETH and follow the protocol’s redemption rules. Some platforms deduct accrued interest at the time of conversion.
Key points
- Liquidity: Tokenized receipts preserve asset liquidity, avoiding the “locked” limitation of traditional staking.
- Compound returns: Assets can earn rewards on two layers simultaneously, improving capital efficiency.
- Risk disclaimer: The value of tokenized assets may be affected by protocol security, market liquidity, and the liquidation mechanisms of lending platforms; users should assess these risks independently before participation.
Liquid staking has become one of the core pillars of DeFi yield farming. Traders often lock assets to obtain tokenized receipts and then feed those receipts into other liquidity‑mining or lending protocols to achieve multi‑layered returns. However, it is important to recognize that such yield‑stacking strategies inherently carry risk, so users should thoroughly understand platform rules and implement proper risk management.
Related Reading
- Liquid Staking Tokens (LSTs): Earn Rewards & Trade Freely
- Top 10 Unlaunched Stablecoin Projects for Payments, DeFi & RWA
- AI-Track Web3 Projects: DeFi, Gaming & MCP Tech
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