A liquid staking token (LST) is a tradable receipt for staked assets that lets the holder keep liquidity while still earning staking rewards. It solves the problem of staked capital being locked and unusable, and it is the base layer on which restaking protocols and LRTs are built.
Tradability masks the validator risk an LST inherits. An LST that accepts any validator without quality screening concentrates risk invisibly behind a liquid token.
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How it works
When a user deposits ETH into a liquid staking protocol, they receive an LST representing their share of the validator pool. It accrues the underlying staking rewards and can be traded or used in DeFi without ending the staking position. The staked ETH stays locked in the validator set; the LST is the liquidity wrapper around it.
An LST's value comes from the underlying asset plus accumulated rewards. Protocols distribute those rewards two ways. A rebasing token grows each holder's balance at every accrual, keeping the exchange rate at 1:1. An exchange-rate token keeps the balance fixed and lets the token appreciate against the underlying as rewards compound into the rate.
Why it matters
LSTs solve a real capital efficiency problem. Without them, stakers face a hard tradeoff: lock capital and earn rewards, or stay liquid and use DeFi. LSTs collapse that tradeoff, so staked capital can secure the network and serve as collateral in lending, AMM liquidity, or yield vaults at the same time.
Design consequence
The LST is also the collateral input for restaking. A holder can deposit an LST into a restaking platform to earn operator fees on top of base staking rewards, which nests the LST's slashing risk inside a higher-order risk structure. That is why the underlying LST's validator management and slashing reserve are material inputs into any restaking risk assessment.
See LST and LRT Tokenomics Design for how this applies in practice.
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