Liquid Staking

Liquid staking solves the illiquidity problem of native staking. In standard proof-of-stake, staked ETH is locked and cannot be used in defi. Liquid staking protocols accept ETH, stake it on the user’s behalf, and issue a receipt token (e.g. Lido’s stETH, Bybit’s byETH) that trades 1:1 with the underlying and can be lent, traded, or used as collateral.

Key risk: The receipt token is a derivative — in a protocol failure or exploit, it may de-peg from the underlying asset.