Explore Liquid Staking

What is liquid staking?

The term "liquid staking" represents the concept of converting staked assets into a liquid form. This allows holders to trade or use these assets while still participating in a proof-of-stake (PoS) network and earning staking rewards. Traditional staking typically involves locking tokens in a smart contract to support the security and functionality of the network. However, these tokens are often illiquid and cannot be easily transferred or traded.

Liquid staked tokens (LSTs) create a 1:1 representation of the staked tokens that can be used in DeFi to trade, lend, or borrow against. This allows users to benefit from both staking rewards and liquidity. It also makes it easier for less sophisticated players to be involved in securing the network and reaping the rewards.

Risks

Liquid staking carries additional risks to traditional staking. The risks below are non-exhaustive and thorough research should be undertaken before interacting with any liquid staking tokens.

Smart contract risks

LSTs use smart contracts to create the functionality of the token. This introduces the potential for vulnerabilities or bugs in the smart contract code that could lead to a total loss of funds.

Centralization risks

Some LSTs may have centralization risks if a small number of entities control a significant amount of the staked assets. This could impact the security of the staking network.

Depeg and market risks

The value of staked assets and their liquid counterparts are subject to market volatility and in some cases manipulation. It's possible for the value of the LST to depeg significantly from the underlying asset resulting in the loss of funds.

Liquid staking on Solana

Solana is a proof-of-stake network and it has several players in the liquid staking vertical. Currently, the most popular LSTs on Solana are from Marinade (mSOL) and Jito (JitoSOL). The price of both mSOL and JitoSOL increases over time versus SOL as the staking yield gets added to the price. Unlike with traditional staking, there are no lock-up periods for LSTs on Solana. At any time they can be converted back to SOL.

If you want to hold LSTs on Solana there are a couple of ways to go about it. The easiest is to buy them from an exchange but you can also convert your SOL into the LST directly with the provider.