Liquid staking is revolutionizing how cryptocurrency holders can earn passive income without sacrificing the flexibility to use their assets. By enabling users to access staked value in the form of tradable tokens, liquid staking is rapidly becoming a core component of the decentralized finance (DeFi) ecosystem.

How Liquid Staking Works

In a typical proof-of-stake (PoS) blockchain, staking involves locking up tokens to secure the network and earn rewards. Traditional staking limits liquidity because assets remain locked until unstaked. Liquid staking, on the other hand, allows users to deposit their tokens with a staking provider and receive a liquid staking token (LST) in return. These LSTs, such as stETH from Lido Finance, represent the staked tokens and can be used across various DeFi platforms for lending, borrowing, and trading—all while continuing to accrue staking rewards.

Also read: What Is Trust Wallet? Key Features, Setup Guide, and Risks Explained

Centralized vs. Decentralized Staking Solutions

Liquid staking options vary between centralized and decentralized platforms. Exchanges like Coinbase and Binance offer user-friendly, centralized staking services, appealing to beginners but introducing counterparty risks such as insolvency or regulatory pressure. On the other hand, decentralized platforms like Lido Finance and Rocket Pool empower users with greater asset control and reduced trust assumptions, though they require more technical know-how and familiarity with DeFi protocols.