Liquid Staking

Liquid staking lets you stake tokens and still use a liquid stand-in. Normal staking locks the asset. If you stake 32 ETH to run a validator, that ETH sits locked. You earn rewards. You cannot trade or use the ETH until you exit.

A liquid staking protocol takes the ETH, stakes it for you, and gives you a token such as stETH. That token tracks the staked position. You can trade it, put it in DeFi, and still accrue staking rewards. You can also swap stETH back toward ETH on a DEX when you want out. Lido pioneered the model and still dominates it.

That is why more people stake. Most users do not have 32 ETH. Most users cannot run a validator. Liquid staking lowered that bar.

The cost is concentration. If one provider holds most of the stake, it has outsized say over the network. Lido holds the majority of liquid staking. That is a decentralization problem. It is also the realistic outcome when running a validator is hard. Liquid staking solved a real lockup problem. It created a new one: a few protocols sitting on a large share of the validator set.

You still take smart-contract risk and validator risk. stETH can also trade off peg when exits queue. Liquidity is not the same as instant, risk-free ETH. Lido takes ETH, runs validators, and issues stETH so the staker can still trade or use DeFi while the ETH stays staked.