The Complete Guide To Liquid Staking Tokens (LSTs)

Introduction

If you’ve been around the crypto space lately, you’ve probably seen the term “LST” popping up everywhere — from Ethereum to Solana, and even in DeFi yield discussions.

So what exactly are these Liquid Staking Tokens? And why do people say they’re the “next big unlock” for the crypto economy?

Let’s break it down like you’re having coffee with a fellow degen who actually explains things clearly.

What Is Staking?

When you stake crypto (say, ETH), you’re basically locking it up to help secure a blockchain network — like contributing your coins so the chain can keep running smoothly.

In return, you earn staking rewards — usually around 3–6% annually, depending on the network.

But here’s the catch:

Once your crypto is staked, it’s locked. You can’t move it, trade it, or use it elsewhere.

It’s like earning interest on your savings — except your bank account is frozen.

Enter Liquid Staking

Now imagine this:
You stake your ETH, earn rewards and get a token that represents your staked ETH — which you can freely trade, lend, or use in DeFi.

That’s Liquid Staking in a nutshell.

When you stake via a liquid staking protocol like Lido, Rocket Pool, or Coinbase’s cbETH, you get a receipt token in return — e.g.

• Stake ETH → Receive stETH (Lido)
• Stake ETH → Receive rETH (Rocket Pool)
• Stake SOL → Receive mSOL (Marinade Finance)

These tokens automatically appreciate in value as staking rewards accumulate — and best of all, you can still use them across DeFi platforms while your base asset stays staked.

How LSTs Work?

Here’s what happens behind the scenes:

1. You deposit ETH into a liquid staking protocol.
2. The protocol stakes it on the Ethereum network using validators.
3. You receive LSTs (Liquid Staking Tokens) in return — like stETH.
4. Over time, as rewards are earned, your stETH either increases in value or the protocol adjusts its balance to reflect yield.

So, your crypto keeps earning yield while your token remains liquid — the best of both worlds.

The Real Magic — DeFi Composability

Here’s where things get spicy

You can take your LSTs and use them as collateral across DeFi platforms:

• Borrow stablecoins using stETH as collateral.
• Farm yields on Curve or Aave.
• Participate in restaking platforms like EigenLayer to earn extra rewards on top of staking.

Basically, LSTs turn your staked assets into productive capital.

Instead of your ETH sitting idle, you can now stake it, re-stake it, borrow against it, and farm with it — all at once.

Why LSTs Are Exploding in 2025

A few years ago, liquid staking was niche. Today, it’s the largest sector in DeFi, surpassing lending protocols and DEXs.

Why?
Because it solved a real problem — capital inefficiency.

Before LSTs, staking was like a one-way ticket — you earned yield, but your funds were locked.
Now, LSTs let you earn multiple layers of yield, creating what analysts call “composable yield stacks.”

It’s no wonder total value locked (TVL) in LSTs is in the tens of billions today.

The Risks Nobody Talks About

Of course, it’s not all sunshine and APRs.

Here are the main risks you should know:

1. Smart Contract Risk: If a protocol gets hacked or fails, your staked funds are at risk.
2. Depeg Risk: LSTs don’t always maintain a perfect 1:1 peg to the underlying token (e.g., stETH may trade slightly below ETH).
3. Centralization: Some protocols (like Lido) control a large chunk of staked ETH — raising decentralization concerns.
4. Liquidity Crunch: During market panics, it might be hard to sell or redeem your LSTs quickly.

So, always diversify and use established protocols with strong audits and liquidity.

The Next Frontier — Restaking & LRTs

The evolution doesn’t stop at LSTs.

Now we have Liquid Restaking Tokens (LRTs), like rsETH or eETH, powered by EigenLayer.

These tokens take your staked ETH and “re-stake” it for securing additional services — earning even more yield layers.

Think of it as “staking squared.”

Stake once. Earn twice.

This restaking narrative is the biggest yield innovation since DeFi Summer.

Final Thoughts

LSTs are quietly reshaping the foundation of crypto economics.

They’re turning staking from a passive, illiquid action into a dynamic, composable yield system that fuels the entire DeFi ecosystem.

But like all good things in crypto — it’s about balance.
Stake smart, diversify, and always understand what happens behind the flashy APRs.

Because at the end of the day, “liquid staking” isn’t just about liquidity — it’s about freedom.
Freedom to earn, move, and build — without ever letting your crypto sit idle again.