A liquid staking token (LST) is a transferable token you receive when you stake ETH (or another proof-of-stake asset) through a liquid staking protocol — it represents your staked position and accrues staking rewards, while remaining freely usable in DeFi, tradeable on exchanges, or sellable at any time without waiting for unstaking queues. LSTs solved one of the most significant UX problems in proof-of-stake blockchains: native staking locks capital in place. With Ethereum’s post-Merge staking, even after withdrawals were enabled (Shapella upgrade, April 2023), unstaking still involves a queue that can take days or weeks during high demand. LSTs let users have it both ways — earning staking yield while keeping capital liquid. By 2025, LSTs represent the largest single category of DeFi by total value locked, with Lido’s stETH alone controlling $30–40B in staked ETH.
How LSTs Work
The basic mechanics are the same across all liquid staking protocols:
- User deposits ETH to a liquid staking protocol (e.g., Lido, Rocket Pool)
- Protocol stakes ETH through a network of validators on the user’s behalf
- Protocol mints an LST (e.g., stETH, rETH) representing the staked position
- Staking rewards accrue — either via rebasing (token balance increases) or value appreciation (token price increases vs. ETH)
- User can use LST in DeFi, sell it on the open market, or eventually redeem it for ETH
The user never holds the validator keys or interacts with the Ethereum beacon chain directly.
Rebasing vs. Non-Rebasing LSTs
LSTs handle staking reward accrual in two fundamentally different ways:
Rebasing (Balance-Accruing)
Example: Lido’s stETH
- You deposit 10 ETH → receive 10 stETH
- After one year at 4% APY → you hold 10.4 stETH
- 10.4 stETH ≈ 10.4 ETH in value
Problem: Rebasing tokens are incompatible with many DeFi protocols (AMMs calculate based on token balances, which rebasing breaks). Lido solved this by creating wstETH — a wrapped, non-rebasing version that DeFi protocols use. 1 wstETH represents a fixed share of the stETH pool and increases in price rather than quantity.
Non-Rebasing (Exchange-Rate-Accruing)
Example: Rocket Pool’s rETH
- You deposit 10 ETH → receive 9.52 rETH (because rETH/ETH rate is already > 1)
- After one year at 4% APY → you still hold 9.52 rETH
- 9.52 rETH is now worth 10.4 ETH (rETH/ETH exchange rate increased)
Non-rebasing LSTs are DeFi-native — standard ERC-20 tokens with no balance manipulation, compatible with all protocols.
Major LSTs by Protocol
| LST | Protocol | Chain | Model | Notable Feature |
|---|---|---|---|---|
| stETH / wstETH | Lido | Ethereum | Rebasing (wstETH: non-rebasing) | Largest; ~32% of all staked ETH |
| rETH | Rocket Pool | Ethereum | Non-rebasing | Decentralized; permissionless node operators |
| cbETH | Coinbase | Ethereum | Non-rebasing | Centralized; no withdrawal lock initially |
| frxETH / sfrxETH | Frax | Ethereum | Rebasing / non-rebasing | sfrxETH earns boosted yield from frxETH |
| ezETH | Renzo Protocol | Ethereum | Non-rebasing | Liquid restaking token (also an LRT) |
| weETH | EtherFi | Ethereum | Non-rebasing | Most popular liquid restaking token |
| jitoSOL | Jito | Solana | Non-rebasing | Solana’s dominant LST; includes MEV rewards |
| mSOL | Marinade Finance | Solana | Non-rebasing | Oldest Solana LST |
LSTs in DeFi (The “LST-DeFi” Stack)
LSTs are the primary collateral asset in modern DeFi. The common use pattern is called recursive staking or the LST-DeFi loop:
- Deposit ETH → receive stETH from Lido
- Deposit stETH as collateral in Aave or Morpho → borrow ETH
- Use borrowed ETH → buy more stETH → repeat
This loop amplifies staking yield while using health factor monitoring to manage liquidation risk. The spread between staking APY (~4%) and borrowing rate (~2–3%) creates a net positive yield with leverage.
Other major LST DeFi uses:
- Curve/Balancer LST pools — stETH/ETH pools earn trading fees + staking yield
- Pendle Finance — splits stETH into principal (PT) and yield (YT) tokens for fixed-rate products
- Spark Protocol — MakerDAO’s lending market, which heavily uses stETH collateral
- EigenLayer — restaking: using LSTs as collateral to secure additional protocols (creates LRTs)
LST Risks
1. Smart Contract Risk
2. Validator Slashing Risk
3. LST Depeg Risk
4. Centralization Risk (Lido)
History
- Dec 2020 — Ethereum Beacon Chain launches; staking opens but withdrawals are locked. ETH staked here will be illiquid for an unknown time (ultimately 2.5 years).
- Dec 2020 — Lido Finance launches, offering the first liquid staking token (stETH) for Ethereum. This was a direct response to Ethereum’s locked staking.
- Nov 2021 — Rocket Pool launches with its permissionless node operator model and rETH, offering a more decentralized alternative.
- Jun 2022 — stETH depeg during Terra/Celsius crisis. Celsius held large stETH positions and needed liquidity; selling pressure drove stETH to a ~7% discount to ETH, testing the LST model under stress.
- Apr 2023 — Ethereum Shapella upgrade enables staking withdrawals. LSTs begin offering native redemption; the liquidity premium on LSTs narrows as you can always redeem (with queue).
- 2023–2024 — EigenLayer launches restaking; LSTs become the dominant collateral for liquid restaking tokens (LRTs), adding another DeFi layer on top of staking.
- 2025 — Combined TVL of all Ethereum LSTs exceeds $50B; LSTs are the single largest DeFi category by TVL, overtaking DEX liquidity pools.