Liquid Staking Token
A liquid staking token is a transferable receipt minted against assets staked through a protocol, such as stETH from Lido Finance or rETH from Rocket Pool. It represents the underlying stake and its accrued rewards, and it can be traded, lent or posted as collateral while the stake behind it stays bonded, so supply that staking removed from the float returns to the market as a claim.
TradFi parallel: Like a depositary receipt written against shares held in custody: the underlying is immobilised, the receipt trades freely, and it can be pledged.
Key Takeaways
- 01A liquid staking token is a transferable receipt minted against staked assets, such as stETH from Lido Finance or rETH from Rocket Pool, and the ecosystem built on those receipts is known as LSDFi
- 02It does not release the bond, it issues a claim against it, so effective float is not simply circulating supply minus staked supply
- 03Collateral reuse is the point: wrap LUNA to stLUNA on Stride, post it as collateral on Demex and borrow USDC, or use wstETH to mint crvUSD on Curve
- 04Issuance is concentrated: Lido alone held about 8.9 million ETH, roughly 23% of the 41.9 million ETH staked as of August 2026, and the top five liquid staking providers accounted for around 41% of staked ETH in mid 2023
- 05Every layer of LSDFi yield traces back to the same staking yield, so building derivatives on derivatives concentrates depeg risk rather than diversifying it
- 06Redemption is not instant: Lido V2 offers Turbo Mode, typically a few hours at best, and Bunker Mode, which extends withdrawal times during emergencies
How It Works
Liquid staking exists to solve the obvious problem with bonding: staked tokens earn but cannot be used. The protocol takes the deposit, runs or delegates the validator, and mints the depositor a token representing the position. The category built on top of these receipts has its own name, LSDFi, short for Liquid Staking Derivative Finance, covering DeFi platforms that integrate liquid staking derivatives such as stETH from Lido Finance or rETH from Rocket Pool. The receipt is the product. Everything downstream depends on it being transferable.
That transferability is what makes the supply arithmetic non-obvious. A raw staking lockup takes tokens out of tradable supply for the duration of the bond, so effective float falls. A liquid staking token does not release the bond, it issues a claim against it, and that claim circulates. Tokenomist's Terra coverage shows the full loop in one sentence: a holder can wrap LUNA to stLUNA on Stride, use it as collateral on Demex, and borrow USDC to invest further. One unit of stake is simultaneously securing a chain and backing a leveraged position. Effective float is therefore not circulating supply minus staked supply, and treating staked percentage as a proxy for scarcity overstates how much supply has genuinely left the market.
The scale of the receipt layer, and its concentration, both matter. As of August 2026 roughly 41.9 million ETH is staked, about 34.4% of supply, and Lido is still the largest provider at around 8.9 million ETH, some 23% of staked ETH. Concentration is long standing: approximately 41% of all staked ETH came from the top five liquid staking providers in mid 2023. Liquid staking protocols overtook DEXes in total value locked back in 2023 despite there being far fewer of them, and the ordering has held while the counts have moved, with DefiLlama listing 242 liquid staking protocols at $70.88B against 1,718 DEXes at $23.09B as of August 2026. The receipts also get reused rather than simply held. Curve accepts wstETH and sfrxETH as collateral for crvUSD, and Pendle wraps a yield-bearing token into a standardised yield token before splitting it into a Principal Token and a Yield Token whose prices always sum to the price of the accounting asset, ETH for stETH or USDe for sUSDe, which equals the price of the original only where the yield-bearing token tracks that accounting asset about one to one.
The risk is that all of this rests on one income stream. Tokenomist's own conclusion on LSDFi is blunt: the upstream yield is derived solely from staking yield, which can create a bubble-like scenario, and a protocol that builds a derivative on top of a derivative of staked ETH can see that derivative depeg if trust is lost or users start redeeming back to the original token. Redemption is also not instant. Lido V2 introduced two modes for turning stETH back into ETH, Turbo Mode, which typically takes a few hours in the best case, and Bunker Mode, which extends the withdrawal window during emergency events. Restaking adds a further layer: EigenLayer, which passed $6 billion in TVL by April 2024, accepts ETH and liquid staking tokens such as stETH as the collateral securing additional networks, so the same underlying stake ends up supporting several claims at once.
Real World Examples
Lido and stETH: the dominant receipt
View →Lido held over 5 million staked ETH by February 2023, roughly one third of the total then, and around 8.9 million ETH or about 23% of staked ETH as of August 2026. Lido V2 added the Staking Router, which diversifies stake across a broader node operator set, and withdrawals, giving stETH holders a redemption path via Turbo Mode or, during emergencies, Bunker Mode. Lido V3 went live on 30 January 2026 with stVaults, so stETH is no longer minted only from a single pooled Lido Core.
Terra and stLUNA: stake, collateralise, borrow
View →Tokenomist's Terra coverage describes the loop directly: wrap LUNA into stLUNA on Stride, use the receipt as collateral on Demex, and borrow USDC to invest further. The LUNA is still bonded and still securing the chain, while its economic exposure has been recycled into a second position. This is the mechanism that breaks the staked-equals-illiquid assumption.
Pendle: splitting the receipt again
View →Pendle tokenises the yield of yield-bearing assets such as wstETH and rETH. The deposit is first wrapped into a standardised yield token, which is then divided into a Principal Token redeemable at maturity and a Yield Token that accrues the interim yield and expires worthless. The two prices always sum to the price of the accounting asset, ETH for stETH or USDe for sUSDe, an identity the AMM holds at all times through mint and redeem arbitrage. Liquid staking derivatives made up 67.97% of Pendle's TVL, close to $100 million, at the time of Tokenomist's review.
EigenLayer: the same stake securing more things
View →EigenLayer passed $6 billion in TVL by April 2024 by letting stakers restake to secure additional networks. The assets accepted are primarily ETH and liquid staking tokens such as Lido's stETH, so the receipt that already represents bonded ETH becomes the collateral for another set of obligations. Useful yield stacking, and a further step away from one token backing one claim.
Rocket Pool and rETH: an alternative receipt in a thinner stack
View →rETH sits alongside stETH across the LSDFi stack, but the venue list from the 2023 cycle has thinned. Raft, which minted its R stablecoin against wstETH, rETH and stETH, was exploited in November 2023 and has held no TVL since August 2024. Maverick still runs, though DefiLlama tracks a single Maverick LST pool, wstETH-WETH at about $24,685, so it is no longer an LST liquidity venue. unshETH is dormant at roughly $148k, down more than 99% from its 2023 peak. Multiple receipt tokens never reduced the systemic exposure in any case, because they all draw on the same underlying Ethereum staking yield.
Frequently Asked Questions
Does a liquid staking token cancel out the supply that staking locked up?
Not exactly, but it substantially offsets it. The underlying tokens remain bonded and cannot be traded. The receipt, however, is transferable and accepted as collateral across DeFi, so the economic exposure returns to the market even though the stake does not. The practical consequence is that a high staked percentage is a weaker signal of scarcity than it looks when a large share of that stake is liquid staked.
What is LSDFi?
Liquid Staking Derivative Finance: DeFi platforms built to integrate liquid staking derivatives such as stETH from Lido or rETH from Rocket Pool. In practice that means using the receipt as collateral to mint stablecoins, splitting it into principal and yield components, or supplying it to AMM pools. It grew fast enough that liquid staking protocols overtook DEXes in total value locked in 2023 despite being far fewer in number, and the gap has held: DefiLlama lists 242 liquid staking protocols at $70.88B against 1,718 DEXes at $23.09B as of August 2026.
Why can a liquid staking token trade below the asset it represents?
Because the peg is arbitrage, not a guarantee, and the arbitrage depends on redemption. Before the Shanghai fork, stETH could not be redeemed for ETH at all, and depegging events occurred under stress. Redemption exists now but is not instantaneous: Lido V2's Turbo Mode typically takes a few hours at best, and Bunker Mode extends that during emergency events. Any gap between wanting out and getting out shows up in the price.
How is a liquid staking token different from restaking?
Liquid staking issues a tradable claim against stake securing one network. Restaking takes that stake, or the receipt itself, and pledges it to secure additional networks for extra yield. EigenLayer accepts ETH and liquid staking tokens such as stETH for exactly this. They compound: a restaked LST is one deposit backing the base chain, the additional services, and whatever DeFi position the receipt is posted against.
What is the main risk in stacking LSDFi positions?
Correlation. Every layer of yield in the stack originates in the same staking yield, so the positions are not diversified even when they sit on different protocols. Tokenomist's LSDFi review flags the specific failure mode: a derivative built on top of a derivative of staked ETH can depeg if the protocol loses trust or users move to redeem back into the original token, and the layers unwind together rather than independently.
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