What is Liquid Staking in Web3?

Staking is a core mechanism in proof-of-stake (PoS) blockchains like Ethereum, where users lock up tokens to support network security and earn rewards. However, traditionally staked tokens are locked and unavailable for other uses, limiting their potential across the decentralized finance (DeFi) ecosystem. Liquid staking removes this barrier by allowing staked assets to remain usable, tradable, and productive throughout Web3.

In this article by Cables Finance, we explore how liquid staking works, the opportunities it unlocks, and the new financial infrastructure it enables in onchain finance.

Liquid Staking: An Overview

Liquid staking allows users to stake their tokens through a protocol and receive a derivative token known as a liquid staking token (LST) in return. These LSTs represent a claim on the underlying staked assets and their rewards. Unlike traditional staking, users can move, trade, or use LSTs in DeFi protocols while still earning staking income.

For example, when ETH is staked via Lido, users receive stETH, which can be deposited into lending platforms like Aave or traded on decentralized exchanges. The same model exists across multiple blockchains, including mSOL on Solana and rETH from Rocket Pool.

Key Benefits of Liquid Staking

Liquid staking provides meaningful improvements over traditional staking, especially for users active in DeFi or managing capital across multiple protocols.

Unlocking Liquidity

Staked tokens are typically inaccessible during lock-up periods. Liquid staking unlocks that value by issuing transferable LSTs that can be used immediately across DeFi.

Capital Efficiency in DeFi

LSTs can be deployed as collateral, added to liquidity pools, or used in yield farming. This creates multiple streams of yield from a single underlying asset, including staking rewards and DeFi returns.

Accessible Staking for All

Protocols lower the barrier to entry, allowing users to stake any amount without needing to run validators or manage infrastructure.

Challenges and Risks

While liquid staking improves flexibility and usability, it introduces additional technical and market risks that must be considered.

Smart Contract Vulnerabilities

As with any DeFi protocol, liquid staking relies on smart contracts. Bugs or exploits could result in loss of funds.

Slashing Risk

Users rely on third-party validators. If they behave maliciously or go offline, a portion of staked tokens can be slashed, impacting all users in the pool.

LST Price Volatility

LSTs do not always track the exact value of the underlying asset. During stress events or liquidity crunches, LSTs may trade at a discount, which can affect collateral positions or trading strategies.

The Rise of Liquid Staking Protocols

Protocols like Lido, Rocket Pool, Marinade, and Liquid Collective are leading the adoption of liquid staking. They issue LSTs for ETH, MATIC, SOL, and more, and have become key infrastructure for DeFi strategies across chains. As demand for staking grows, these services offer users simplified access to rewards, capital efficiency, and composability with other Web3 tools.

What is Restaking?

Restaking is an extension of liquid staking, allowing users to stake LSTs again in new protocols to secure services like oracle networks or rollups. This can increase rewards, but also increases exposure to multiple layers of smart contract and validator risk. Projects like EigenLayer are exploring restaking as a new model for cryptoeconomic security.

Why Liquid Staking Matters for Web3

Liquid staking is reshaping capital dynamics in Web3. It enables users to participate in network security while preserving asset utility, merging staking and DeFi into one financial layer. As onchain finance matures, liquid staking will power more flexible and capital-efficient ecosystems, including:

• Yield-bearing stable assets
• Multi-chain collateral systems
• Modular security layers via restaking

Conclusion

Liquid staking represents a powerful shift in how staking operates in Web3. By issuing transferable, DeFi-compatible tokens that mirror staked assets, it combines network security participation with financial flexibility. As adoption grows, liquid staking is set to become a cornerstone of capital deployment in crypto.

At Cables Finance, we believe liquid staking is key to unlocking real-world financial utility onchain. Whether you are earning yield on currencies, hedging with derivatives, or trading across decentralized markets, our platform helps bring liquidity, transparency, and accessibility to every user.