Quick answer |
What an LST is
A liquid staking token (LST) — sometimes called a liquid staking derivative — is a token issued by a liquid staking protocol to represent your staked deposit. When you stake through such a protocol, you hand over (say) ETH and receive an LST in return. That LST is your claim on the underlying staked tokens plus their accruing rewards. You can hold it, trade it, or use it elsewhere, and redeem it for the underlying token later.
How LSTs hold their value
An LST is meant to track the value of the staked tokens behind it. There are two common designs:
- Rebasing: your LST balance grows over time as rewards accrue (e.g. your stETH quantity increases).
- Reward-bearing / value-accruing: the quantity stays fixed but each LST becomes redeemable for more of the underlying token as rewards build up.
Either way, the LST’s market value is anchored to the staked tokens it represents — but that anchor is not guaranteed at every moment (see peg risk below).
How people use LSTs in DeFi
- Collateral: borrow against an LST while it keeps earning staking rewards.
- Liquidity provision: supply LSTs to pools to earn additional fees.
- Trading: enter or exit a staked position via the market instead of waiting to unbond.
- Restaking: some LSTs can be used in restaking protocols for additional (riskier) rewards.
This composability — earning staking rewards while the same value works elsewhere — is the main appeal of LSTs.
The risks of LSTs
- Peg risk: an LST can trade below the value of its underlying stake, especially during market stress or liquidity crunches.
- Smart-contract risk: the issuing protocol is code, and bugs or exploits can cause losses.
- Liquidity risk: in a panic, exiting via the market may mean accepting a discount.
- Underlying risk: slashing and reward variability on the staked tokens still apply.
LSTs vs simply staking natively
If you don’t specifically need liquidity or DeFi composability, an LST adds complexity and risk for little benefit. Native staking — delegating directly to a validator — avoids smart-contract and peg risk entirely. LSTs make sense when liquidity and capital efficiency genuinely matter to you and you understand the trade-offs.
The OriginStake view
Whatever wrapper sits on top, all staking ultimately rests on reliable validators. OriginStake focuses on being that dependable base layer, and for most retail users we recommend native staking via the OriginStake validator (through Drifto) as the lower-risk default — with LSTs as an option for those who need them and understand the added risk.
Frequently asked questions
What is stETH?
stETH is a well-known liquid staking token issued when you stake ETH through a liquid staking protocol. It represents your staked ETH plus accruing rewards and can be traded or used in DeFi while the underlying ETH stays staked. Like all LSTs, it carries peg and smart-contract risk.
Can an LST lose its peg?
Yes. An LST can trade below the value of its underlying staked tokens, particularly during market stress, liquidity shortages, or concerns about the issuing protocol. This ‘de-peg’ risk is one of the key differences between holding an LST and staking natively.
Are LSTs the same as the staked token?
No. An LST is a separate, tradable token that represents a claim on staked tokens plus rewards. Its value is meant to track the underlying, but it can diverge, and it carries the issuing protocol’s smart-contract risk that the underlying token does not.
Key takeaways |
→ Decide which suits you: Liquid Staking vs Native Staking.
Sources & further reading
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