Liquid Staking Tokens (LSTs)

On September 15th, 2022, the Ethereum network switched from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS). This means that to validate on the network, one needs to stake Ethereum. To stake, a user must deposit 32 ETH to become a validator and have the infrastructure to create new transaction blocks on the Ethereum blockchain when called upon. For those who may not have 32 ETH or are uncomfortable running validator infrastructures, pooled staking as a service is an option via LSTs. Pooled staking allows for users to deposit less than 32 ETH to a third-party service like Lido that stakes ETH in 32 ETH blocks and runs the infrastructure nodes. In exchange for someone using their service, a Liquid Staking Token (LST) is typically allocated/given to the stakers. When the validator receives block rewards, the rewards are distributed proportionately to the holders of the LSTs. LSTs accrue rewards in two different ways:

• Rebasing LSTs - With these LSTs, the amount of your holdings goes up over time, but the value remains pegged to ETHs value.

• Non-Rebasing LSTs - With these LSTs, the amount of your holdings never changes, but the value as denominated in ETH increases over time.

A Rebasing LST can be turned into a Non-Rebasing LST via "wrapping". For Lido, the stETH is the symbol for the rebasing LST and wstETH is the symbol for the wrapped Non-Rebasing version of stETH. The benefit of LSTs include participating in the upside of Ethereum while also getting a constant flow of block rewards. Popular Liquid Staking Products Include: Lido Rocket Pool Binance Staked ETH Coinbase ETH and more...

More on Ethereum Staking and Pooled Staking LSTs are third-party products that carry their own risks, such as a slashing risk where the LST can be penalized for processing their blocks incorrectly or not rapidly enough.