Welcome to Module 10- Course 1 of Mission Web3!
In this course, we’re diving into the depths of liquid staking and how this tool can help you maximize your DeFi journey.
What is Liquid Staking?
Staking, as you already know, is the strategy to earn rewards for holding proof-of-stake cryptocurrencies. Liquid staking, on the other hand, is the tool that lets you access your already-staked tokens during the staking period. Essentially, this unlocks the liquidity of the staked assets, hence the moniker ‘liquid staking’.
How does Liquid Staking work?
Broadly speaking, liquid staking works in a similar fashion to traditional staking in that you can stake the native token of a PoS blockchain to validate the transactions on the network. In return for locking up your tokens, the network will reward you in the form of newly minted tokens.
With traditional staking, your tokens are locked up from the moment you hit ‘stake’ until maturity and there is nothing you can do but watch as time passes during this period. Liquid staking, however, unlocks the ability for you to use the coins you staked, even during the staking period.
More precisely, when you stake your tokens with a liquid staking service provider (like our partner Lido), you’ll get newly minted Liquid Staking Tokens (LST). The liquid synthetic tokens can then be used exactly as if you still own your original tokens and you could carry on with your usual DeFi activities. As such, you can grab your LSTs, go to another DeFi protocol, participate in them, earn rewards from them, and pad your wallets with twice the returns.
For instance, if you’re an ETH HODLer like many of us at Galxe, instead of leaving your coins in your wallet and letting them sit idly, you can maximize your gains by depositing them into a Lido staking pool and receive stETH (staked ETH). Once these new tokens are within your control, you can then take them to DeFi protocols such as AAVE or Uniswap to earn additional yields.
What coins are supporting liquid staking?
Most established cryptocurrencies have their respective liquid staking protocols. This includes ETH, Polkadot, Cardano, Avalanche and Cosmos. Although there may be slight differences in their approaches to liquid staking, each of these protocols already has a system in place that allows you access to your staked assets.