With Liquid Staked Tokens (LSTs) comprising 28% of all staked ETH in 2024, there is a clear market demand for the flexibility it provides users seeking to earn staking yields.
LSTs are tokens that provide the benefits of traditional staking while unlocking the value of staked assets for use in DeFi. Before diving deeper, it’s important to know how liquid staking differs from traditional staking.
What is the difference between staking and liquid staking?
Staking is the process of locking crypto assets in a Proof-of-Stake blockchain protocol to support operations like validating transactions or securing the network. In return, staking participants receive token rewards. While staking offers users great opportunities to earn yields, a major downside is that it’s illiquid. Staking often requires locking your assets on a protocol, meaning you can’t access that liquidity in the meantime.
How is liquid staking any different?
On blockchains like Ethereum, traditional staking requires locking assets for periods of time – time in which the user does not have access to their locked assets, and can’t use said assets for other DeFi activity. Additionally, unstaking assets such as ETH involves unbonding periods that can lock funds anywhere between a few days to few weeks.
Traditional staking also has a high entry barrier, with many blockchains requiring minimums to stake. ETH, for instance, has a minimum of 32 ETH required, and Flare requires a minimum of 50,000 FLR.
With liquid staking, on the other hand, users are immediately given liquidity in the form of a receipt token. This receipt token (the LST) represents the staked asset and can be traded on DEXs at a value close to that of the original staked asset. This provides unique benefits to a given DeFi ecosystem:
- Cross-chain liquidity: LSTs can create deeper liquidity through cross-chain transfers of assets, as staked assets from one blockchain can be used on another. This opens up new avenues of capital flow between multiple chains.
- Yield opportunities: LSTs enable users to keep staking their assets while using the LSTs on different yield-generating DeFi protocols via lending, borrowing, and providing liquidity
- Promotes decentralization: In allowing users to stake any amount, LSTs encourage greater community participation. For instance, Sceptre users can stake FLR without the entry barrier of a minimum token requirement.
Additionally, LSTs do not require an unstaking period to redeem their original tokens at a 1:1 ratio.
Is liquid staking available on Flare?
Yes – liquid staking is available through liquid staking protocols on Flare such as Sceptre (for sFLR) and the recently introduced flrETH.
flrETH – ETH liquid staking on Flare
flrETH is a Flare-native ETH liquid staking solution, built by Dinero. It enables users to earn ETH staking yield and Miner Exractable Value (MEV) tips directly on Flare – without leaving the network or having to manage validators. The simple-to-use dapp lets users stake and deposit their ETH, in exchange for a receipt token (flrETH) that they can then use for a number of DeFi activities on Flare. For more information on ETH liquid staking with flrETH, refer to our flrETH guide. Or start staking ETH on Flare on Dinero today.
Sceptre – FLR liquid staking
On the Sceptre protocol, users can stake FLR tokens and receive a liquid staked version, sFLR, which can be used in Flare’s DeFi ecosystem for lending, borrowing, and liquidity provision. The original staked FLR continues to earn native Flare staking rewards, including FlareDrops. When a user is ready to unstake their FLR, they will burn their sFLR to redeem their original FLR tokens – plus any accumulated staking rewards and FlareDrops. Note that redemption involves a small fee. To keep the process simple, Sceptre automates airdrop and staking reward distribution and claim for users. Sceptre maximizes security and decentralization by staking assets across more than 50 nodes. Start staking FLR on Sceptre.
LSTs on Flare bring new utility to the ecosystem by helping scale yield for DeFi protocols and its participants. By expanding yield opportunities, LSTs can attract a wider array of assets and products that can accelerate the growth of Flare’s fast-rising DeFi ecosystem.