What is liquid staking token (LST)?

A token representing staked coins plus their accumulated rewards, issued so the holder keeps a tradable claim while the underlying stays locked with a validator.

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A token representing staked coins plus their accumulated rewards, issued so the holder keeps a tradable claim while the underlying stays locked with a validator.

It solves the problem that native staking immobilizes capital for an unbonding period. The token can be sold, lent, or posted as collateral, and it can trade below the value of what it represents when people want out faster than the unbonding queue allows.

You take on the issuer's smart contract risk and its validator operations on top of ordinary staking risk. The thing worth understanding before buying one is which of two accounting models it uses, because they look completely different on a portfolio screen for the same economic outcome.

How it works

You deposit a stakeable asset with a protocol. It stakes the deposit across a set of validators it operates or selects, and it issues you a token representing your claim on the staked pool.

Two designs are common.

  1. Rebasing. The token balance in your wallet grows as rewards accrue, and one token stays roughly equal to one of the underlying asset. Simple to read, and awkward for contracts and for tax records, since your balance changes without any transaction.
  2. Reward-bearing. Your balance stays constant and each token becomes redeemable for more of the underlying over time, so the token trades above the base asset by design. This is what most newer designs use.

Redemption goes through the chain's own exit process, which takes as long as the unbonding period requires. That is why the secondary market matters: when many holders want out at once, the token can trade below its redemption value, and that discount is the market pricing the wait rather than a failure of the peg.

The risks stack. Validator slashing can reduce the pool. The smart contract holding everything is code. Governance controls parameters, sometimes including which validators are used. And concentration is a live concern where one provider holds a large share of a chain's total stake.

Example

Illustrative arithmetic on a reward-bearing design. You deposit 10 ETH and receive 9.5 units of a liquid staking token, because each unit is already redeemable for about 1.053 ETH after past rewards. A year later, with an illustrative 3 percent net staking return, each unit is redeemable for about 1.085 ETH, so your 9.5 units represent roughly 10.3 ETH. Your token balance never changed. What changed is the exchange rate, which is where the reward shows up. If you sell on the open market during a period of heavy exit demand, you might receive 1.075 ETH per unit rather than 1.085, and that 1 percent difference is the cost of not waiting for the queue.

Why it matters when you buy

Staked and wrapped derivatives are excluded from RampAtlas asset tracking, so the base asset is what you will find on our pages. If you are comparing staking through an exchange against a liquid staking protocol, the yield pages show which exchanges offer staking, where it is permitted, and the rate each publishes. Staking for beginners covers the tradeoffs, and stablecoin yield risks covers how advertised yields are built.

Questions

Why does the token trade above the base asset?

In a reward-bearing design that is intended. Each unit accumulates value rather than multiplying in count, so a premium to the base asset simply reflects rewards already earned.

Is holding one the same as staking myself?

Economically similar, with extra layers. You add the protocol's contract risk, its validator selection, and its governance to the staking risk you would have taken directly.

Are rewards taxable as they accrue?

Treatment varies by jurisdiction and by design, and rebasing and reward-bearing tokens can be treated differently. This is a question for a professional familiar with your country's rules.