Liquid staking and liquid staking tokens (LST) have been picking up steam as their market cap hits over $45 billion at the time of writing. But what exactly is liquid staking, and how does it differ from regular staking? What can we even do with LSTs?
What is Liquid Staking?
Before we go into liquid staking, it’s good to first get an idea of what staking is! Feel free to do your own research on what staking is or read our past article on related subjects!
Liquid staking works similarly to staking, allowing users to earn interest on their holdings. Staking locks your native tokens in a network or platform for a chance to earn a reward (Usually, additional tokens). It helps secure Proof of Stake blockchains and contributes to the security of the blockchain itself. Liquid staking works the same way except instead of locking your tokens, you receive a liquid staking token which can be further utilized.
The addition of liquid staking tokens allows users to have more flexibility when participating in “staking”, or in this case, liquid staking. To put it even more simply, liquid staking is basically staking but with added flexibility (Though there are risks).
Next, let’s talk a little more about liquid staking tokens (LST).
What are Liquid Staking Tokens?
Liquid staking tokens (LST) are tokenized representations of staked assets. They are receipts that you can utilize for trading or usage in other protocols. LSTs provide liquidity while the actual asset is still staked. While you benefit from staking your asset, you can still use LSTs as you would your original token (To a certain extent); you can even stake your LST as well.
The significance of LSTs, as talked about above, lies in their flexibility. Having to stake and unstake assets due to them being locked can feel rigid. Having the flexibility to still be able to use an asset can open up many different opportunities.
Pros and Cons of Liquid Staking
With an idea on what liquid staking and a liquid staking token is, let’s further examine the pros and cons.
Pros
More Flexibility– This one goes without saying as it’s the core advantage for liquid staking. Having the freedom to engage with the market or to utilize an asset while it’s being staked is what makes liquid staking so enticing.
Increased Efficiency– The ability to do more with your staked asset increases how efficiently you are using the asset. Being able to profit off of your staked asset as well as your LST will be more profitable and efficient than having only the staked asset.
Cons
More Risk– The more you engage in different activities, the more risks you are exposed to. Investing your LSTs in high-risk protocols can potentially make you lose your staked assets be it through slashing or hacks.
Currently Limited– Liquid staking is still a market with plenty of room for growth. This means that your options for what you can do with LSTs are currently also limited.
More Complex– Adding a new layer of utility also means adding a layer of complexity. Liquid staking requires one to be more well-versed with staking to be fully utilized. This added layer of complexity is not only a barrier to entry but can also cause mishaps when not handled carefully.
About ThunderCore
ThunderCore also has its own LST, veTT! We are also exploring the potential of liquid staking and are open to pushing for more development in this area.
ThunderCore is an EVM-compatible blockchain featuring a breakthrough consensus protocol, PaLa, allowing lightning-fast efficiency. With users in more than 100 countries, this blockchain emphasizes a growing global reach. ThunderCore offers a native currency, TT, and nurtures an innovative ecosystem within the TT Wallet mobile app.
What’s Next?
The Bitcoin halving is past! Next time on ThunderCore Blog, we will be talking about the aftermath of Bitcoin halving so watch out for that article. ThunderCore also has something else cooking but we can’t reveal anything just yet! Until next time, Thunders!
ThunderCore Official