Liquid staking tokens (stETH, rETH, cbETH): earning without locking

A liquid staking token is a receipt for staked crypto that you can trade, use as collateral, or sell, while the underlying asset stays locked up earning staking rewards. It solves the central tradeoff of ordinary staking: lock your ETH to earn yield, and you lose access to it until you unstake.

How it works

Deposit ETH into a liquid staking protocol like Lido, Rocket Pool, or Coinbase, and instead of running a validator yourself, the protocol pools your deposit with everyone else's, runs (or delegates) the validators on the pool's behalf, and mints you a token representing your claim on the pool. Lido issues stETH. Rocket Pool issues rETH. Coinbase issues cbETH. Each token represents the same underlying idea: your proportional share of a staked ETH pool, growing in value (or growing in quantity, depending on the token's design) as staking rewards accrue.

The token itself is freely tradable. You can hold it, sell it on a DEX, or, critically, post it as collateral in a lending protocol to borrow against it, all without ever unstaking the underlying ETH or waiting through a validator exit queue. That's the entire value proposition: staking yield and liquidity, at the same time, instead of choosing one or the other.

The tradeoff shows up in two places. First, most liquid staking tokens trade at a slight premium or discount to the ETH they represent, since the peg depends on market arbitrage rather than instant redemption, and that gap can widen under stress, as stETH's did in mid-2022 when it briefly traded several percentage points below ETH during a liquidity crunch. Second, liquid staking concentrates real influence over validator operations in a small number of protocols, a centralization risk the Ethereum community actively debates and monitors.

Why it matters

Liquid staking tokens turned staked ETH from a locked, illiquid position into a composable building block the rest of DeFi could use. Lending protocols accept stETH and rETH as collateral. Vaults hold them as yield-bearing assets. The tokens circulate through the same rails as any other crypto asset, just with a staking yield attached.

For lenders, that composability is also a pricing challenge: a liquid staking token carries both the price risk of the underlying asset and the peg risk of the wrapper, two separate things that need separate risk treatment rather than one blended assumption.

Where this shows up in Rekord

Liquid staking tokens are eligible crypto collateral in Rekord's lending markets, priced with LTV parameters that account for both underlying asset volatility and the token's peg risk to ETH. For how collateral gets sized against risk, see Overcollateralization in institutional crypto-backed lending.