April

Rocket Pool

Rocket

Chainlink

Rise

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<li style="list-style-type: none;">
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<li><strong>Staking locks up cryptocurrency tokens as collateral to secure a network or achieve a specific result.</strong></li>
<li><strong>Liquid staking allows staked assets to be used as collateral across the DeFi ecosystem through tokenization.</strong></li>
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</li>
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<h2 id="liquid-staking-unlocking-liquidity-for-staked-tokens">Liquid Staking: Unlocking Liquidity for Staked Tokens</h2>
<p>Liquid staking is a new concept that <a href="https://www.ethnews.com/chainlink-partners-with-billion-dollar-insurance-platform-to-provide-protection-for-customers-and-companies/">solves</a> the liquidity problem of staked tokens. Staking locks up tokens, making them unable to be transacted or used as collateral to earn yield in DeFi. However, liquid staking service providers mint a new token that <a href="https://www.ethnews.com/chainlink-and-gmx-dao-unite-pioneering-decentralized-perpetual-exchanges-with-advanced-oracle-solutions/">represents</a> a claim on the staked asset, which can be traded or deposited in DeFi protocols. This tokenization unlocks liquidity for staked tokens and creates new opportunities for users.</p>
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">
<p lang="en" dir="ltr">Liquid staking protocols unlock the liquidity of tokens staked in a validator node by minting new liquid staking tokens (LSTs) representing a claim on the staked asset.</p>
<p>Discover how liquid staking works, the risks, benefits, and more<img src="https://s.w.org/images/core/emoji/14.0.0/72x72/1f447.png" alt="👇" class="wp-smiley" style="height: 1em; max-height: 1em;" /><a href="https://t.co/YomRIwMJeD">https://t.co/YomRIwMJeD</a></p>
<p>&mdash; Chainlink (@chainlink) <a href="https://twitter.com/chainlink/status/1653038701608402946?ref_src=twsrc%5Etfw">May 1, 2023</a></p></blockquote>
<p><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script></p>
<h2 id="traditional-vs-liquid-staking">Traditional vs. Liquid Staking</h2>
<p>Traditional staking <a href="https://www.ethnews.com/filecoin-chainlink-civic-internet-computer-and-vechain-how-blockchain-is-enhancing-everyday-life-with-vechain-leading-the-way-in-supply-chain-management/">provides</a> cryptoeconomic security to a network, and stakers receive rewards for verifying transactions. However, staked tokens are locked and have no liquidity. Liquid staking provides the same security and rewards, with the added benefit of unlocking liquidity for staked assets. Liquid staking is available through a service provider, while traditional staking <a href="https://www.ethnews.com/chainlinks-news-nft-lending-and-renting-concept-creates-lucrative-passive-income-opportunity-in-trillion-gaming-market/">can be done</a> individually, through staking as a service, pooled staking, or centralized exchanges.</p>
<h2 id="benefits-of-liquid-staking">Benefits of Liquid Staking</h2>
<p>Liquid staking <a href="https://www.ethnews.com/chainlink-and-akron-finance-team-up-to-revolutionize-defi-with-akron-crossing-network/">unlocks</a> liquidity for staked tokens, allowing them to be used as collateral in DeFi protocols. This opens up new opportunities for yield and composability in DeFi. Liquid staking also allows anyone to share in the rewards of staking without having to maintain complex staking infrastructure, and it enables users <a href="https://www.ethnews.com/chainlink-and-decentralized-oracles-the-bridge-connecting-blockchain-to-a-487-trillion-market/">to continue</a> receiving rewards while also earning additional yield across various DeFi protocols.</p>
<h2 id="risks-and-limitations-of-liquid-staking">Risks and Limitations of Liquid Staking</h2>
<p>Liquid staking exposes users to the risk of having their funds slashed if the service provider acts maliciously or unreliably. Depositing tokens with a liquid staking service provider also places those funds at risk if there are any smart contract vulnerabilities that lead to an exploit. Additionally, the price of liquid staking tokens <a href="https://www.ethnews.com/celo-proposes-to-support-chainlink-scale-program-to-enhance-smart-contract-capabilities/">is not pegged</a> to the underlying asset, which can result in secondary market volatility.</p>
<h2 id="liquid-staking-tokens-and-protocols">Liquid Staking Tokens and Protocols</h2>
<p>Liquid staking protocols are the service providers that offer liquid staking, and liquid staking tokens (LSTs) represent a claim on the staked assets. Lido is the largest liquid staking protocol, with over $12.7B TVL as of 19 April 2023. It <a href="https://www.ethnews.com/chainlinks-proof-of-reserves-boosts-transparency-and-security-for-circle-kpmg-dbs-and-harneys/">offers</a> stETH (staked ETH) LSTs on Ethereum, stMATIC on Polygon, and stSOL on Solana. Rocket Pool is another popular liquid staking protocol on Ethereum, with over $1.4B TVL.</p>
<h2 id="centralized-vs-decentralized-liquid-staking">Centralized vs. Decentralized Liquid Staking</h2>
<p>Decentralized liquid staking protocols, such as Lido and Rocket Pool, are non-custodial and have smart contract vulnerabilities. On the other hand, centralized providers <a href="https://www.ethnews.com/chainlink-revolutionizes-smart-contracts-with-secure-multi-party-computation/">offer</a> liquid staking services to their customers and are in full control of users&#8217; staked assets. Each has its own risks and benefits.</p>
<h2 id="chainlink-price-feeds-and-lsts">Chainlink Price Feeds and LSTs</h2>
<p>Chainlink Price Feeds publish accurate and reliable data for various LSTs, which enables DeFi protocols <a href="https://www.ethnews.com/chainlink-set-to-launch-on-ethereum-soon/">to accept</a> them as collateral. This is critical for deepening the liquidity of LSTs and securing the protocols they&#8217;re traded on, making Chainlink a critical infrastructure for liquid staking throughout Web3.</p>
<div class="cryptoboxes" id="mcw-12709" data-realtime="on"><div class="mcw-chart mcw-chart-light" data-font = "inherit" data-chartcoin = "LINK" data-chartcurrency = "USD" data-chartrate = "1.000268" data-charttype = "chart" data-chartview = "day" data-charttheme = "light" data-chartsmooth = "true" data-chartareacolor = "" data-chartbgcolor = ""></div></div>
<p>The post <a rel="nofollow" href="https://www.ethnews.com/unlocking-liquidity-for-staked-tokens-how-chainlink-empowers-the-rise-of-liquid-staking-in-defi/">Unlocking Liquidity for Staked Tokens: How Chainlink Empowers the Rise of Liquid Staking in DeFi</a> appeared first on <a rel="nofollow" href="https://www.ethnews.com">ETHNews: Bringing you the news of everything blockchain, Ethereum, and the internet.</a>.</p>

Unlocking Liquidity for Staked Tokens: How Chainlink Empowers the Rise of Liquid Staking in DeFi

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