Liquid staking tokens have become one of the most important building blocks in modern crypto yield strategies. If you’ve seen terms like stETH, rETH, or cbETH and felt unsure what they actually represent, you’re not alone.
This guide explains what liquid staking tokens are, how they work, how they differ from each other, and how beginners can use them safely — without technical jargon or assumptions.
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What Are Liquid Staking Tokens (LSTs)?
A liquid staking token (LST) is a token you receive when you stake crypto through a liquid staking protocol.
Instead of locking your assets and losing access to them, liquid staking gives you:
-
Ongoing staking rewards
-
A tradable token representing your staked position
That token increases in value or quantity over time as staking rewards accrue.
Why Liquid Staking Exists
Traditional staking has one major drawback:
your funds are locked.
Liquid staking solves this by:
-
Preserving liquidity
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Unlocking DeFi use cases
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Improving capital efficiency
This innovation is why LSTs are now widely used in:
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Yield vaults
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Lending protocols
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Collateralized strategies
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Multi-chain DeFi portfolios
How Liquid Staking Tokens Work (Step-by-Step)
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You stake ETH (or another PoS token) via a liquid staking protocol
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The protocol stakes your assets with validators
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You receive an LST (e.g., stETH or rETH)
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Staking rewards accumulate automatically
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You can trade or deploy the LST at any time
Your original stake remains locked in the background, but your LST remains liquid.
stETH Explained (Lido)
stETH is the most widely used liquid staking token on Ethereum.
Key Features
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Issued by Lido
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Rewards accrue via rebasing
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1 stETH ≈ 1 ETH + rewards (over time)
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Deep liquidity across DeFi
How Rewards Work
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Your stETH balance increases daily
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The price stays close to ETH
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Rewards are automatically compounded
Pros
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Largest market adoption
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Strong DeFi integrations
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Highly liquid
Cons
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Rebasing can complicate taxes
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Centralization concerns (large validator share)
rETH Explained (Rocket Pool)
rETH is a decentralized alternative to stETH.
Key Features
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Issued by Rocket Pool
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Rewards accrue via price appreciation
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1 rETH increases in ETH value over time
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Fully non-rebasing
How Rewards Work
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Your rETH balance stays constant
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Price of rETH vs ETH increases gradually
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Easier accounting for many users
Pros
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More decentralized validator set
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Non-rebasing (simpler tracking)
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Strong Ethereum ethos
Cons
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Less liquidity than stETH
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Slightly higher entry cost
cbETH Explained (Coinbase)
cbETH is Coinbase’s liquid staking token.
Key Features
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Issued by Coinbase
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Centralized custodian
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Non-rebasing
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Often integrated with Coinbase services
Pros
-
Simple for Coinbase users
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Easy on-ramp and off-ramp
Cons
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Custodial risk
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Less DeFi integration
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Centralization exposure
Beyond Ethereum: Other Popular LSTs
Liquid staking is not limited to Ethereum.
Solana
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mSOL (Marinade)
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jitoSOL (MEV-optimized)
Cosmos
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stATOM
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qATOM
Avalanche
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sAVAX
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ggAVAX
Each ecosystem has unique:
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Validator models
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Reward mechanisms
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Liquidity profiles
Rebasing vs Non-Rebasing LSTs
Rebasing Tokens (e.g., stETH)
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Token balance increases over time
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Price stays near underlying asset
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Can complicate tracking and taxes
Non-Rebasing Tokens (e.g., rETH)
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Balance stays constant
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Token price increases
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Easier portfolio tracking
Neither is “better” — it depends on your preferences.
How Liquid Staking Tokens Are Used in DeFi
LSTs can be:
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Supplied to lending protocols
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Deposited into yield vaults
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Used as collateral
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Paired in liquidity pools
This allows:
-
Staking yield
-
Plus additional DeFi yield
However, stacking yield also stacks risk.
Key Risks of Liquid Staking Tokens
1. Smart Contract Risk
Liquid staking protocols rely on:
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Multiple smart contracts
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Validator logic
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Oracle systems
A bug or exploit can impact funds.
2. De-Peg Risk
During market stress:
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LSTs can trade below their fair value
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Liquidity dries up temporarily
This risk increases when LSTs are over-leveraged.
3. Centralization Risk
Some LSTs rely on:
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Large operators
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Few validator entities
Decentralization matters for network health.
Are Liquid Staking Tokens Safe for Beginners?
They can be — if used responsibly.
Beginner-friendly guidelines:
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Stick to major LSTs
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Avoid leverage
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Don’t chase extreme APY
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Understand exit mechanics
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Diversify across protocols
How to Choose the Right LST
Ask yourself:
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Do I value decentralization?
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Do I need liquidity?
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Am I using DeFi vaults?
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Do I prefer rebasing or non-rebasing?
Simple Recommendation
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Conservative: rETH
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Flexible DeFi user: stETH
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Exchange-based user: cbETH
Liquid Staking Tokens vs Yield Vaults
Liquid staking tokens are building blocks.
Yield vaults:
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Stack additional strategies on top
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Optimize compounding
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Add more risk layers
Understanding LSTs first is essential before using advanced vaults.
Common Beginner Mistakes
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Using obscure LSTs for higher yield
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Ignoring peg risk
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Over-leveraging positions
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Treating LSTs as “risk-free”
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Not understanding how rewards accrue
Final Takeaways
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Liquid staking tokens represent staked assets with liquidity
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stETH, rETH, and cbETH dominate Ethereum
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Rebasing and non-rebasing models behave differently
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LSTs enable powerful DeFi strategies
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Risk management is essential
Final Thoughts
Liquid staking tokens are one of the most important innovations in crypto. They allow investors to earn staking rewards without giving up flexibility, but they also introduce new layers of risk.
Used wisely, LSTs can significantly improve capital efficiency. Used recklessly, they can magnify losses.
Understanding them deeply is the difference between sustainable yield and unnecessary risk.
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Disclaimer: The above content is for informational and educational purposes only and does not constitute financial or investment advice. Always do your own research and consider consulting with a licensed financial advisor or accountant before making any financial decisions. Panaprium does not guarantee, vouch for or necessarily endorse any of the above content, nor is responsible for it in any manner whatsoever. Any opinions expressed here are based on personal experiences and should not be viewed as an endorsement or guarantee of specific outcomes. Investing and financial decisions carry risks, and you should be aware of these before proceeding.
About the Author: Alex Assoune
Alex Assoune (MS) is a global health and environmental advocate. He founded Panaprium to inspire others with conscious living, ethical, and sustainable fashion. Alex has worked in many countries to address social and environmental issues. He speaks three languages and holds two Master of Science degrees in Engineering from SIGMA and IFPEN schools.
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