Liquid Staking Token (LST)
A tradable token like stETH or cbETH representing staked ETH plus accruing rewards, keeping staked capital liquid and usable across DeFi.
A liquid staking token (LST) is a tradable token that represents staked ETH, or another proof-of-stake asset, together with the staking rewards it accrues over time.
Staking normally means locking capital with a validator, which takes it out of circulation. Liquid staking protocols solve this by accepting deposits, running the validators themselves, and issuing a token in return. Lido's stETH and Coinbase's cbETH are the best-known examples. LSTs accrue rewards in one of two ways. Exchange-rate tokens such as cbETH and Lido's wrapped wstETH become redeemable for slightly more ETH over time while the wallet balance stays fixed. Rebasing tokens such as unwrapped stETH instead increase holder balances directly while the price per token tracks ETH.
Because an LST is just an ERC-20, it stays usable across DeFi. Holders can trade it, post it as collateral, provide liquidity with it, or hold it inside an index basket. An index token that includes LSTs among its underlying assets effectively accrues staking yield inside the basket, with no one needing to claim anything.
LSTs carry risks beyond ordinary ETH exposure. The staking protocol's contracts can have bugs, validators can be slashed with losses passed to token holders, and the token's market price can trade below its redemption value during periods of market stress, as has happened historically. Staking yields also float with network conditions and validator performance, so no particular return is guaranteed.