Liquid Staking Token (LST)
Token que representa ativos comprometidos em staking, permitindo negociá-los ou usá-los em outras aplicações enquanto seguem rendendo recompensas.
Key points
- A liquid staking token, or LST, is a token that represents assets committed to staking on a proof-of-stake network.
- It keeps liquidity available for a position that would otherwise be locked, allowing it to be traded or used in other applications.
- In exchange for that convenience, the LST adds layers of risk, tied to the contract that issues it and to its peg with the original asset.
What is an LST?
A liquid staking token is proof, in token form, that someone has committed assets to staking through a protocol. When a user deposits their assets into that protocol, they receive back an LST representing the position, including the rewards it accrues. This way, the capital contributes to network security while remaining usable at the same time.
How it works
The user deposits assets into a liquid staking protocol, which commits them to the network on the user's behalf. In return, they receive an LST whose value tends to track the original asset plus the rewards accumulated over time. This token can be transferred, traded, or used as collateral in decentralized finance applications, without the user needing to redeem the position.
To recover the original assets, the user returns the LST and goes through a redemption process, which may include a waiting period defined by the network. In the meantime, the LST circulates freely, which has expanded the use of staking but has also chained the position to new contracts and markets.
The peg between the LST and the underlying asset is not guaranteed by decree: it depends on trust in the issuing protocol and on available liquidity, and it can break during moments of stress.
Why it matters
LSTs made staked capital more efficient, which attracted significant volume to this model and turned them into central pieces of decentralized finance. For those who use them, understanding that an LST is not identical to the original asset, but rather a representation with its own risks, is essential before using it as collateral.
Risks and limitations
The LST accumulates risks: the risk of staking itself, with the possibility of slashing; the risk of the smart contract that issues it; and the risk of the token losing its peg to the underlying asset during moments of stress. Using it as collateral in other applications chains these exposures together even further, which can amplify losses during a liquidity crisis.