Liquid staking is a way to lock up crypto as a stake, known as StakingStakingLocking up crypto on a proof-of-stake network to help confirm transactions, in return for rewards paid in the same crypto., and receive a token in return that you can keep using. The token is a kind of receipt for the stake and the rewards that come with it. It can be sold, sent or used in DeFiDeFi (decentralised finance)Financial services, such as lending, saving and trading, that run on smart contracts on a blockchain instead of through a bank or other middleman. while the crypto itself stays locked.
How does liquid staking work?
Staked crypto is usually locked, and on Ethereum you have to queue to get it back. A liquid staking service takes in the crypto, spreads it across validatorsValidatorA participant on a proof-of-stake network who locks up their own crypto as a stake to create and check blocks in return for rewards. and issues a token in return.
The best-known example is Lido on Ethereum, which launched in December 2020. Anyone who deposits ether with Lido receives the token stETH at a ratio of 1:1. The stETH balance then grows daily as rewards build up. According to ethereum.org (in October 2026), about a third of all staked ether sits behind tokens like these.
Think of a certificate of deposit: the money is locked away for a set time, but the certificate itself can be sold to someone else.
What are the risks?
- The token can trade below the value of the stake. Its price is set on the market. In June 2022, before staked ether could be withdrawn, stETH traded for a while at a discount of a few percent to ether.
- Smart contracts. The crypto sits in smart contractsSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met. that could contain bugs.
- Penalties. If a validator used by the service suffers SlashingSlashingA penalty on proof-of-stake networks. A validator that breaks the rules loses part of its stake and is removed from the network., the loss is usually shared by all holders of the token.
- Concentration. If one service controls a large share of all stake, a lot of power ends up in a few hands. Ethereum.org warns that this can make censorship on the network easier.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.