In crypto (and traditional) investing capital size often defines strategy. Investors with limited capital often pursue high-growth strategies, while those with larger portfolios typically prioritise capital preservation and risk management.
Liquid staking has emerged as a useful tool to manage such risks while maintaining exposure to potential protocol-level rewards.
Unlike traditional staking, which requires locking up assets and sacrificing liquidity, liquid staking allows participants to retain access to their capital. This article examines how liquid staking can enhance crypto risk management, particularly in comparison to traditional finance, standard staking, or simply holding cryptocurrencies.
What is liquid staking?
In a traditional staking setup, investors lock up their tokens to secure a Proof-of-Stake network and receive rewards in return. However, these tokens become illiquid for the fixed period.
Liquid staking changes this paradigm.
When you stake through a liquid staking protocol, you receive a liquid staking token (LST) in return (often 1:1 to the staked asset, but not always, depending on the protocol). This LST represents your staked assets and sometimes continues to receive staking rewards, but you can trade or use it freely for DeFi in the meantime.
How does this help with risk?
The key – is liquidity and flexibility.
In volatile markets, being able to quickly access or reallocate capital is critical. Liquid staking ensures you’re not stuck waiting through unbonding periods if you need to exit a position.
You can respond to market changes without losing the income stream from staking – a major advantage for risk management.
By maintaining liquidity, investors reduce exposure to capital lock-up risks. This flexibility supports a risk-adjusted approach to portfolio construction, providing optionality without forfeiting the possibility of receiving network rewards.
In the rapidly-changing Web3 environment, quick access to your assets is very important and liquid staking allows you this opportunity.
Enhanced liquidity and yield vs. traditional options
One of the biggest benefits of liquid staking is enhanced liquidity for your capital. This means if market conditions turn or a new opportunity arises, you can move quickly. By reducing the lock-up risk, liquid staking reduces the impact of market downturns since investors aren’t forced to ride out a crash with locked assets.
At the same time, liquid staking maximizes yield on idle crypto assets. Holding crypto without staking yields 0%, and even traditional finance instruments like bank deposits or many bonds yield far less than crypto staking rewards.
With liquid staking, investors have offered variable yields ranging from 3% to 8% annually on major assets (e.g. around 3–5% for ETH, ~5–8% for SOL, ~3–4% for TON) while still being able to deploy their tokens elsewhere. (These figures are based on past performance and are not guaranteed in the future). In fact, liquid staking allows “dual use” of assets: your staked token gets rewards and your LST can potentially earn additional DeFi yield strategies through lending, yield farming, etc., compounding your returns.
This capital efficiency can improve portfolio management and flexibility – every asset is working overtime.
Importantly, these staking rewards have historically shown relative stability compared to price swings, though they are not guaranteed. For investors, that steady yield can hedge against downside risk and provide consistent income, much like interest from traditional instruments.
Risk mitigation and portfolio management
Beyond returns, liquid staking offers specific risk management advantages:
- Mitigating liquidity risk: by keeping assets liquid, investors avoid the capital lock-up risk of traditional staking. If an investor needs to rebalance or exit a position due to market risk, they can sell their LST (liquid staking tokens) or otherwise reposition quickly. This flexibility means a staked position doesn’t become a trap during downturns – a clear risk mitigation benefit.
- Lower opportunity cost: In fast-moving markets, locking assets can mean missing other opportunities or failing to adjust to new information. Liquid staking ensures your capital isn’t tied up unnecessarily. You continue to generate yield but can also seize new opportunities as they arise by using or trading the liquidity token. This improves the overall risk-adjusted return of your portfolio, since you’re potentially getting protocol rewards without giving up optionality.
- Income smoothing and hedging: The yields from liquid staking can effectively lower the volatility of portfolio returns. For example, an ETH holder who stakes via liquid staking can count on potential ~4–5% APR in ETH annually, based on past. That yield can cushion losses if ETH’s price dips, or enhance total returns if the price rises. Some institutional investors even use delta-neutral strategies – e.g. holding LSTs and shorting the equivalent amount of underlying asset – to earn the staking yield with minimal price risk. As liquid staking grows, such strategies' returns are expected to converge with traditional finance yields, highlighting how liquid staking is becoming a mainstream-like fixed-income play.
- Diversification and DeFi integration: Liquid staking tokens can be used across various platforms, allowing investors to diversify their DeFi yield strategies. One can, for instance, provide staked tokens as collateral for loans or in yield farms. This ability to deploy assets in multiple places can spread risk. In essence, LSTs turn static staked assets into active components of a portfolio, improving overall capital utilization and risk distribution.
It’s worth noting that liquid staking is increasingly seen as a bridge between TradFi and DeFi in terms of risk profile. Some have likened staking returns to the crypto equivalent of a risk-free rate, analogous to a government bond yield in traditional markets.
Liquid staking vs. other investment options
To illustrate why liquid staking can be a better option for many investors, let's compare it to holding crypto, traditional staking, and traditional finance instruments:
- Simply holding crypto: Holding assets like ETH or SOL without staking means no yield – your only return comes from price appreciation (or loss). This exposes you fully to market volatility and inflation risk (supply inflation can dilute value).
- Traditional staking (locked): Traditional staking yields rewards, but the lock-up periods (and unbonding wait times) introduce significant risk for active investors. If the market drops, a traditional staker might be unable to cut losses or reallocate capital until it’s too late.
Additionally, many staking protocols require a high minimum (e.g. 32 ETH for solo staking or 700.000+ TON) or technical setup, whereas liquid staking pools allow any amount with no hassle, which reduces operational risk.
- Traditional finance (bonds or yield products): In TradFi, low-risk instruments like government bonds offer ~4–5% yields today – comparable to Ethereum staking yields. The difference is that with liquid staking on crypto, you earn a similar yield plus potential upside if the crypto asset appreciates (though of course, there’s downside risk if the asset falls).
While traditional bonds have the backing of governments, crypto staking yields come from network fees and inflation – different sources of risk – but as part of a diversified strategy, liquid staking can play a similar income-generating, risk-balancing role in a portfolio.
Of course, no investment is free of risk. Liquid staking introduces some unique risks to be mindful of: smart contract vulnerabilities, potential depegging of LST price from the underlying asset, and slashing risk (if validators misbehave) which could affect staking rewards.
Reputable liquid staking providers mitigate many of these risks (e.g. spreading delegations across many validators to minimize slashing impact, audits for smart contracts, etc.). Indeed, leading decentralized platforms like Lido have maintained near 1:1 parity between LST and underlying asset and have built a track record over several years. But prudent investors should still do due diligence – use trusted protocols and understand the terms.
Overall, when managed properly, liquid staking’s benefits tend to outweigh these risks, especially for investors seeking a balance of yield, liquidity, and security.
Liquid staking in action: ETH, SOL, and TON
Let’s look at how liquid staking is playing out in three notable networks – Ethereum, Solana, and The Open Network (TON) – and what it means for investors’ risk and return:
(Note: APY figures are subject to change and should not be viewed as guaranteed. Crypto staking involves protocol-level risks and price volatility)
- Ethereum (ETH): Ethereum is the pioneer of liquid staking and by far the largest market. After Ethereum’s switch to Proof-of-Stake, liquid staking protocols like Lido Finance enabled users to stake ETH and get stETH tokens in return. This solved the early Ethereum staking issue: initially, directly staked ETH couldn’t be withdrawn for many months, so liquid staking filled a critical liquidity need. Even now post-upgrade, liquid staking remains hugely popular.
Roughly one-fifth of all ETH staked is via liquid staking derivatives like stETH, rETH, or cbETH. Lido alone accounts for about 9–10 million staked ETH (valued around $30 billion). The appeal is clear: investors earn around 4–5% APY on staked ETH and can exit at any time by selling the liquid token (stETH), which closely tracks ETH’s price. For institutions, ETH liquid staking has become a way to get bond-like yields in crypto with relatively low incremental risk. The scale of adoption (over $40B in ETH LSTs and growing) also adds confidence – liquidity for stETH is deep, and the mechanism has proven resilient through market cycles.
Ethereum’s case shows that liquid staking can handle large capital and deliver on its promise of liquidity + yield, making it a core component of many crypto investment strategies today.
- Solana (SOL): Solana is a high-performance network with a very high rate of native staking, yet liquid staking is relatively underutilized so far. Only about 6–10% of staked SOL is via liquid staking as of 2025. This means most SOL stakers are still using traditional staking, facing the usual lock-up risks (Solana’s unstaking takes ~2-3 days per epoch). However, this is rapidly changing.
Platforms like Marinade Finance and Jito offer liquid SOL tokens (mSOL, JitoSOL) with ~6–7% APY. The Solana DeFi ecosystem stands to benefit significantly from greater LST adoption, as the flexibility of LST assets allows for greater capital efficiency across Solana DeFi.
For investors, this represents an opportunity: SOL liquid staking is an emerging market with room to grow, potentially offering outsized yields or incentives as protocols compete. More importantly, by using liquid staking, SOL holders can avoid the risk of missing out on market moves during the unstaking period. Given SOL’s price volatility, having liquidity on hand via an LST is a prudent risk strategy. As Solana’s liquid staking percentage climbs (on track to match or exceed 10% of staked SOL soon), we can expect improved market liquidity for staked SOL and more tools for Solana-based yield strategies.
- The Open Network (TON): TON is a newer proof-of-stake network that is gaining traction. Liquid staking on TON is just taking off, making it an interesting case of a nascent ecosystem if compared with ETH or SOL. Currently, about 13% of TON’s total supply is staked in the network, which is relatively low staking participation. Several projects are now rolling out TON liquid staking solutions. For example, bemo and others offer ~4–5% APY on staked TON with instant liquidity.
According to TON developers, if TON’s liquid staking grows to levels seen on Ethereum (where over a third of staked assets are liquid), it could “surge” the TON DeFi market by an order of magnitude. This signals a huge potential upside for early adopters of TON liquid staking. From a risk perspective, liquid staking could be transformative for TON: it will enable much greater liquidity for TON investors (important, since large parts of the community come via Telegram integration), and provide a safe yield to attract more institutional money.
For fund managers looking at TON, the emergence of liquid staking means they can start treating TON more like a liquid, yield-bearing asset rather than a purely speculative token – improving its profile in a professional portfolio.
Conclusion: a new era of risk-managed yield
Liquid staking is reshaping how crypto investors approach risk and return. By combining the yield generation of staking with the flexibility of a liquid asset, it offers a compelling proposition: aims to combine yield opportunities with improved liquidity, though risks remain. For professionals, VCs, and fund managers, liquid staking opens up new strategies to improve portfolio performance – from earning bond-like yields on crypto holdings to deploying complex hedging strategies – all while maintaining agility in the market.
If your goal is not only to grow your portfolio, but also protect them from the risks of drawdowns and losses, liquid staking transforms crypto assets into yield-generating instruments, with associated risks, and it gives you tools to navigate uncertainty (since you can always sell or reposition).
Of course, investors should remain vigilant – smart contract risks and market risks still exist – but the rapid growth of liquid staking and its adoption by major players indicate a maturing landscape.
