How Liquid Staking impacts capital efficiency

Introduction: Liquid Staking as a Flexible Blockchain Utility

Traditional staking typically serves two user profiles:

• Active participants – Those who run validator nodes, validate transactions, and help maintain network security. This often requires significant capital (e.g., 32 ETH on Ethereum or 700,000 TON on The Open Network).
  
  
• Non-technical holders – Users who wish to support the network and participate in its operations without running infrastructure themselves.
  
  

For the latter, staking is often done through wallets or interfaces provided by third parties. Liquid staking builds on this by offering added flexibility through tokenised representations of staked assets—commonly referred to as Liquid Staking Tokens (LSTs).

What Liquid Staking Enables

With liquid staking, users can:

• Stake small amounts (e.g., 0.01 ETH or 0.1 TON)
  
  
• Participate in network consensus mechanisms
  
  
• Receive a tokenised representation of the staked asset (LST), which can be used in other blockchain applications
  
  

The Rise of LSTs: Over $44B in Total Value Locked (2024)

From just $25M in 2021, the total value of assets involved in liquid staking surpassed $44B by 2024. This growth highlights increased user interest in retaining liquidity while contributing to blockchain networks.

Why Holders Choose Liquid Staking

The main motivation lies in the ability to combine participation in consensus with the freedom to interact with decentralised applications (DeFi). Liquid staking helps maintain exposure to the underlying asset while enabling it to be used across lending platforms, liquidity pools, or other blockchain-based utilities.

But why do investors and regular users choose liquid staking for their investment strategy? The answer is simple – a balance between yield farming and flexibility.

Benefits of Liquid Staking for Asset Holders

1. Liquidity
 Liquid staking makes it possible to use staked assets—such as ETH, SOL, or TON—within blockchain ecosystems without waiting for unbonding periods.
 Example: ETH staked through Lido becomes stETH, which can be used in liquidity pools, lending protocols, or asset management tools.

2. Portfolio Flexibility
 Holders can diversify how they use their tokenised assets:

• Retain a portion in staking
  
• Deploy a portion into DeFi
  
• Keep some as liquid collateral

3. Potential to Access Additional Opportunities

By holding LSTs, users may gain access to blockchain features or ecosystems not available to traditionally staked tokens. Some users engage in advanced strategies involving lending, restaking, or combining assets across protocols.

⚠️ All figures and potential returns mentioned in public platforms are indicative only and based on historical data. They do not constitute a promise of future outcomes or performance. Participation in blockchain networks involves risks, including technical failures and total loss of funds.

• LSTs vs Traditional Staking: A Functional Comparison

While traditional staking and liquid staking both serve the purpose of participating in Proof-of-Stake (PoS) networks, they differ significantly in terms of flexibility and potential use cases within decentralised finance (DeFi).

*All figures are based on historical ranges and subject to change. They do not represent a guarantee of future performance.

Risks and Limitations 

Despite the growing adoption of liquid staking, users should be aware of the risks associated with these mechanisms:

• Smart Contract Vulnerabilities: LSTs rely on smart contracts, which may contain vulnerabilities. Past incidents in the DeFi space—such as those involving Cream Finance, Euler, or Luna—have demonstrated the importance of thorough audits and active risk monitoring.
• LST Volatility: Although most LSTs are designed to track the value of their underlying assets (e.g., ETH, SOL, TON), deviations can occur during times of high market stress.

Example: In 2022, stETH temporarily traded ~3% below ETH due to liquidity pressure.

• Operational Complexity:

 Effectively using LSTs within DeFi ecosystems may require:

• Monitoring gas fees and slippage
• Understanding impermanent loss in LP positions
• Adjusting strategies based on changing yield dynamics

LST Strategies: From Conservative to Advanced

Let’s compare how liquid staking can be utilised across three leading PoS chains: Ethereum, Solana, and TON.

Ethereum (ETH/stETH)

1. Basic approach: Holding stETH

• Mechanics: Receive stETH by staking ETH through Lido. The token reflects changes in staked ETH and is updated daily.
  
• Access: Suitable for users seeking a low-effort way to stay connected to Ethereum’s PoS mechanism.
  
• Note: The stETH token can fluctuate slightly around ETH price due to liquidity or market conditions.

2. Intermediate approach: DeFi participation via Curve & Convex

• Mechanics:
  
  • Add stETH and ETH to the stETH/ETH pool on Curve.
    
  • Stake LP tokens on Convex to access token-based incentives.
• Considerations:
  
  • Exposed to impermanent loss, changes in reward token prices (e.g., CRV, CVX, LDO), and gas fees.

3. Advanced approach: Restaking on EigenLayer

• Mechanics:
  
  • Use stETH in EigenLayer to contribute to the security of third-party protocols.
    
  • May receive incentives from additional services (AVS).
    
• Considerations:
  
  • Higher complexity and risks related to slashing, demand for AVS, and multi-protocol exposure.
    

Solana (SOL, mSOL, JitoSOL)

1. Basic approach: Holding mSOL or JitoSOL

• Mechanics: Stake SOL using Marinade or Jito to receive a liquid representation of staked SOL.
  
• Features:
  
  • Access to MEV-based value sharing (in case of JitoSOL).
    
  • Ability to retain liquidity while supporting validator operations.
• Considerations:
  
  • Risks include validator concentration and network-specific slashing mechanisms.

2. Moderate approach: Jito ReStaking

• Mechanics:
  
  • JitoSOL can be restaked to support additional infrastructure (e.g., TipRouter).
• Considerations:
  
  • Added protocol exposure may increase risks, such as technical or slashing-related events.

3. Advanced approach: Leveraged staking via Kamino

• Mechanics:
  
  • Use mSOL as collateral to borrow SOL.
    
  • Stake borrowed SOL again to increase exposure.
• Considerations:
  
  • Liquidation risk if the value of mSOL declines or if borrowing rates rise.
    
  • Requires active monitoring of position health.
    
    

TON (bmTON, tsTON)

1. Basic approach: Holding bmTON

• Mechanics: Stake TON through Bemo to receive bmTON, which reflects participation in the TON network.
  
• Features:
  
  • Low entry threshold (1 TON).
    
  • Designed for use across TON DeFi apps.
• Considerations:
  
  • Requests for unstaking may involve a waiting period (up to 72 hours).

2. Moderate approach: DeFi integrations with liquidity pools

• Mechanics:
  
  • Use bmTON in liquidity pools on platforms such as DeDust or STON.fi.
• Considerations:
  
  • Subject to impermanent loss and liquidity fluctuations.
    
  • Pools may vary in reward mechanisms and coverage.
    

3. Advanced approach: Lending, DLMM, and restaking

• Mechanics:
  
  • Use bmTON as collateral to borrow additional assets, or deploy in Dynamic Liquidity Market Maker (DLMM) pools such as those on BidAsk.
    
  • Apply complex DeFi strategies such as looping (borrowing → restaking → reusing).
    
• Considerations:
  
  • Risks include price range deviation in DLMM pools, liquidation risk, and complexity of managing multiple tools simultaneously.
    

Strategy Comparison

*All figures are based on historical data and third-party sources. They are provided solely for illustrative purposes and do not represent future guarantees.Key Takeaways (Not Financial Advice)

• Ethereum: Combining LSTs with restaking allows holders to explore new protocol participation methods.
  
  
• Solana: Leveraged DeFi options offer wider utility but require deeper knowledge and risk tolerance.
  
  
• TON: Integration with emerging DeFi tools opens up new paths, but experimental strategies should be approached cautiously.
  
  

What If You Don't Use Liquid Staking?

Conclusion: Liquid Staking as a Flexible Mechanism for On-Chain Activity

Liquid staking introduces greater control and adaptability to how holders participate in PoS networks. It enables use of capital in a more composable way—interacting with DeFi, supporting restaking layers, and exploring new tooling within ecosystems like TON, Ethereum, and Solana.

⚠️ Disclaimer: All staking and DeFi activities carry inherent risks, including smart contract failure, volatility, protocol changes, and potential loss of funds. Information provided here is for educational purposes only and does not constitute financial advice or guarantees of performance.