The regular staking process involves locking up crypto assets in a protocol for a fixed amount of time. During this time, they cannot be sold, transferred, or traded. Due to these limitations, a need arose for a more flexible approach: liquid staking.
Liquid staking allows you to stake tokens and simultaneously use them in the DeFi ecosystem. When you deposit assets into a liquid staking protocol, you will receive a tokenized version of your funds (liquid staking tokens), which can be withdrawn or swapped. The withdrawal process depends on the liquidity in the underlying protocol: for example, there may be times when withdrawals are not available (as we have seen with Rocket Pool), but you can still swap.
The quick access to funds, no lock-up period, and relatively easy method of earning staking rewards at the same time as using your liquid tokens in various DeFi activities, have made liquid staking an innovative and attractive way of participating in a PoS system.
Some staking protocols provide individuals who stake with them with liquid staking tokens that represent their proportional claim in the protocol. Lido’s liquid staking tokens are stETH and stMATIC, Rocket Pool’s is rETH, and Stader Labs's is MaticX.
You can exit your staking position by swapping or withdrawing your staked tokens. For more information on this process, see here.
