Unit 1 · Level 5 · Staking & restaking
Liquid staking tokens
Solo staking on Ethereum needs 32 ETH and locks it up. Liquid staking pools fix both: deposit any amount, and the pool hands you a receipt token (an LST like Lido's stETH) that earns staking yield AND stays tradeable. Clever. But a receipt is only worth what it can be redeemed for, and in a panic, receipts can trade below the real thing.
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What you get asked
What IS a liquid staking token like stETH, fundamentally?
An LST is a receipt: the pool stakes the ETH, you hold the claim. Yield flows through to the receipt, and so do the pool's risks, like slashing and smart-contract bugs.
June 2022: during the Celsius and Three Arrows collapse, stETH traded around 5-7% below ETH for weeks. What does that episode teach?
The backing was fine, but withdrawals weren't live yet, so panicked sellers dumped the receipt on the open market. Depeg risk is a liquidity problem: the receipt's market price can detach from its redemption value exactly when you need it most.
When an LST's market price falls below the value of the staked coins backing it, that's called a ___.
Same word you learned with stablecoins, same lesson: any token that's supposed to track something else can stop tracking it under stress.
Put the liquid staking flow in order, including where the risk hides
Steps 1-4 feel like free convenience. Step 5 is the bill: the moment you hold a receipt instead of the asset, you own its market price, not just its backing.
At times Lido alone has held roughly a third of all staked ETH. Why does that worry even people who like Lido?
Proof of stake's security assumes stake is spread out. If one operator set controls a huge share, censorship and coordinated failure stop being theoretical. Decentralization was the whole point, so keep checking it. 🐜
The rest of this unit
Where staking yield really comes from, and what happens when you stack risk on top of it.