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Coinbase’s recent quarterly report showed that their staking rewards revenue grew 19% quarter-over-quarter to $88 million or 13% of net revenue, with $7 billion worth of ether being their largest staked asset. In addition, their venture arm is investing millions of dollars in the liquid staking protocol Rocket Pool, while the global competitor exchange Binance is investing $10 million in the liquid staking project Helio. It’s clear that traditional exchange companies see liquid staking as the cornerstone of the future crypto economy. All of this raises the question of how exactly liquid staking differs from regular Ethereum staking.
As a reminder, stakers hold and lock up a certain amount of cryptocurrency. Meanwhile, participants, often called validators, receive additional cryptocurrency in exchange for their contributions. Taking this concept a step further, the concept of liquid staking allows crypto assets holders to stake their assets to secure a network and earn rewards while still retaining the flexibility to trade or use their assets as needed. Unlike traditional staking, where locked-up assets are illiquid and inaccessible, liquid staking allows participants to stake their assets while keeping them tradable. The market is clearly showing how interested traders are in liquid staking options. CoinMarketCap currently shows a market cap of around $18 billion for liquid staking derivative tokens, while DefiLlama reports a total value locked of $21 billion for liquid staking protocols.
The biggest trailblazer in the liquid staking arena in terms of TVL is Lido, a set of open-source software tools that operate on the Ethereum
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“Personally, I think that by providing a broader audience productive ways to employ their capital, and enabling deep liquidity for users, liquid staked tokens are poised to increasingly serve as base assets in DeFi,” Passadis told me in an interview. “Capital tends to look for the most effective and efficient forms to take, and the combination of DeFi and liquid staking enables one to capture additional value from productive capital.”
Meanwhile, Liquid Collective protocol, championed by software development company Alluvial, has emerged as a leading force in this liquid staking movement. This protocol allows users to earn rewards by participating in proof-of-stake blockchains while retaining liquidity in the form of a receipt token evidencing ownership of a staked token.
“As participation in liquid staking continues to grow, we recognized a need to create a standard to combat fragmentation,” Mara Schmiedt, CEO of Alluvial, told me in an interview. “Our design philosophy is to develop this security and compliance-conscious solution collaboratively through a collective of global players in the custody, exchange, banking and infrastructure markets and align incentives across all members to ensure the widespread adoption of the standard.”
For yet another liquid staking example, Kiln, focuses on providing easy access to staking rewards, enabling institutional customers to stake their assets, and whitelabeling staking functionality into their offerings. Laszlo Szabo, co-founder and CEO at Kiln, told me in an interview that the goal is to provide a seamless staking experience for users across diverse blockchain networks.
“We believe that the staking market is becoming increasingly institutionalized and must evolve beyond merely running validators to address the growing customer need for risk diversification. This entails creating validator-agnostic APIs and services to facilitate multi-provider staking. This, in turn, allows digital assets to be staked wherever they are held, including wallets, custodians, and exchanges. As the industry evolves and the demand for integrating multiple staking players becomes more evident, Kiln is ideally positioned to play the role of an aggregator and accelerate this process,” Szabo said.
Last but certainly not least, to round out this roundup of DeFi experiments, StakeWise is a liquid staking protocol on Ethereum that enables users to earn passive yield on ETH without entrusting funds to StakeWise. Users can stake any amount of ETH with the node operators they choose and keep their stake liquid with the liquid staking token of StakeWise.
“Despite the high-degree of flexibility that comes with the StakeWise architecture, it is vital that everyday stakers can also benefit from the solution in a user-friendly manner,” Kirill Kutakov, co-founder of StakeWise, told me in an interview.
When considering staking, the term “user-friendly” doesn’t immediately spring to mind. However, as the notion of liquid staking continues to gather momentum, the companies driving the development of associated tools – like Lido, Alluvial, Kiln, and StakeWise – face the task of devising solutions that facilitate a smoother and more inclusive approach to our interactions with blockchain networks. Despite over 25 million ether already being staked, this figure represents just 21% of the total ether supply. Undoubtedly, the path to unlocking Ethereum’s full potential lies in embracing liquid staking.
