Liquid Staking 101
Last updated
Last updated
Liquid staking is a mechanism that allows delegations in Proof-of-Stake (PoS) blockchains to become liquid. As a staker, you don't need to wait for a withdrawal period to get your tokens back into your wallet. The beauty of liquid staking is to empower you to maintain your staked position while simultaneously allowing you to maximize your returns for your capital.
The mechanism is accomplished by minting a liquid receipt token in exchange for the staked position. When you deposit your native token, you transfer it to a protocol, which then the protocol mints a new liquid receipt token—called a liquid staking token (LST) or liquid derivative token (LSD). The newly minted LST can then be transferred, traded, or used in various DeFi applications, such as lending and borrowing. If you ever need to withdraw your tokens instantly, you can swap the liquid token on any available pool in Decentralized Exchange (DEX).
Liquidity and Flexibility
Liquid staking allows token holders to earn rewards and participate in network security while retaining the flexibility to trade or use their staked assets at any time, eliminating the need to choose between staking for APR and participating in DeFi activities.
Capital Efficiency
Traditional staking provides users with the opportunity to receive staking rewards for securing the underlying L1. Liquid staking allows users to continue receiving the rewards while also earning additional yield across various DeFi protocols.
Increased Network Security
Liquid staking encourages more token holders to stake their assets, enhancing overall blockchain network security.
milkTIA offers a wide range of use cases within the Cosmos and Ethereum ecosystem. The following examples are just a few of the potential uses, and there are many more opportunities available. Please reference Using third party apps to see where the milkTIA is currently listed on.
milkTIA pools on Osmosis are available to earn additional yield.
Collateral in lending protocols such as Mars Protocol and UX.
Create staking derivatives such as staker’s baskets and leveraged staking positions
Trade perps on platforms such as Levana and Margined Protocol.
Chains and applications developed on Celestia will use TIA to access Celestia’s data availability by submitting transactions with PayForBlobs and as a method of payment for gas fees. Should Celestia choose to incorporate milkTIA as a means of payment for both gas and data availability, this alignment will foster improved chain security. Chains will no longer have an incentive to forgo staking to ensure TIA availability for data availability and gas transactions.
Liquid staking offers a great opportunity to unlock liquidity, increase capital efficiency, and strengthen the security of PoS blockchains. By allowing delegators to make their staked assets liquid to maximize their returns, liquid staking plays a crucial role in the current blockchain era and supports the growth of the Interchain ecosystem.
