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EXPLAINER | A Look at Liquid Staking with Lido Finance on Ethereum
Staking is a process where cryptocurrency holders lock up their assets to support the operations of a blockchain network, earning rewards in return.
However, traditional staking has limitations – the inability to utilize staked assets for other purposes while they are locked up. Liquid staking addresses this constraint by providing a flexible solution that allows users to convert their staked assets into fungible tokens, enabling liquidity and accessibility to a broader range of financial opportunities.
Liquid staking platforms such as Lido Finance, utilize advanced protocols to issue tokenized representations of staked assets. These tokens, often referred to as staked tokens, can be freely traded, lent, or used as collateral on decentralized finance (DeFi) platforms.
Lido
Lido is the leading liquid staking solution on Ethereum – providing a simple way for users to get rewards on their digital tokens. By staking with Lido, the user’s tokens remain liquid and can be used across a range of DeFi applications, getting extra rewards.
While the platform provides staking for multiple blockchain networks, most notably it is a liquid staking solution for Ethereum, allowing users to stake their $ETH and receive stETH (Lido staked $ETH) tokens in exchange. These tokens represent the user’s staked $ETH and staking rewards.
Following Ethereum’s shift to Proof of Stake (PoS), individuals wishing to serve as staking validators can engage in the process by depositing a minimum of 32 $ETH, which represents a relatively high entry threshold. However, Lido enables users to participate with smaller fractions of Ether (any amount) and still receive block rewards at 3.4% in Annualized Percentage Rate(APR).
stETH tokens, which are ERC-20 compatible, are minted as soon as funds are deposited into Lido’s staking pool smart contract and burned as soon as users withdraw their $ETH tokens.
To stake your Ether on Lido Finance, you will be required to connect an Ethereum wallet on this page.