Staking, in its conventional form, involves users locking their cryptocurrency, commonly Ethereum or other PoS-based tokens, to validate transactions and maintain the blockchain's integrity. This process comes with a trade-off, as staked assets are typically illiquid during the staking period.
Liquid staking addresses the liquidity issue associated with traditional staking. It introduces a mechanism where users receive liquid staking tokens (LSTs) in exchange for their staked assets. These LSTs represent both the staked amount and the corresponding staking rewards. Unlike traditional staking, users can freely trade, use in decentralized finance (DeFi) applications, or leverage as collateral their LSTs without waiting for the staking period to conclude.
At the forefront of liquid staking innovation is EigenLayer, a decentralized restaking protocol built on the Ethereum network. EigenLayer acts as a bridge between Ethereum and other blockchain networks, allowing users to stake and restake their assets seamlessly. The protocol introduces a novel approach to the staking landscape, providing users with increased flexibility and accessibility.
While both liquid staking and liquid restaking share common elements, they differ in crucial aspects. Liquid staking primarily involves the tokenization of staked assets, enabling liquidity and flexibility without waiting for the staking period to end. On the other hand, liquid restaking takes the concept further by incorporating rewards from both Ethereum staking and EigenLayer operations, potentially offering users an additional layer of profit.
Liquid staking is changing how users engage with blockchain networks. The introduction of EigenLayer and liquid restaking adds depth and functionality to this innovative approach that allows users to actively participate in staking ecosystems while enjoying the benefits of enhanced liquidity.
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