stETH is a liquid staking token issued by Lido Finance that represents staked Ether (ETH), allowing holders to earn Ethereum staking rewards while retaining token liquidity.
When users deposit ETH into the Lido Finance protocol, they receive an equivalent amount of stETH in return. This token combines the initial deposit’s value with accrued staking rewards, meaning the stETH balance grows over time as the underlying ETH earns validator rewards.
stETH operates through the Lido Finance protocol, which pools user deposits and distributes them across a curated set of professional validators. These validators participate in Ethereum's proof of stake consensus mechanism to secure the network and earn rewards.
Each stETH token is backed 1:1 by ETH staked through Lido. The token uses a rebasing mechanism, meaning the stETH balance in a holder's wallet is adjusted daily to reflect accumulated staking rewards. Holders therefore do not need to claim or restake rewards manually.
Because stETH is an ERC-20 token, it can be transferred, traded, or used in decentralized finance (DeFi) applications just like any other token on Ethereum. This distinguishes it from direct staking, where ETH is locked and inaccessible until withdrawal.
How stETH Is Used in DeFi
stETH’s primary use case is providing liquidity to stakers. Instead of locking up ETH and waiting for withdrawal, stETH holders can use their tokens across the DeFi ecosystem while still earning staking rewards.
Common use cases include supplying stETH as collateral on lending platforms, providing liquidity to decentralized exchange pools, and participating in yield strategies that stack additional rewards on top of base staking yields.
stETH can also be traded for ETH on secondary markets, though the price may fluctuate relative to ETH during periods of market stress.