Liquid Staking

What is Liquid Staking?

Liquid staking is a concept that allows individuals to stake their tokens without sacrificing their liquidity. This is achieved by tokenizing staked assets and issuing on-chain representations, known as liquid staking tokens, which serve as a claim on the underlying staked positions.

When you stake SUI to liSUI, you’re not swapping between two different tokens, but rather tokenizing your original position. In essence, staking your SUI to liSUI is akin to staking your SUI tokens, with liSUI representing your staked position. This allows your stake to remain liquid and diversified across multiple validators in the stake pool, rather than being locked into a single validator.

Why Liquid Staking Matters?

Liquid staking addresses several challenges inherent in Proof-of-Stake (PoS) networks:

  • Opportunity Cost: With a fully liquid staking token like liSUI, users can engage in DeFi activities and earn additional rewards atop their staking yields. This means users can stake their tokens and also participate in other DeFi protocols simultaneously.

  • Unbonding Period: Liquid staking tokens can be instantly swapped for their underlying staked assets, eliminating the need to wait for the regular unbonding period to unstake tokens.

  • Reliance on a Single Validator: Liquid staking allows for diversification across multiple validators, reducing risk and providing insurance against the underperformance of individual validator nodes.

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