Liquid Staking Token

A liquid staking token (LST) is a derivative crypto asset received when participating in liquid staking. It represents a claim or economic position connected to the underlying staked asset and can be used separately from that asset.

Depending on the protocol, the quantity or value of an LST can reflect accumulated staking rewards. For example, the exchange rate between an LST and the underlying asset may gradually change as staking rewards accrue.

The main difference between an LST and a conventional staked balance is that the derivative can potentially be used in other applications. It may be supplied to a liquidity pool, deposited into a lending protocol, or exchanged if the relevant application supports the asset.

However, an LST introduces risks that direct ownership of the underlying asset may not have. These can include smart-contract risk, validator risk, staking-mechanism risk, liquidity risk, and the possibility that the market price of the derivative deviates from the expected value of the underlying asset.