What is a liquid staking derivative?
A liquid staking derivative (LST) is a tokenised receipt that represents staked Proof-of-Stake assets (typically ETH) while preserving liquidity. Users deposit ETH with a liquid staking protocol (Lido, Rocket Pool, Coinbase’s cbETH), receive a 1:1 LST representing the staked deposit plus accrued rewards, and can trade or use the LST in DeFi without unstaking the underlying ETH.
Why LSTs exist
The fundamental tradeoff: native staking earns 3-5% APY but locks the underlying ETH (currently 1-7 day exit queue post-Shanghai upgrade). LSTs solve this by tokenising the staking claim — the user keeps yield exposure while retaining ability to swap, lend, or use as collateral. As of 2024, Lido’s stETH alone represents ~30% of all staked ETH.
The market and concentration risk
Three dominant LSTs control most of the market. (1) Lido (stETH) — largest, decentralised validator set. (2) Coinbase (cbETH) — centralised, custodial. (3) Rocket Pool (rETH) — decentralised, permissionless. Ethereum researchers including Vitalik Buterin have flagged single-LST dominance as a systemic risk — if Lido validators collude or are compromised, Ethereum’s consensus security could be threatened.
LST de-pegs and risks
LSTs trade at near-1:1 ratio with native ETH but can de-peg during market stress. The June 2022 stETH de-peg (down to ~0.93 ETH) during 3AC and Celsius collapse demonstrated this. LST de-pegs are typically short-lived but create cascading liquidations across DeFi positions using LSTs as collateral.
Regulatory positioning
SEC has signalled scrutiny of liquid staking as potentially-unregistered securities. EU MiCA treats LSTs as crypto-assets requiring CASP-style intermediary licensing. Türkiye’s CASP framework (Communiqué III-35/B.1) will likely treat LST issuance through Turkish protocols as licensed crypto-asset service activity.
Türkiye context
For Türk crypto investors, LSTs offer earning yield without losing exposure to ETH price upside — particularly relevant given TRY depreciation history. Türk CASP-licensed exchanges will need to determine whether they offer LST tokens, with implications for both compliance complexity and customer demand.
Related: Liquid Restaking Token (LRT), Impermanent Loss, CASP.