Liquid staking has emerged as a game-changer in the decentralized finance (DeFi) space, enabling users to earn staking rewards without sacrificing asset liquidity. At the forefront of this innovation stands Lido, a leading liquid staking protocol that’s redefining how users interact with Proof of Stake (PoS) blockchains like Ethereum, Solana, and Polygon.
With over $14 billion in staked assets by mid-2023, Lido has cemented its position as a dominant player in the liquid staking ecosystem. This guide dives deep into how Lido works, the role of staked tokens like stETH, bLUNA, and stSOL, the governance power of the LDO token, and how Lido compares to other staking platforms.
What Is Lido?
Lido is a decentralized liquid staking protocol primarily focused on Ethereum, though it supports multiple blockchains. It allows users to stake their crypto assets—such as ETH, SOL, or LUNA—without locking them up or requiring technical know-how to run validator nodes.
When you stake ETH with Lido, you receive stETH (staked ETH) in return—a token that represents your staked ETH on a 1:1 basis. Unlike traditional staking, where your assets are frozen until withdrawal is enabled, stETH remains liquid and can be used across DeFi platforms.
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This innovation bridges the gap between security and utility, empowering users to earn staking rewards while still leveraging their assets for lending, trading, or yield farming.
Understanding Liquid Staking
Traditional staking in PoS networks requires users to lock up their tokens for extended periods. While this secures the network and earns rewards, it also removes those assets from circulation—limiting their usability.
Liquid staking solves this problem by issuing tokenized representations of staked assets. These “stTokens” behave like regular cryptocurrencies but also accrue value from ongoing staking rewards.
For example:
- Stake ETH → receive stETH
- Stake SOL → receive stSOL
- Stake LUNA → receive bLUNA
These tokens maintain a floating exchange rate against their underlying assets, increasing in value over time as rewards accumulate. They can be traded, transferred, or used as collateral in DeFi protocols—offering both yield generation and liquidity.
This dual benefit makes liquid staking particularly attractive for DeFi-savvy investors who want to maximize capital efficiency.
How Do Double-Dipped Yields Work?
One of Lido’s most compelling features is the ability to achieve double-dipped yields—earning staking rewards while simultaneously using staked assets in other DeFi opportunities.
Imagine earning ~3–5% annual percentage yield (APY) from ETH staking through Lido, then depositing your stETH into a liquidity pool or lending protocol to earn an additional 4–8% APY. That’s two layers of yield on the same principal.
Here’s how it works:
- You stake ETH on Lido and get stETH.
- You supply stETH to Aave or Curve Finance as collateral.
- You borrow against it or provide liquidity, generating secondary yield.
- Meanwhile, your stETH balance grows passively due to staking rewards.
This compounding effect exemplifies the power of composability in DeFi—where different protocols interoperate seamlessly to amplify returns.
Key Staked Tokens in the Lido Ecosystem
stETH (Lido Staked Ether)
- Underlying Asset: Ethereum (ETH)
- Function: Represents staked ETH with continuous reward accrual.
- Utility: Can be used in lending markets (e.g., Aave), DEXs (e.g., Curve), and yield farms.
stETH is the most widely adopted liquid staking token, accounting for a significant share of Ethereum’s total staked supply. Its deep liquidity and broad integration make it a cornerstone of DeFi.
bLUNA (Bonded Luna)
- Underlying Asset: Terra (LUNA)
- Function: Liquid representation of staked LUNA tokens.
- Utility: Enables participation in Terra-based DeFi apps while earning staking rewards.
Though Terra’s ecosystem underwent major changes after May 2022, bLUNA remains relevant for users engaged in the network’s recovery and redevelopment phases.
stSOL (Lido Staked Solana)
- Underlying Asset: Solana (SOL)
- Function: Tracks the value of staked SOL, including accrued rewards.
- Utility: Used across Solana DeFi platforms like Raydium and Marinade.
By offering liquid staking on high-performance chains like Solana, Lido expands its reach beyond Ethereum and taps into faster, lower-cost ecosystems.
The Role of Oracles in Balancing stToken Values
Since stTokens appreciate in value over time due to staking rewards, their exchange rate relative to the underlying asset isn’t fixed. For instance, 1 stETH may eventually be worth 1.04 ETH after several months of compounding rewards.
To ensure accuracy, Lido relies on oracles—trusted third-party services that feed real-time data into smart contracts. These oracles periodically update the total reward balance across all validators and adjust user holdings accordingly.
Chainlink is one of the primary oracle providers integrated with Lido, ensuring transparency, reliability, and resistance to manipulation. This mechanism keeps user balances aligned with actual network performance.
What Is the Lido DAO and the LDO Token?
Lido operates as a Decentralized Autonomous Organization (DAO), meaning it’s governed by its community rather than a centralized team. The LDO token is central to this governance model.
Holders of LDO can:
- Vote on protocol upgrades
- Propose changes to fee structures
- Elect node operators
- Allocate treasury funds
The more LDO tokens a user holds, the greater their voting power—a model known as token-weighted governance.
👉 Learn how decentralized governance empowers users to shape the future of liquid staking.
This structure ensures that decisions reflect community consensus and promotes long-term sustainability. All proposals and votes are publicly viewable on platforms like Snapshot, reinforcing transparency.
Why Use a DAO Structure?
Ethereum’s evolution—from PoW to PoS and ongoing upgrades like EIP-4844—demands agility. A DAO allows Lido to adapt quickly without relying on a central authority.
Additionally, fees generated from staking (e.g., 10% of rewards go to the protocol) are directed into the DAO treasury. These funds support development, security audits, insurance mechanisms, and ecosystem incentives—all managed via community vote.
How Does Lido Compare With Other Staking Platforms?
Let’s examine how Lido stacks up against key competitors:
Rocket Pool
- Offers rETH as its liquid staking token.
- Pros: Decentralized node network, open-source code.
- Cons: Higher risk exposure, potential centralization among top validators, fees up to 20%.
StakeWise
- Issues sETH2 tokens for stakers.
- Pros: Non-custodial setup, supports solo staking.
- Cons: Complex for beginners, higher fees than average.
Frax Ether (frxETH)
- Part of the Frax Finance ecosystem.
- Pros: High capital efficiency, strong yield optimization.
- Cons: Lower adoption outside niche communities, less intuitive UI.
While each platform has strengths, Lido leads in liquidity depth, ecosystem integration, and ease of use, making it a top choice for both retail and institutional participants.
Frequently Asked Questions (FAQ)
Q: Is stETH safe? Can I lose money?
A: While Lido is well-audited and widely trusted, all DeFi involves risk—including smart contract vulnerabilities and market volatility. Always do your own research before investing.
Q: Can I unstake my ETH from Lido now?
A: Yes—since the Ethereum Shanghai upgrade in April 2023, users can withdraw their staked ETH or stETH at any time.
Q: How often do stETH rewards accrue?
A: Rewards are compounded continuously at the protocol level. Your wallet balance increases gradually over time without manual claiming.
Q: What happens if a validator misbehaves?
A: Lido uses a diversified set of node operators and insurance mechanisms to mitigate slashing risks. The DAO also maintains reserves to cover potential losses.
Q: Where can I trade stETH?
A: Major exchanges like OKX support stETH trading pairs. You can also swap them on decentralized exchanges such as Uniswap or Curve.
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Final Thoughts
Lido represents a paradigm shift in blockchain staking—transforming idle assets into productive capital without compromising security or decentralization. By introducing liquid staking tokens like stETH, stSOL, and bLUNA, Lido enables users to earn passive income while remaining fully engaged in DeFi.
Supported by leading node operators and governed transparently through its DAO, Lido is not just a tool but an evolving ecosystem shaping the future of PoS networks.
As Ethereum continues to scale and new chains adopt PoS consensus, liquid staking will play an increasingly vital role—and Lido is poised to remain at its core.
Keywords: liquid staking, Lido, stETH, DeFi, LDO token, Ethereum staking, stSOL, bLUNA