3.4. Liquid Staking

Liquid staking, in summary, is a version of staking that allows the asset lender to retain the liquidity of the staked asset. Liquid staking offers a solution to the opportunity cost of staking by issuing a tokenized version (the derivative token) of your staked asset. The liquidity remains because your derivative token received is backed 1-to-1 by the deposited parent asset. Existing examples of providers and their derivative token for ETH:

Protocol/Provider	Derivative Token
Lido	stETH
Rocket Pool	rETH
Frax Finance	frxETH
Stakewise	sETH2
Binance	bETH
Coinbase	cbETH

Table 1: Existing Liquid Staking Protocols and their Tokens

By providing a solution to the opportunity cost of staking, the TVL of these protocols has exploded and is behind only that of lending protocols and Dexes. After the Shanghai upgrade, the demand for staking will only gain increased interest, further increasing the potential TVL of the liquid staking ecosystem. The demand is already there while still in its infant stages of development and adoption as a DEFI strategy. Outlook points to further sustained growth of the ecosystem and those that build inside it.