Liquid Staking
⸺ by Charles Iliya Krempeaux
Liquid Staking is a concept associated with and s.
This will take a bit of explaining.
Database
Many s use some type of to store data.
The type of data (that gets stored in a database) depends on the . For example — a to-do list application would store the items in the to-do list in the database. Alternatively, for example — a contact list would store the details of the people in the contact list in a database. Etc.
Although this was not always the case, at a certain point in time, s become the dominant form of . (And, as a side note, the querying-language become dominant with it.)
Decades later, after s become the dominant, the (poorly named) databases challenged the dominance of the s.
Another form of eventually came into use — the .
Blockchain Network
Similar to how the can be thought of as a public decentralized , s can be thought of as a public decentralized .
There are different types of these s — and there are a number of (let's say) orthogonal ways of classifying s. One of those ways is — how new information gets into the .
Two common ways make sure of —
We are going to focus on , since it is what is relevant to liquid staking.
Proof Of Stake
Many decentralized system need a method of coming to consensus.
In the case of a , the consensus is usually about what data is (and is not) in the database. A decentralized system like this is made up of many computers — how do you get all those computers to agree on what is (and is not) in the datbase.
A , which is a decentralized system, is no different.
The technique that some s use to come to consensus is — .
The basic idea of is — You (or anyone else) can create what is called a . To create a , typically you need — one or more computers, a public-private key pair, and you need to stake a certain amount of the tokens or coins that are part of the . That last need is where gets its name from. Data gets into the as a series of blocks. (A block contains a set of data.) The chooses a to add the next block of data. The is rewarded for doing this, by being given some tokens or coins that are part of the .
The schedule by which the receives the reward can vary from to .
Also, when a is set up, the staked amount can be locked in for a certain period for time.
Liquid
That is what causes the problem.
A has some amount of tokens or coins (that are part of the ) locked up. While it is locked up — They cannot transfer them to anyone else. They cannot buy anything with it. They cannot sell them. They cannot trade them.
Sometimes the lock up period can be a long time. Months. Maybe even years.
But they might want their tokens or coins (that are part of the ) now. But they are locked up — so what do they do‽
That is where liquid staking comes in.
Special system is created where their — when someone stakes their tokens or coins (that are part of the ) on a , they are given a (LST).
That LST can be sold, or transfered, etc. Probably for less than the ultimate value of the LST. But through this — they can get a lot of their money now.