Liquid Staking in 2026: Benefits, Risks, and the Rise of Restaking

Liquid staking derivatives enable users to stake PoS cryptocurrencies, such as Ether, while retaining liquidity. Let’s take a closer look.

Since Ethereum enabled withdrawals in the Shapella upgrade back in April 2023, liquid staking has become one of the most important sectors in decentralised finance (DeFi). Protocols such as Lido and Rocket Pool now collectively secure tens of billions of dollars’ worth of assets, and liquid staking has expanded across multiple proof-of-stake networks.

Before we understand liquid staking, we must first understand what staking is.

Put simply, staking involves locking up your cryptocurrency in exchange for a reward (i.e. more crypto). It’s a mechanism used by proof-of-stake blockchains such as Ethereum, Cardano, and Algorand to validate transactions and maintain network security. It is very different from crypto mining, which relies on energy-intensive computing power to solve mathematical problems.

Staking is often used to generate income without actively trading your assets – a way of putting your crypto to work rather than leaving it idle in a wallet.

Liquid staking can circumvent the lock-in period

The major pain point of staking as an individual is the loss of liquidity. When you stake your crypto, your assets are committed to the network, and withdrawing may involve lengthy waiting periods or validator exit queues. This can be off-putting for investors who want flexibility, particularly in volatile markets.

Liquid staking addresses this issue.

With liquid staking, users can stake their tokens and receive rewards while retaining the ability to transfer, trade, or use a token representing their staked position.

This is achieved through tokenised staking. When you stake through a liquid staking protocol, you receive a derivative token that represents your staked assets. These tokens, known as liquid staking tokens (LSTs), can be freely traded or used across DeFi applications while still earning staking rewards.

For example, staking ETH through certain providers may issue tokens such as stETH or rETH, which track the value of the underlying staked Ether. Major liquid staking providers include Lido, Rocket Pool, and Marinade Finance, among others.

What are the benefits of liquid staking?

As the name suggests, the primary benefit is liquidity. Users can earn staking rewards without sacrificing flexibility, allowing them to trade, rebalance portfolios, or participate in DeFi activities such as lending and collateralisation.

Liquid staking can also lower the barrier to entry for participating in network validation, enabling smaller holders to contribute to blockchain security without running their own validator infrastructure.

In addition, liquid staking has become a significant source of collateral within DeFi, supporting a wide range of financial applications while continuing to generate yield from staking rewards.

Are there downsides?

Compared with direct staking, liquid staking introduces a few additional risks. The first is that derivative tokens may trade at a discount or premium to the underlying asset, particularly during periods of market stress. This “depeg” risk reflects supply-and-demand dynamics rather than the actual amount of staked assets.

Users are also exposed to smart contract risk, as funds are managed by protocol code rather than solely by the underlying blockchain.

While not a risk per se, fees charged by liquid staking providers can reduce overall returns compared to running a validator independently.

Liquid staking in 2026: What is 'restaking'?

More recently, a new concept known as restaking has begun to gain traction, led by protocols such as EigenLayer on Ethereum.

Restaking allows users to put their staked assets to work more than once. Instead of securing only the base blockchain, those same assets (including liquid staking tokens like stETH) can also help secure additional services built on top of the network. These services, known as Actively Validated Services (AVSs), include things like data availability layers, oracle networks, and cross-chain infrastructure. By supporting them, participants may earn additional rewards on top of their normal staking yield.

The aim is to make staked capital more productive, allowing a single pool of assets to provide security to multiple systems at the same time.

The trade-off is additional complexity and risk. If a validator fails to meet performance requirements or behaves improperly, penalties could affect the underlying stake, and issues in one system can easily cascade into others.

Restaking has attracted strong interest from developers, investors, and institutions alike, and many view it as a potential next phase in how blockchain networks share security. At the same time, it remains a relatively new model, and its long-term implications for decentralisation and overall network stability are still being explored.