What is Liquid Staking and Restaking? LST and LRT Animated Examples

What is Liquid Staking and Restaking? LST and LRT Animated Examples

imagine you have $500 your car really
needs new tires but you just heard about
this new stock that you are pretty
confident is going to the Moon you think
that if you invest your money you could
double it to $11,000 but the car tires
really can’t wait it’s quite the Dilemma
what if you found out that you could
invest in the stock and in return they
would give you the same amount of money
that you invested but with a built-in
promise that you’ll return it you could
then buy the stock and take out a loan
for the money you need for the tires
welcome to whiteboard crypto the number
one YouTube channel for crypto educ
education here we explain topics of the
cryptocurrency world using analogies
stories and examples so you can easily
understand them in this video I’ll
explain what liquid staking and reaking
are how they work and even some places
you can do it our attire and stock
example is completely fabricated you
can’t ever know for sure that an asset
will rise in price but the concept
behind this analogy is a new feature
that defi has made possible there are a
few key terms you’ll need to know to
understand the rest of this video we
have other videos on all of them that
I’ll link to in the description but I’ll
give you a brief overview here defi is
short for decentralized finance and it’s
a term for a new possibility of secure
Financial deals these usually involve
trading cryptocurrencies but also offer
other Financial Services like providing
liquidity and staking staking is the
mechanism by which people buy a
cryptocurrency and then lock it up for a
period of time as an incentive to help
secure the network in return for
behaving they earn a little bit of that
crypto as rewards if they misbehave they
have something to lose another term
you’ll want to get used to is liquid
basically the ability to move Financial
assets is referred to as liquidity when
you own a house the value of the house
is not that liquid because it would
probably take you months to find a buyer
write a contract and then actually sell
and move out of the house on the other
hand cash is very liquid because you can
immediately use it to buy things and the
last term you’ll need to understand is
token which refers to a cryptocurrency
asset that you can trade or use on dii
platforms we have a video explaining the
difference between coins and tokens that
is linked in the description below okay
so now that once you have the basics you
probably have an idea of what liquid
staking means most simply liquid staking
is the ability to stake some crypto and
receive tokens in return that you can
then use to do other things in defi
while simultaneously getting the staking
rewards remember how I said at the
beginning of this video that you thought
you could double your investment that’s
basically what this is doing so let’s
give a more practical example say you
stake $500 worth of ethereum or eth the
liquid staking platform then issues you
$500 worth of the staking token let’s
call it SE so now you’ve given the
platform $500 and they’ve given you an
IOU of $500 the cool thing is that you
can sell trade or redeem this IOU at any
point in time making it completely
liquid before liquid staking the $500
was just locked in the platform and most
staking platforms require you to lock up
your stake for a week up to 4 years
these staked eth tokens what I call IUS
are called liquid staking tokens or LST
another benefit of liquid staking other
than the immediate liquidity is that you
don’t have to run your own cont complex
Hardware when you stake you usually need
a dedicated server and internet
connection and outages can be costly
when liquid staking you do not have this
risk you are offering it to someone else
who has the equipment to be sure there
won’t be outages for most liquid staking
tokens you just need to hold the token
itself to earn rewards no technical
expertise required so far you’re
probably thinking this is too good to be
true why would a platform take the risk
of letting you basically double your
money at least on paper temporarily it’s
because this solves two other problems
the first is securing the network and
the second is ecosystem liquidity
remember how we said staking helps
secure the blockchain if not enough
people are staking transactions will be
slower the network will be less secure
and it will be more centralized but if
people are staking that they aren’t able
to use those assets in the ecosystem to
do things like trading and lending and
buying so a blockchain needs both people
to stake and people to use the network
liquid staking solves this problem by
letting people do both so doesn’t liquid
staking create more risk for the Staker
too if you are asking yourself this
question you are right some of the main
risks are number one smart contract risk
while they’re designed to be secure
there’s always a chance of
vulnerabilities or exploits that could
result in the loss of Stak assets number
two is Market volatility the value of
staked assets can change affecting both
the rewards earned and the overall
investment the value of an LST can also
decouple from the value of the
underlying asset for example in the
summer of 2022 the value of Ste was
lower than the value of eth for
complicated math reasons we won’t get
into here just know it can happen even
though it’s unlikely it is a risk third
is fees transactions on the blockchain
cost money fees associated with staking
can eat into your returns over time
especially if you’re frequently moving
assets around there may also be fees for
using the staking platforms that you
should take into account we’ve seen some
fees as high as 15% number four is
lockup periods some liquid staking
Solutions may have lockup periods during
which staked assets cannot be accessed
or withdrawn or that you have to return
the LST tokens at a certain period of
time if you have the tokens in invested
elsewhere it could be challenging to
meet those timelines you may have
realized there’s a word we’ve not
covered in this video yet and that’s
reaking a tool initially built by a
protocol on ethereum called Igan layer
another whole video could be made about
igen layer so we won’t get into it too
much here but basically igen layer is a
protocol built with the ability to stake
your native eth or LST tokens across
multiple platforms at once it’s called
reaking because you’re staking your
funds on a platform and then that
platform is taking your staked funds and
reaking them where they believe they can
earn the most return they also don’t
just stay on the Chain you deposited
them they can Bridge them to other
networks as well usually newer networks
with low liquidity have the highest
yield the tokens you receive when you
deposit your funds into these reaking
apps are unsurprisingly called liquid
reaking tokens or lrts liquid reaking
comes with its own risks but it’s meant
to help provide security to various
platforms rather than just one newer
platforms with low liquidity usually
need the funds the most since they’d be
an easy target for po potential
attackers they’ve set it up so that
different liquid staking platforms can
use igen layer smart contracts to let
people opt into this service at the time
they first stake their tokens of course
this comes with another risk that we
didn’t mention earlier and that’s called
counterparty risk when reaking you
aren’t only trusting one smart contract
the staking platform but also the raking
smart contract this means there are at
least two points of potential failure
rather than just one you’re also going
to be more involved in multiple dii
protocols by using lrts and the more
using the more risk there is okay so if
you’ve watched this whole thing and
understand the risks but still want to
know how to get the rewards we’ll let
you know a few places you can
participate but remember no protocol is
perfect so this list might not be true
in the future as of this video the most
popular liquid staking platforms are
Lido rocket pool mantle LSP and Stak
stone for liquid reaking the most
popular are ethery igen layer Pendle and
restake Finance it’s important if you
want to use any crypto platforms to use
ones that You’ know are actively used
and trusted by a large number of people
and that have been audited and tested
for security it doesn’t entirely remove
the risk but it helps to know that you
aren’t the first or one of the first
people to put your assets somewhere if
you want more info on any of these
platforms or anything else we talked
about in this video let me know in the
comments thanks for watching I hope you
enjoyed this video I really hope you
learned something and most of all I hope
to see you in our next video

Liquid staking allows you to stake your crypto and receive tokens (liquid staking tokens or LSTs) that you can use within the DeFi ecosystem while earning staking rewards. Restaking takes this further by utilizing your staked funds across multiple platforms to maximize returns. In this video, we use examples to explain practical uses of both of these.

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