09 Feb 2025

light mode

Liquid staking: how to earn in the DeFi ecosystem

Liquid staking: how to earn in the DeFi ecosystem

Liquidity, staking, and DeFi are all confusing words for many users who are new to the world of blockchain and cryptocurrencies. In this article, we will explain how liquid staking works and why it is gaining popularity among the crypto community.

On this page

What is staking?

Staking is a way of receiving rewards in the blockchain. A reward is given to users for having some of their crypto assets locked up in their own wallets to keep the network running. Staking can be performed primarily on blockchains running on the PoS algorithm.

In the The Coinomist article “How does staking differ from mining”, you can read more about staking and how it differs from mining.


What is DeFi?


DeFi
is a decentralized financial ecosystem where participants interact with each other directly, without intermediaries like banks or credit organizations. DeFi services usually represent projects with open-source code.


What is liquidity

In simple terms, liquidity in the world of finance is the ability to quickly sell existing assets at a better price. The better the liquidity of the crypto market, the easier it is to convert coins into fiat money or other digital tokens.

What is liquid staking, how does it work, and what are its benefits?

Liquid staking is the issuance of a “derivative” token backed by a cryptocurrency. This token can be used for transactions in DeFi apps and getting extra income from these processes. The advantages of liquid staking are that it allows the users to receive income from staking without losing, at the same time, the ability to manage their assets.

What do you need to do to become involved in liquid staking in the DeFi ecosystem?

As an example, let’s take Coinbase’s recently released wrapped token cbETH. If you take ether and bet on the exchange, you will get a cbETH token equivalent to your ETH. This cbETH token can be used in any DeFi protocol of the Ethereum network.

Such tokens, obtained through liquid staking, would represent both the underlying asset (in this case ETH) and the interest accrued on the staking.

While receiving passive income from staking through ETH, you will also be able to transfer cbETH to DeFi protocols and profit from farming or take credit against it in fiat currency.


What are the risks in liquid staking?

It’s worth noting that in DeFi, there may be a vulnerability in the smart contract. The code may have a vulnerability that hackers can exploit. Also, since the underlying asset has strong volatility, there is a risk that a drop in its price will lead to a chain reaction of liquidations. This happens when a derivative token is used to support an open position. There is also a risk that if there is a problem in one of the DeFi protocols, the rest of the projects could be affected.

Whether to use liquid staking and its benefits or not is up to you to decide. 

The content on The Coinomist is for informational purposes only and should not be interpreted as financial advice. While we strive to provide accurate and up-to-date information, we do not guarantee the accuracy, completeness, or reliability of any content. Neither we accept liability for any errors or omissions in the information provided or for any financial losses incurred as a result of relying on this information. Actions based on this content are at your own risk. Always do your own research and consult a professional. See our Terms, Privacy Policy, and Disclaimers for more details.

Articles by this author

Latest News

MORE
Winklevoss Twins Consider IPO for Gemini Exchange

Winklevoss Twins Consider IPO for Gemini Exchange

The Winklevoss twins, Cameron and Tyler, are reportedly considering an initial public offering (IPO) for their cryptocurrency exchange, Gemini. If successful, this move would place Gemini among the growing list of crypto companies entering public markets.

09 Feb 2025
Trump Jr. States That Crypto Is America’s Path to Global Dominance

Trump Jr. States That Crypto Is America’s Path to Global Dominance

The crypto community has taken notice of Donald Trump Jr.’s latest remarks. Speaking at the Ondo Finance Summit in New York, he asserted that cryptocurrencies will play a crucial role in maintaining America’s global economic leadership.

07 Feb 2025
Rep. Green Criticizes TRUMP Coin at Congress Hearing

Rep. Green Criticizes TRUMP Coin at Congress Hearing

On February 6, the U.S. House Financial Services Committee held a hearing entitled “Operation Choke Point 2.0: The Biden Administration’s Effort to Put Crypto in the Crosshairs.”

07 Feb 2025
NFL Rivals Expands Web3 Gaming With Super Bowl NFT Cards

NFL Rivals Expands Web3 Gaming With Super Bowl NFT Cards

NFL Rivals, the blockchain-powered football game from Mythical Games, is rolling out a special in-game event to celebrate the biggest football showdown of the year.

07 Feb 2025

Latest News Alt

MORE
Weekly Analysis of BTC, ETH, and the Stock Market (Jan 27, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Jan 27, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

27 Jan 2025
Weekly Analysis of BTC, ETH, and the Stock Market (Jan 13, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Jan 13, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, and the current cryptocurrency market dynamics.

13 Jan 2025
Weekly Analysis of BTC, ETH, and the Stock Market (Jan 6, 2025)

Weekly Analysis of BTC, ETH, and the Stock Market (Jan 6, 2025)

An overview of BTC, ETH, XAUT, and S&P500 charts, along with the current cryptocurrency market dynamics.

06 Jan 2025

Might Be Interesting

MORE
How Blockchain Helps Combat Disinformation

How Blockchain Helps Combat Disinformation

Fake news has become a global issue, shaping public opinion, fueling social tensions, and even influencing political decisions. With the rise of social media, the spread of misinformation has accelerated, making it increasingly difficult to regulate. However, blockchain technology offers a promising solution in the fight against fake news.

07 Feb 2025
Trading Psychology: How to Avoid Falling Victim to Your Own Biases

Trading Psychology: How to Avoid Falling Victim to Your Own Biases

The most successful traders aren’t always the smartest. More often, those who excel are the ones who understand psychological traps, manage their emotions, and maintain rationality under pressure.

03 Feb 2025
Liquidity Pools — The Engine Driving DeFi

Liquidity Pools — The Engine Driving DeFi

Liquidity pools fuel DeFi by enabling instant token swaps, but what exactly are they? These crowdsourced reserves make decentralized trading possible—but they also come with risks. Here’s what you need to know before diving in.

31 Jan 2025
Bitcoin Name Service — Making Web3 Addresses Easier to Read

Bitcoin Name Service — Making Web3 Addresses Easier to Read

As the Bitcoin blockchain evolves, new opportunities are emerging for users to interact with DEX technologies. One of the major advancements is the Bitcoin Name Service (BNS)—a protocol that replaces complex web3 addresses with names that are easy for humans to understand.

29 Jan 2025
How to Withdraw Bitcoin from PayPal: A Step-by-Step Guide

How to Withdraw Bitcoin from PayPal: A Step-by-Step Guide

PayPal is one of the most popular online payment platforms. In 2022, it introduced features that allow users to transact with cryptocurrencies, including Bitcoin (BTC). However, withdrawing crypto from PayPal is not as straightforward as transferring fiat funds. This guide will walk you through the process of withdrawing Bitcoin from PayPal.

29 Jan 2025
Crypto Wallet Backups: Are You Truly Ready for Self-Custody?

Crypto Wallet Backups: Are You Truly Ready for Self-Custody?

Being your own bank is one of the great perks of crypto. It’s perfect for those who want extra security or believe in decentralization. But self-custody isn’t exactly a walk in the park – you’ve got to master the art of backups because you’re the only one responsible for your assets.

28 Jan 2025

Opinions

Super Bowl Bets Under Fire: CFTC Probes Kalshi and Crypto.com

Super Bowl Bets Under Fire: CFTC Probes Kalshi and Crypto.com

The Super Bowl, the largest sporting event in the US, has more to it than just the competition. The exciting show and, of course, commercials and bets are a big part of it, too. The winner will become known as early as tomorrow. Not everything always goes smoothly, though.

08 Feb 2025
Arthur Hayes — Is Trump’s Crypto Policy Setting a Trap?

Arthur Hayes — Is Trump’s Crypto Policy Setting a Trap?

Arthur Hayes, in The Genie, argues that Trump’s crypto agenda might not be what it seems. Could regulatory changes lead to unexpected consequences? Read our full breakdown.

07 Feb 2025
MORE

Interviews

“Satoshi is CIA”: Swedish crypto bro opens up about his Bitcoin journey

“Satoshi is CIA”: Swedish crypto bro opens up about his Bitcoin journey

The first crypto craze took place almost a decade ago. Overnight, many people found out about Bitcoin and its underlying technology, blockchain.

31 Jan 2025
Dmytro Gordon and Volodymyr Nosov: A Sensational Interview

Dmytro Gordon and Volodymyr Nosov: A Sensational Interview

Volodymyr Nosov, CEO of Europe’s largest crypto exchange WhiteBIT, sat down with Dmytro Gordon, one of Ukraine’s most prominent journalists. The interview touched on Bitcoin, crypto, WhiteBIT, cars, keys to success, and business vision.

18 Dec 2024
MORE