"Pledge" refers to locking a certain PoS (Proof-of-Stake) consensus within a certain period of time Mechanize the native assets of the blockchain to help maintain the operation of the blockchain and earn corresponding returns.

What is liquidity staking?

Liquidity staking is an alternative to traditional staking, which solves some of the disadvantages of traditional staking to a certain extent.

When staking in the traditional way, you need to first become a validator on the blockchain network. Taking Ethereum as an example, becoming a network validator requires preparing hardware equipment that meets certain conditions and 32 $ETH for pledge. The threshold is relatively high. After becoming a validator, the pledged $ETH will be locked in the smart contract and cannot be used for other purposes, locking the liquidity of $ETH.

Ethereum completed the "merger" on September 15, 2022, transitioning from PoW to a PoS consensus mechanism. However, Ethereum’s validators will not be able to withdraw their staked $ETH until the Ethereum “Shanghai Upgrade” is completed on April 13, 2023. Participating in traditional staking during this period will further reduce the liquidity of $ETH.

The "Liquidity Staking Platform" proposes an alternative that can lower the threshold for participating in staking while increasing the liquidity of pledged assets. Specifically, users can not directly participate in traditional staking and instead provide $ETH to the liquidity staking platform. The platform will collect the $ETH provided by participating users and package these $ETH into 32 coins each and distribute them to eligible network validators. These network validators directly perform traditional staking, and the benefits obtained from staking will be shared by users, the liquidity staking platform, and network validators. Therefore, liquidity staking has a lower threshold and lower yield than traditional staking.

Common liquidity staking platforms include: Lido Finance, Rocket Pool, Frax Finance, etc. Click to see more liquidity staking platforms.

What are Liquidity Collateralized Derivatives (LSD)?

When a user participates in liquidity staking and provides $ETH to the liquidity staking platform, the platform will mint derivative tokens equal to the amount of $ETH as a voucher for the user's participation in liquidity staking. These derivative tokens are called “Liquid Staking Derivatives”. Since these derivative tokens represent the $ETH that users have on the liquidity staking platform, they are generally considered to have a slightly lower value than the original $ETH. Therefore, these derivative tokens can also be traded directly or used in other DeFi protocols to earn additional income.

Common liquidity staking derivatives include: Lido Finance’s Lido Staked Ether, Rocket Pool’s Rocket Pool Ether, Frax Finance’s Frax Ether, etc.