Liquid Staking Protocol

Definition ∞ A liquid staking protocol allows users to stake their cryptocurrency in a proof-of-stake network while simultaneously receiving a liquid derivative token representing their staked assets. This derivative token can then be used in other decentralized finance applications, maintaining capital efficiency. It provides flexibility beyond traditional staking. This mechanism unlocks staked value.
Context ∞ Liquid staking protocols have significantly influenced the growth of decentralized finance by unlocking liquidity from staked assets, leading to new yield-generating opportunities. However, this also introduces additional smart contract risks and potential centralization concerns if a few protocols dominate. Regulatory bodies are beginning to examine the systemic risks associated with these protocols and their impact on network security.