In this lesson, we’ll examine the difference between consensus staking — which secures blockchain networks — and yield staking in decentralized finance (DeFi), which generates returns through user activity and protocol mechanics.
Understanding this distinction is crucial for anyone looking to build sustainable income strategies within the crypto ecosystem.

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What Is Consensus Staking?​

All examples discussed in previous lessons referred to consensus staking, the mechanism that maintains network security and consensus across blockchain nodes.

In Proof-of-Stake (PoS) blockchains such as Ethereum, validators stake native tokens (like ETH) to secure the network, confirm transactions, and produce blocks.
In return, they receive staking rewards — the fundamental incentive that keeps the blockchain decentralized and operational.

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Validator Income Streams in Consensus Staking​

Validators typically earn from three primary sources:

1. Staking Rewards (Token Emissions)​

Each blockchain allocates a portion of its total token supply to pay validators who secure the network.
Depending on the network’s economic design:

• Some projects have a finite reward pool that decreases over time.
• Others implement continuous emissions to ensure an ongoing yield stream.

These rewards are the core income for validators, compensating them for their role in maintaining network consensus.

2. Transaction Fees (Gas Fees)​

Every blockchain charges transaction fees when users send tokens or interact with smart contracts.
These fees are distributed to validators who include transactions in blocks.

Different blockchains manage these fees differently:

• Ethereum: burns a portion of each fee (EIP-1559) and distributes the rest to validators.
• Avalanche, Solana, and others: may distribute 100% of fees to validators.
• Some use hybrid models — part burned, part rewarded.

This system ensures validators are compensated not only from token emissions but also from actual network activity.

3. Priority Transaction Fees​

Users can pay extra to have their transactions confirmed faster.
For instance:

• When a price deviation occurs — such as a temporary drop in a liquid staking token — many users rush to buy it at a discount.
• They all submit transactions simultaneously, offering higher gas fees for priority inclusion.

Validators naturally include the highest-fee transactions first, earning additional priority rewards.

This dynamic exists across all major networks — Ethereum, Solana, Avalanche, and others — where high network demand creates opportunities for validators to maximize income through transaction prioritization.

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Blockchains Using Consensus Staking​

Examples of networks that rely on consensus staking include:

• Ethereum (ETH)
• Solana (SOL)
• Avalanche (AVAX)
• BNB Chain (BNB)
• Polygon (MATIC)
• Aptos (APT)
• Sei (SEI)
• Tron (TRX)
• Cosmos (ATOM)

Each has its own:

• Architecture and validator set,
• Reward allocation logic,
• Liquid staking providers (Lido, Rocket Pool, Benqi, Jito, etc.),
• Tokenomics and emission structure.

Consensus staking forms the backbone of Proof-of-Stake networks, ensuring security, decentralization, and operational stability — the foundation upon which the broader DeFi ecosystem is built.

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What Is Yield Staking in DeFi?​

Now let’s turn to yield staking, which operates within the DeFi ecosystem.
This type of staking has nothing to do with network security or block production.

Instead, yield staking functions at the application layer, where protocols generate and distribute profits to users based on their participation.

The key idea:

In DeFi, you’re not securing the blockchain —
you’re sharing in the protocol’s revenue or emissions.

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How Yield Staking Works​

Yield staking in DeFi generates income through two main sources:

1. Organic Protocol Revenue​

This represents real profit generated by the platform through user fees.
Examples include:

• Decentralized Exchanges (DEXs): collect trading or leverage fees.
• Lending Markets: earn interest from borrowers.
• Derivatives Platforms: charge fees on futures or margin positions.

A portion of these real earnings (in stablecoins, ETH, or other liquid assets) is distributed to token stakers.

Example:

A DEX allows leveraged trading and collects transaction fees.
The platform distributes part of these profits (in ETH or USDC) to users who stake its native token.

This represents true yield, generated by actual user activity.

2. Token Emissions (Inflationary Rewards)​

Some DeFi projects mint new tokens to reward stakers, increasing the circulating supply.

Example:

The lending platform Aave issues new AAVE tokens to users who stake existing ones.
In return, stakers receive newly minted tokens as rewards, even though these rewards are not tied to actual protocol revenue.

However, Aave’s staking also serves a functional purpose — stakers provide a safety module that protects the platform from bad debt or cascading liquidations.
In exchange for this risk, they receive token emissions as compensation.

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Comparing the Two Models​

Aspect	Consensus Staking	Yield Staking (DeFi)
Purpose	Secures the blockchain and maintains consensus	Generates profit from protocol activity
Income Source	Token emissions + transaction fees + priority fees	Protocol fees (organic) or new token emissions
Risk Type	Slashing, validator performance, network issues	Smart contract risk, token inflation, protocol failure
Example Blockchains	Ethereum, Solana, Avalanche, Polygon	Aave, Uniswap, GMX, GTrade
Token Type	Native coins (ETH, SOL, AVAX)	Governance or utility tokens (AAVE, GMX, UNI)
Yield Type	Base-layer staking yield	Platform-specific yield or token emission rewards

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The Risk Spectrum​

• Consensus Staking: Lower risk — rewards depend on network stability and validator reliability.
• DeFi Yield Staking: Higher risk — returns depend on the project’s sustainability, tokenomics, and market demand.

Unverified or short-lived protocols often promise very high APRs by issuing inflationary tokens with no real revenue backing.
Such platforms should be approached cautiously — they typically retain real income (in stablecoins or ETH) while distributing worthless native tokens as rewards.

In contrast, established protocols (like Aave, GMX, or Lido) with verified audits and consistent revenue offer more stable and transparent yields.

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Summary​

• Consensus staking secures the blockchain, generates base-level yield from block rewards, transaction fees, and user competition for priority inclusion.
• Yield staking in DeFi earns returns from protocol-level activity — either through real revenue distribution or token emissions.
• Both mechanisms provide passive income opportunities, but their risk profiles and yield sources differ fundamentally.
• Reliable DeFi protocols combine organic revenue and moderate emissions, maintaining sustainability over time.

In the next lesson, we’ll explore how decentralized exchanges (DEXs) actually work — how they generate revenue, share fees with stakers, and form the backbone of the DeFi ecosystem.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll review all the major risks associated with both regular staking and liquid staking (LST).
You’ll learn which risks are theoretical, which have actually occurred in the past, and how users can protect themselves from them.

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1. Risks in Regular (Non-Liquid) Staking​

Let’s start with traditional staking, where you delegate tokens directly to a validator node through your own wallet, without intermediaries.

Main Risk: Slashing​

Slashing means that a portion of a validator’s staked tokens can be confiscated (burned) if they violate network rules — for example, by going offline or acting maliciously.

Validators stake tokens as collateral for good behavior.
If a validator fails to produce blocks, double-signs, or breaks consensus rules, a portion of their stake (and potentially part of the delegators’ stake) can be penalized.

• This risk exists across all Proof-of-Stake networks — Ethereum, Solana, Avalanche, Polygon, and others.
• Liquid staking providers (like Lido or Benqi) also delegate user assets to validators, so the same principle applies.

✅ In practice:
Slashing is extremely rare.
Major providers like Lido Finance use strict validator selection criteria, requiring technical audits, uptime reliability, and reputation verification.

So far, there has never been a major slashing event that affected user balances or the peg of liquid staking tokens (like stETH).

Still, slashing remains the primary theoretical risk in both staking and liquid staking systems.

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2. Smart Contract Exploits (LST-Specific Risk)​

Liquid staking operates through smart contracts — they manage deposits, assign funds to validators, and distribute staking rewards automatically.

Each of these processes relies on on-chain code, which introduces technical vulnerabilities.

What Could Go Wrong​

• A bug in the contract could allow unauthorized withdrawals.
• Reward distribution logic might be manipulated or frozen.
• Attackers could exploit an upgrade vulnerability or logic flaw.

How Providers Mitigate It​

Top-tier providers like Lido Finance conduct regular independent audits (monthly or quarterly).
Before every major update, all contracts are reviewed by cybersecurity firms to identify vulnerabilities.

As a user, you should always check whether a liquid staking provider has recent and verified audit reports before depositing funds.

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3. Price Deviation (Depeg) Risk​

Depeg happens when the market price of a liquid staking token (e.g., stETH, sAVAX, JitoSOL) deviates from its official provider rate.

Normally, an LST represents the value of the underlying staked asset plus accumulated rewards —
for example, 1 stETH = 1 ETH + staking yield.
However, on decentralized exchanges (DEXs), the market rate can temporarily diverge.

Causes of Depeg​

1. Large sell orders by users seeking instant liquidity.
2. Low liquidity pools for smaller or newer LSTs.
3. Market panic during volatility.
4. Lack of redemption functionality or delayed withdrawals.

Example​

If many users sell stETH on Curve during high volatility, its price might drop to 0.98 ETH.
Arbitrage traders then buy discounted stETH, redeem it later for 1 ETH via Lido, and profit from the difference.
This mechanism naturally restores the peg over time.

Depegs are usually short-lived and self-correcting, but they can trigger temporary losses for users relying on LSTs as collateral in lending markets.

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4. Collateral Shortage and Redemption Failure​

If a liquid staking provider fails to maintain full collateral backing (meaning they don’t hold enough base assets to match all issued LSTs), users may not be able to redeem their tokens.

This leads to panic selling and sharp price drops on DEXs.

Example: Ethereum’s PoS Transition​

During Ethereum’s early Proof-of-Stake phase, users could stake ETH but could not withdraw it for nearly a year.
Many panicked and sold stETH below 1 ETH, causing a temporary depeg.
After withdrawals became available, the peg was fully restored.

Thus, the inability to redeem (whether temporary or permanent) is one of the most serious risks in liquid staking.

Two Causes​

1. The provider has no collateral (due to a hack or fraud).
2. The collateral exists but redemption isn’t yet enabled on-chain.

In both cases, the result is the same:
Users cannot redeem LSTs → panic selling → price deviation → loss of confidence.

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5. Liquidation Risk in Lending and Looping Strategies​

This risk applies when using LSTs as collateral in lending markets or looping strategies.

If the market price of the LST drops (due to depeg or volatility), the collateral value decreases.
If it falls below the liquidation threshold (usually around 95% loan-to-value ratio), your position is automatically liquidated by the lending protocol.

Example​

You deposit stETH and borrow ETH to loop staking.
If stETH temporarily falls to 0.97 ETH, your collateral weakens.
If you’re near the limit, your position gets liquidated.

Tip:
Avoid borrowing at maximum capacity.
Keep a 20–30% safety buffer to prevent liquidation during brief depeg events.

In practice, these liquidations are rare and easily avoided with conservative borrowing limits.

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6. Asset Price Decline (Market Risk)​

Regardless of how you stake, your tokens remain subject to market volatility.
Even if you earn staking rewards, the token’s price in fiat (USD) can decline due to overall market trends.

This applies to both staking and liquid staking —
the yield may soften the loss, but it doesn’t fully offset a major market downturn.

Example:

You stake ETH at 4% annual yield, but ETH drops 30% in price —
your portfolio still loses value in dollar terms.

This is a natural investment risk and not specific to staking mechanics.

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Summary of Risks​

Regular Staking​

1. Slashing — partial loss of tokens if a validator misbehaves or goes offline.
2. Market Volatility — token price decline despite earning staking rewards.

Liquid Staking (LST)​

1. Slashing — same as in regular staking, since validators still secure the network.
2. Smart Contract Exploits — potential code vulnerabilities in deposit or reward contracts.
3. Depeg (Price Deviation) — temporary difference between LST and base token value due to liquidity or panic.
4. Liquidation — collateral-based strategies may face forced liquidation during depegs.
5. Collateral Shortage / Redemption Failure — inability to redeem LST for the base token if collateral is missing or locked.
6. Asset Price Decline — inherent market risk of token value fluctuation.

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Key Takeaways​

• Slashing and smart contract risks are largely technical and rare in practice.
• Depeg and liquidation risks mostly affect users engaged in DeFi strategies, not passive holders.
• Market volatility remains the most consistent risk for all staking participants.
• Choosing reputable, audited providers (like Lido, Rocket Pool, or Benqi) drastically reduces technical risks.
• Maintaining a conservative borrowing ratio and monitoring liquidity pools helps prevent unwanted liquidations.

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In the next lesson, we’ll explore DeFi yield-based staking — how it differs from consensus staking and how tokens can earn additional yield through decentralized finance protocols.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll explore where and how Liquid Staking Tokens (LSTs) are used.
There are five main areas of application — four are active strategies, and the fifth is passive (simply holding the token).

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The Five Use Cases for LSTs​

1. Holding (Passive Strategy)
2. Looping Strategies (Lending Markets)
3. Using LSTs as Collateral (Borrowing Model)
4. Liquidity Pools (DEX Participation)
5. Re-Staking (Security Extension and Yield Layer)

Let’s examine each of these in detail.

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1. Holding (Passive Yield)​

The simplest and safest way to use an LST is to hold it in your wallet.

For example:

• You stake ETH via Lido Finance → receive stETH.
• You keep stETH in your wallet.
• You automatically earn from:
  • The base staking yield (currently around 3% annually).
  • The long-term price growth of the underlying asset.

This approach doesn’t require any action. It applies not only to Ethereum but also to Solana (mSOL, JitoSOL), TON (stTON), Avalanche (sAVAX), and other blockchains that support staking and liquid staking providers.

It’s the most conservative and lowest-risk strategy — you simply hold the LST and earn the embedded staking yield.

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2. Looping Strategies (Lending Markets)​

This is an advanced yield-optimization strategy used by experienced DeFi participants.

The idea:
You deposit your LST (e.g., stETH) as collateral and borrow the base asset (e.g., ETH) against it.
Then you stake the borrowed ETH again, receive more stETH, and repeat the process.

Example:

• You deposit stETH earning 3% yield.
• You borrow ETH at a 2% rate.
• The difference (delta) = 1% profit.
• You restake the borrowed ETH → get more stETH → redeposit → repeat.

Each cycle compounds the yield, allowing you to raise your effective annual return to 7–10%, depending on the number of loops.

Main Risk: Liquidation due to depeg.
If stETH temporarily loses parity with ETH, your collateral value drops, and your loan may be liquidated.

This strategy works not only for Ethereum but also for Solana, Avalanche, or any other blockchain with an active lending market and positive delta (staking yield higher than borrowing rate).

Example on Solana:

• Stake SOL → earn 8%.
• Borrow at 6% → delta = 2%.
• Through looping, effective yield may reach 15% annually.

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3. Using LSTs as Collateral in Lending Markets​

In this case, you deposit your LST as collateral to borrow other assets — such as stablecoins (USDT, DAI) or volatile assets (BTC, ETH).

You continue to:

• Earn staking rewards on your LST,
• While simultaneously using the borrowed funds for new investments or strategies.

This allows capital efficiency — your assets continue generating yield even while being locked as collateral.

For example:

Deposit stETH as collateral → Borrow DAI stablecoins → Use DAI in farming or other DeFi opportunities → Earn yield on both sides.

Liquidation risk: If the price of your collateral drops below the liquidation threshold, your position may be partially or fully liquidated.

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4. Liquidity Pools (DEX Yield + Staking Yield)​

Another powerful LST use case is providing liquidity on decentralized exchanges (DEXs).

You can add your LSTs to pairs such as:

• stETH/ETH
• sAVAX/AVAX
• JitoSOL/SOL

By doing so, you earn:

1. Staking yield from the LST itself.
2. Trading fees from each swap in the pool.
3. Additional incentives (bonus tokens from Lido, Jito, or other protocols).

For example, Lido Finance rewards stETH/ETH liquidity providers with LDO or ETH tokens to strengthen pool liquidity and ensure price stability.

Similarly, Jito Network on Solana rewards JitoSOL/SOL liquidity providers with JITO tokens.

Risk: Impermanent loss — if the price of your LST fluctuates against the base asset, your pool position value may decrease compared to holding both assets separately.

Still, liquidity pools remain one of the best ways to combine staking income, trading fees, and incentive rewards.

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5. Re-Staking (Extending Ethereum’s Security Layer)​

Re-staking is one of the newest and most transformative use cases for LSTs.

What It Means​

Re-staking allows assets staked on Ethereum to be used again to secure other protocols — such as bridges, oracles, or Layer 2 networks.

Users can delegate their ETH or LSTs (e.g., stETH) to re-staking protocols, like EigenLayer, which extend Ethereum’s validator security to other projects.

Why It Matters​

Ethereum currently offers the strongest Proof-of-Stake (PoS) security in the world.
Other protocols can “borrow” Ethereum’s security infrastructure instead of building their own validator network.

In exchange, they pay rewards to re-stakers.

This means that stakers earn:

• Base Ethereum staking rewards, plus
• Extra income from protocols that rent Ethereum’s validator security.

Analogy​

Imagine Ethereum as a president with an elite security team (validators).
Other leaders (projects) can hire the same team for protection — paying for this service.
Ethereum validators thus secure multiple entities simultaneously, generating more yield for stakers.

Re-staking turns staked assets (including LSTs) into multi-purpose yield instruments, combining security provision with additional income streams.

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Instant Unstaking Through DEXs​

Another practical use case for LSTs is instant unstaking.

Instead of waiting for the unbonding period (which may range from hours to weeks), you can immediately swap your LST for the base token on a DEX.

Example:

• stETH → ETH via Curve Finance.
• sAVAX → AVAX via Trader Joe or VirtUs Swapper.
• JitoSOL → SOL via Meteora or Jupiter Aggregator.

While the exchange rate is slightly less favorable (0.3–1% below the unstaking rate), you gain immediate liquidity and flexibility.

Maintaining deep liquidity in these pairs (e.g., stETH/ETH) is crucial — this is why Lido and other providers incentivize liquidity with extra token rewards.

Example:

• Official unstaking on Avalanche = wait 15 days, full rate.
• Swap on DEX = instant, but lose ~1–2% yield difference.

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Combining Income Streams​

By participating in liquidity pools, you can simultaneously earn:

1. Base staking yield (built into the LST).
2. DEX trading fees (shared among liquidity providers).
3. Bonus rewards (from protocols incentivizing liquidity).

This creates multi-layered yield, combining staking, trading, and DeFi incentives.

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Ethereum’s Dominance in the LST Ecosystem​

Currently, Ethereum controls about 97% of the entire liquid staking and re-staking market.
The remaining 3% is distributed among Solana, Avalanche, TON, and a few smaller ecosystems.

Ethereum’s strong dominance comes from its:

• Robust validator network,
• Deep liquidity and DeFi integrations, and
• Proven reliability as the foundation of decentralized finance.

Even newer blockchains (like Solana) are adopting Ethereum-compatible architectures to leverage its ecosystem standards and liquidity depth.

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Summary​

Main use cases for Liquid Staking Tokens (LSTs):

1. Passive holding — earn built-in staking yield.
2. Looping strategies — leverage the delta between staking and borrowing rates.
3. Collateral lending — borrow assets while maintaining staking rewards.
4. Liquidity provision — earn trading fees and incentives on DEXs.
5. Re-staking — extend Ethereum’s security to other protocols for extra yield.
6. (Bonus) Instant unstaking — swap LSTs for base tokens instantly via DEXs.

These use cases make LSTs a cornerstone of modern DeFi — combining liquidity, yield, and flexibility while leveraging blockchain security layers.

In the next lesson, we’ll discuss the risks of liquid staking — what can happen to your assets if you simply hold them, and what additional risks arise when using LSTs in DeFi strategies.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll go through the practical process of staking MATIC, the main token of the Polygon network.
You’ll learn how to connect your wallet, stake MATIC through the Stader protocol, and understand how liquid staking works on Polygon.

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Before You Begin​

If you have any questions about staking or any of the free lessons from VirtUs Academy, you can always join our Discord community, where experienced members and experts are available to help.

As shown in earlier lessons, I already have the Polygon network connected in my wallet and some MATIC tokens available.
Now, let’s see how to stake them step-by-step.

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Step 1 — Open Stader and Connect Your Wallet​

For this demonstration, I’m using Stader, a trusted multi-asset staking protocol that supports several blockchains, including Polygon, Ethereum, and BNB Chain.

1. Visit the Stader staking page.
2. Select Polygon (MATIC) from the available networks.
3. Click Connect Wallet — you can use MetaMask or WalletConnect.
4. If the Polygon network isn’t yet connected, simply click Add Network in the interface — it will automatically appear in your wallet.

Once connected, you’ll see your available MATIC balance displayed.

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Step 2 — Review Staking Parameters​

The current annual staking yield is around 5.76%.
This rate fluctuates slightly based on network activity and validator performance.

Staking MATIC on Stader means:

• Your MATIC is delegated to Polygon validators.
• You receive a liquid staking token (xMATIC) that represents your staked position.
• The value of xMATIC gradually increases relative to MATIC as rewards accumulate.

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Step 3 — Stake Your MATIC​

Let’s stake a small amount for demonstration.

1. Enter the amount you want to stake — for example, 2 MATIC.
2. Click Stake MATIC.
3. Confirm the transaction in your wallet.

After the transaction is confirmed, staking becomes active.

✅ Done — your MATIC is now staked, and you’ll see xMATIC in your wallet balance, representing your staked tokens.

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Step 4 — Adding xMATIC to Your Wallet (If Needed)​

If xMATIC doesn’t appear automatically, you can add it manually:

1. Click Add Token in the Stader interface, or
2. Add it manually using the contract address displayed in the staking dashboard.

After that, xMATIC will appear alongside your other assets.

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Step 5 — Understanding How Rewards Work​

Just like other liquid staking protocols (such as stETH or sAVAX):

• The number of tokens you hold does not increase.
• Instead, the price of xMATIC gradually rises relative to MATIC.

For example:

You stake 1.92 MATIC and receive 1.92 xMATIC.
After 30 days, when you unstake the same 1.92 xMATIC, you’ll receive more MATIC than you originally staked — because the token’s value increased.

This means your staking rewards are embedded in the token price, not reflected as extra tokens.

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Step 6 — Unstaking and Liquidity​

When you want to unstake:

• You can redeem xMATIC for MATIC directly through the Stader platform.
• The system will process your withdrawal and return your base tokens.
• Alternatively, you can swap xMATIC for MATIC instantly on DEXs like 1inch or VirtUs Swapper, usually with a small discount (0.3–1%).

Unstaking times vary depending on network congestion, but Polygon transactions are usually fast and inexpensive.

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Summary​

• Protocol: Stader
• Asset: MATIC (Polygon’s native token)
• Reward model: Token value appreciation (xMATIC increases in price relative to MATIC)
• Average yield: ~5.7% annually
• Network fees: Minimal (fractions of a cent)
• Wallets supported: MetaMask, WalletConnect

In short:

You stake MATIC → receive xMATIC → the token’s price increases over time → you can later unstake or trade it instantly.

This is one of the simplest and most convenient ways to stake on Polygon, combining liquidity, yield, and ease of access.

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If you want to learn more about Polygon, Ethereum, and other networks — as well as how to build a long-term investment portfolio — these topics are covered in detail in the Portfolio Investing module, where we analyze fundamental projects and sustainable strategies.

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In the next lesson, I’ll demonstrate how to stake the BB Token on the Binance Smart Chain (BSC).
The process is equally straightforward, though we’ll first add the BSC network to our wallet.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll explore the concept of Liquid Staking Tokens (LSTs) and see how staking works across different blockchains beyond Ethereum.
We’ll review several real-world examples of protocols that implement liquid staking, explain how yield is generated, and show how users can unstake or use their LSTs in decentralized finance (DeFi) applications.

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What Is Liquid Staking?​

Liquid staking represents a token issued by a protocol built on top of regular consensus staking.
For example, in the Ethereum network:

1. You stake ETH with a liquid staking provider (like Lido).
2. The provider delegates your ETH to validator nodes.
3. You receive a Liquid Staking Token (LST) in return — such as stETH.
4. This token reflects both:
   • The base value of your staked ETH, and
   • The accumulated staking rewards over time.

The principle is the same for every blockchain that supports staking.
The LST grows in value or balance as staking rewards accrue.

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Major Liquid Staking Providers​

The largest and most recognized liquid staking provider is Lido Finance, which dominates the Ethereum market.
Other notable platforms include:

• Rocket Pool
• Coinbase Staked Ethereum (cbETH)
• Binance Staked Ethereum (BETH)

Each provider charges a commission on staking rewards, typically between 10% and 25%.
For instance, Coinbase takes around 25%, while Lido takes about 10%.

These services differ mainly in their fee structure and decentralization level, but they all operate on the same core logic — delegating user funds to validators and issuing LSTs that represent staked assets plus yield.

The term LSD (Liquid Staking Derivative) is sometimes used instead of LST.
Both mean the same thing — a derivative token that represents a staked asset and its rewards.

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Ethereum Dominance in Liquid Staking​

Currently, around 95% of all liquid staking activity happens on Ethereum.
That’s because Ethereum’s Proof of Stake system provides a large, stable yield base and hosts the majority of DeFi integrations.

To explore all existing providers, you can use DefiLlama, which has a dedicated Ethereum Staking section listing all active LST protocols and their market share.

Despite Ethereum’s dominance, liquid staking has also spread to other blockchains.

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Liquid Staking on Other Blockchains​

Solana (SOL)​

The Solana network supports multiple liquid staking protocols, including:

• Marinade Finance
• Jito
• BlazeStake

Each of these platforms issues its own LST token — for example, JitoSOL or mSOL — whose price gradually increases relative to SOL, reflecting staking rewards.
The annual yield typically ranges between 8–10%.

Avalanche (AVAX)​

Avalanche offers liquid staking through:

• Benqi
• Yield Yak Finance

When you stake AVAX on these platforms, you receive sAVAX or similar LSTs.
These tokens follow the same principle — their value appreciates relative to AVAX over time.

For example:

You stake 100 AVAX and receive 86.69 sAVAX.
After one year (with ~5% yield), those 86.69 sAVAX will be worth approximately 105 AVAX.

This model reflects yield through price growth, not token quantity.

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Two Models of Liquid Staking Rewards​

Across all networks, there are two main ways liquid staking rewards are represented:

1. Increasing Token Balance — as in stETH

   • Your token count increases automatically over time.
   • Example: 10 stETH → 10.3 stETH after one year.

2. Increasing Token Price — as in wstETH or sAVAX

   • Your token count stays constant, but its value rises.
   • Example: 1 wstETH → 1.05 ETH after one year.

The second model (price appreciation) is the standard for most modern blockchains.

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Unstaking in Practice: AVAX and SOL Examples​

When unstaking your liquid-staked tokens, there are two options:

1. Official Unstaking via the Protocol​

You can unstake directly from the liquid staking provider.
Each blockchain has its own unbonding period:

• Ethereum (Lido): ~2 hours for small amounts
• Solana (Jito): ~1 hour
• Avalanche (Benqi): ~15 days

If you wait for the official period, you receive the full amount, including rewards.

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2. Instant Swap via DEX Aggregators​

You can also sell your LST instantly on decentralized exchanges (DEXs) such as:

• 1inch
• VirtUs Swapper

This provides immediate liquidity, but usually at a small discount (1–2%).
That discount represents the remaining unbonding yield you forgo by exiting early.

Example:

• Official unstake: wait 15 days → receive 100 AVAX + yield
• DEX swap: instant exit → receive ~98–99 AVAX

Thus, waiting earns maximum yield, while swapping offers faster liquidity.

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Example: Staking SOL via Jito Network​

Let’s look at a practical example on Solana using Jito Network:

1. Open the Jito Network app.
2. Click Stake, connect your wallet, and select the amount of SOL.
3. Confirm the transaction — the system issues JitoSOL, your liquid staking token.

• JitoSOL automatically increases in value relative to SOL.
• The current annual yield is 8–10%.
• You can unstake directly through Jito (1-hour wait) or swap instantly on a DEX.

Example:

Waiting for the full hour gives 11.80 SOL, while an instant swap might yield 11.78 SOL.
The difference is minor but always present.

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Liquid Staking on the TON Blockchain​

The TON (The Open Network) blockchain also supports liquid staking, offering around 17% annual yield.
The mechanism is identical to Ethereum or Avalanche:

• You stake 100 TON → receive a liquid staking token (e.g., stTON).
• The token’s value gradually increases relative to TON.
• When you unstake, you receive slightly more TON than you initially staked, representing your staking rewards.

Although I don’t currently use TON, the staking process is straightforward and follows the same logic.

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Using Liquid Staking Tokens (LSTs) in DeFi​

The key advantage of liquid staking is composability — the ability to use your LSTs across different DeFi applications while still earning staking rewards.

Here are some common use cases:

1. Liquidity Provision:

   • Add your LST to trading pairs (e.g., ETH/stETH) to earn transaction fees.

2. Lending and Borrowing:

   • Use your LST as collateral to borrow stablecoins or other assets.

3. Yield Farming:

   • Deposit your LST into farming pools for extra rewards.

4. DeFi Aggregators:

   • Use protocols like Meteora, Curve, or Balancer to compound staking yield with liquidity incentives.

In short, liquid staking allows you to earn dual income:

1. From base staking yield, and
2. From DeFi participation using your LST as a productive asset.

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Summary​

• LSTs (Liquid Staking Tokens) represent staked assets plus accrued rewards.
• They can increase in quantity (stETH) or in price (sAVAX, wstETH).
• Ethereum accounts for about 95% of all liquid staking activity.
• Solana, Avalanche, and TON also support liquid staking with similar principles.
• Official unstaking gives maximum yield, while DEX swaps provide instant liquidity at a small cost.
• LSTs can be used across DeFi protocols for additional yield, offering flexibility and compounding opportunities.

In the next lesson, we’ll explore how and where to use liquid staking tokens (LSTs) to generate yields even higher than traditional staking rewards.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll go through a practical, step-by-step demonstration of how to stake Avalanche (AVAX) — the native token of the Avalanche blockchain — to achieve maximum yield through consensus staking with minimal risk and high reliability.

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A Quick Warning About Wallet Scams​

Before we begin, let’s address a common phishing scam that often targets AVAX users.

Sometimes, unknown tokens may suddenly appear in your wallet — for example, one called “eight” or something similarly random.
These are fake tokens sent by scammers who hope you’ll click the embedded link or connect your wallet to a malicious site, often disguised as a “casino” or “airdrop” project.

Do not interact with these tokens.
Never click links or connect to unknown websites.
Simply ignore or hide them from your wallet interface.

This scam relies on curiosity — but connecting your wallet to these fake sites can expose your private keys or trigger malicious transactions.

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Staking Overview​

Now, let’s move on to staking AVAX.

Avalanche uses a Proof of Stake (PoS) consensus mechanism.
By staking AVAX, you help secure the network and earn staking rewards in return.

• Average yield: around 7–8% per year
• Unstaking period: about 15 days
• Minimum stake: 25 AVAX if running your own node, but you can stake any amount via liquid staking providers.

For this demonstration, we’ll use Benqi, one of the most popular and trusted liquid staking platforms on Avalanche.

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Step 1 — Access the Benqi Liquid Staking App​

1. Visit the official Benqi app (link in the lesson description).
2. Go to the Apps section and select Liquid Staking.
3. Connect your wallet — I’m using Core Wallet, but you can also use MetaMask.
4. Make sure you’re on the Avalanche C-Chain network.

Once connected, you’ll see an interface similar to Ethereum’s Lido dashboard, where you can stake AVAX and receive sAVAX (staked AVAX) in return.

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Step 2 — How Benqi Staking Works​

The process is similar to Ethereum’s liquid staking, but with one key difference:

• In Ethereum staking, your token balance increases over time (e.g., stETH grows in quantity).
• In Avalanche staking, your token quantity stays the same, but the price of sAVAX gradually increases relative to AVAX.

In other words:

Your sAVAX tokens remain constant, but each one becomes worth more AVAX over time.

This is how staking rewards are reflected in Avalanche.

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Step 3 — Stake Your AVAX​

1. Click Stake in the Benqi interface.
2. Enter the amount you want to stake — for example, 30 AVAX.
3. Confirm the transaction in your wallet.

The transaction fee on Avalanche is very low — around $0.03, roughly 100x cheaper than Ethereum gas fees.

After the transaction is confirmed, staking becomes active.
Your wallet will now show a balance such as 28.86 sAVAX (depending on the current conversion rate).

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Step 4 — How Rewards Are Earned​

The quantity of sAVAX in your wallet stays the same, but its market value increases as staking rewards accumulate.

If the average staking yield is 7% per year, then after one year:

• The price of sAVAX will be roughly 7% higher than when you first staked.
• You can unstake and receive about 7% more AVAX than your initial deposit.

Example:

You stake 28 AVAX → receive 28.86 sAVAX.
After one year, you unstake and get the equivalent of 31 AVAX due to price appreciation.

Rewards accumulate automatically — you don’t need to claim them manually.

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Step 5 — Unstaking or Selling sAVAX​

There are two ways to convert your sAVAX back into AVAX:

Option 1 — Official Unstaking (Benqi)​

• Use the Unstake function in the Benqi app.
• Wait through the 15-day unbonding period while your AVAX is released.
• After that, you can withdraw both your principal + rewards.

This is the most profitable method, as you get the full reward rate with no discount.

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Option 2 — Instant Liquidity (DEX Swap)​

If you want your funds immediately:

• You can swap sAVAX → AVAX on decentralized exchanges (DEXs) such as 1inch or Trader Joe.
• The exchange rate will be slightly lower — typically 0.5–1% less than the official rate.
• You’ll receive your AVAX instantly, without waiting 15 days.

This is ideal if you need to quickly exit your position or move funds to another network.

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Step 6 — Manually Adding sAVAX to Your Wallet or DEX​

By default, some wallets or DEXs (like 1inch) might not display sAVAX.
If that happens, you can add it manually:

1. Open the Avalanche Explorer.
2. Search for the token sAVAX.
3. Copy its contract address.
4. Go back to your wallet or DEX app.
5. In the “Add Token” or “Import” section, paste the contract address.
6. Confirm and import the token.

Now, sAVAX will appear in your interface, allowing you to swap or track it properly.

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Comparing Unstaking Options​

Method	Waiting Period	Exchange Rate	Yield Retained	Recommended For
Benqi Unstake	~15 days	1:1 (official rate)	100%	Long-term holders
DEX Swap	Instant	~0.99:1	~99%	Short-term or active users

For most investors, official unstaking offers maximum yield, but DEX swaps provide faster liquidity when needed.

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Step 7 — Advanced Yield Strategies​

If you want to go beyond passive staking, you can combine liquid staking with other DeFi strategies, such as:

• Lending sAVAX on money markets for extra yield.
• Providing liquidity in AVAX/sAVAX pairs on DEXs.
• Using sAVAX as collateral to borrow stablecoins or other assets.

However, these strategies involve higher risk, so they’re best suited for users familiar with DeFi mechanics and smart contract interactions.

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Summary​

• Consensus staking yield: ~7–8% annually.
• Unstaking period: ~15 days.
• Liquid staking provider: Benqi (trusted and widely used).
• Reward mechanism: sAVAX price increases over time.
• Fees: Transaction cost ≈ $0.03.
• Best for: Long-term AVAX holders seeking reliable passive income.

Two main options to exit:

1. Unstake via Benqi — full yield, delayed liquidity.
2. Swap on a DEX — instant liquidity, small discount.

Both methods provide access to Avalanche’s official staking rewards, with minimal technical barriers and significantly lower costs than staking on Ethereum.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll go step-by-step through how to stake Ethereum (ETH) on the Ethereum mainnet using Lido Finance, the largest liquid staking provider.
We’ll also look at how to do the same on other networks such as Arbitrum or Optimism, where transaction fees are much lower.

Before starting, make sure you’ve watched the previous lessons on staking and liquid staking — they explain the underlying mechanics and how liquid staking tokens like stETH and wstETH work.

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Step 1 — Preparing to Stake ETH on the Ethereum Mainnet​

I’ve already transferred a small amount of ETH — around $70 — to my wallet for demonstration purposes.
Staking such a small amount isn’t profitable (because Ethereum gas fees are relatively high), but it’s ideal for showing the full process.

Later, we’ll compare this to staking on Arbitrum, where a transaction costs only about $0.02.

1. Open the Lido Finance website and navigate to the Stake Ethereum section.
2. Click Connect Wallet and select your wallet (MetaMask, Frame, etc.).
3. If your wallet is connected to another network (e.g., Arbitrum), switch to Ethereum Mainnet.
   • Click the network indicator at the bottom of the wallet interface.
   • Choose Ethereum.
   • If the switch doesn’t happen automatically, you can use Frame Wallet — it switches networks seamlessly across protocols.

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Step 2 — Staking ETH via Lido​

Once connected to Ethereum Mainnet:

• Enter the amount you want to stake (for example, 0.015 ETH) and leave some ETH for gas fees.
• At the time of this example, gas costs about $6.31 — high for such a small stake, but fine for demonstration.

Click Stake, confirm the transaction, and wait for it to process.

Lido charges a 10% commission on staking rewards.
The current Ethereum staking yield is about 3% annually, so your effective return will be around 2.7%.

After confirmation, staking becomes active.
Your wallet will show a notification:

“The balance of this asset may change dynamically.”

This means your stETH balance will automatically increase over time as Lido’s smart contract distributes validator rewards to token holders.

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How Lido Works​

Lido collaborates with professional validators that handle block production and transaction validation.
Your deposited ETH is delegated to these validators, who earn rewards for maintaining network security.

Here’s the process:

1. You deposit ETH → receive stETH (1:1 representation of your staked ETH).
2. Validators earn rewards → the total ETH balance of the pool grows.
3. Smart contracts automatically increase stETH balances proportionally for all holders.

If validators collectively increase the pool from 1,000 ETH to 1,010 ETH, then the total stETH supply also grows from 1,000 to 1,010 — keeping the 1:1 peg consistent.

This is why your wallet balance increases daily — your share of the total pool stays constant, but the pool itself grows as validators earn new ETH.

Lido updates balances once every 24 hours, so you’ll see your stETH amount increase the next day.

All staking data and rewards are visible on the Lido dashboard, under the Rewards section.

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Step 3 — Withdrawing or Exchanging stETH​

To withdraw staked ETH:

1. Go to the Withdraw section on Lido.
2. Enter the amount you want to withdraw.
3. Submit your withdrawal request.

The process takes about 24 hours.
After that, you’ll need to make one more transaction to receive your unstaked ETH back.

Alternatively, you can use a DEX aggregator to instantly swap stETH → ETH, skipping the waiting time.
However, the rate will be slightly lower (typically 0.3–0.5% below the official rate).
This is the price of instant liquidity.

For large deposits, the difference becomes noticeable — for example, unstaking 1,000 ETH instantly might return 999.8 ETH instead of the full amount.

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Gas Fee Considerations​

Don’t stake small amounts on the Ethereum mainnet.
Gas fees can easily consume your rewards — or even exceed them.

For example:

• Staking $70 worth of ETH may cost $6–$8 in fees.
• Unstaking might later cost another $15–$20.

Ethereum gas fees fluctuate with network congestion, so staking is only practical when the rewards outweigh transaction costs.

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Step 4 — Staking on Other Networks​

The auto-increasing balance feature (stETH growing daily) works only on the Ethereum mainnet, since validator rewards are directly tracked there.

On other networks like Arbitrum, Optimism, or Polygon, this process works differently.
Instead of stETH, users hold wstETH (wrapped stETH).

What Is wstETH?​

• wstETH doesn’t increase in quantity — its value rises relative to ETH.
• It represents a fixed share of the stETH pool.
• The exchange rate is maintained by Lido Finance and adjusts dynamically.

Over time, 1 wstETH becomes worth more ETH as staking rewards accumulate.

Example:
If you buy 1 wstETH for 1 ETH today, after two months it might be worth 1.04 ETH — the staking yield is reflected in the price, not the token balance.

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How to Stake ETH on Other Networks​

You don’t need to manually bridge ETH to Arbitrum or Optimism.
Instead, you can simply buy stETH or wstETH directly on those networks.

Example:

1. Open your DEX aggregator (VirtUs Swapper, 1inch, etc.).
2. Choose ETH as the token to sell.
3. Choose stETH or wstETH as the token to buy.
4. Confirm the swap.

Gas fees on these networks are usually less than one cent, and the exchange rate is almost 1:1.

You’re not staking directly — you’re buying already staked ETH that someone else bridged.
Your tokens are fully backed by real staked ETH held by validators on Ethereum mainnet.

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Price Peg and Arbitrage​

If wstETH trades below its fair value (e.g., 0.995 ETH), arbitrage traders buy it cheaply and bridge it back to Ethereum mainnet, redeeming it for 1 ETH.
This maintains the price parity between ETH and its liquid-staked equivalents.

On Ethereum — staking yield increases your token balance.
On other networks — staking yield increases the token’s price.

Both mechanisms represent the same income — staking rewards.

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Summary​

• Lido Finance is the leading liquid staking provider for Ethereum, holding around 72% market share (≈ $33 billion or 10 million ETH).
• Other providers include Rocket Pool, Coinbase Staking, and Frax ETH — all follow the same principle:
  • Users stake ETH → Validators earn rewards → Providers distribute rewards → Users receive yield-bearing tokens.
• Lido charges around 10% of rewards as a service fee (others vary from 5–25%).
• Each staked ETH is fully backed 1:1 by real ETH locked in validator contracts.
• On the mainnet, yield appears as growing token balance (stETH).
• On other networks, yield appears as rising token price (wstETH).

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Final Takeaways​

• Staking small ETH amounts on Ethereum mainnet is not cost-effective due to high gas fees.
• For smaller deposits, it’s better to buy liquid-staked ETH (wstETH) on Layer 2 networks.
• The yield mechanism differs by network, but the principle remains identical:
  • On mainnet: balance increases over time.
  • On L2: token price increases over time.
• Arbitrage keeps the peg stable between ETH and its liquid-staked derivatives.
• Always use reputable providers (Lido, Rocket Pool, Coinbase) and verify domains before connecting your wallet.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll explore the concept of liquid staking — how it differs from regular staking, how rewards are distributed, and why you’ll frequently encounter liquid-staked assets in decentralized finance (DeFi).
The most common example is liquid-staked Ethereum (stETH), but similar tokens exist for Solana, Avalanche, ATOM, and other blockchains.

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The Problem with Regular Staking​

Let’s start with the main limitation of traditional staking — illiquidity.

Suppose you have 10 ETH and decide to stake them with a validator.
The validator uses your ETH to help secure the network and pays you around 3% per year in staking rewards.

However, while your ETH is staked:

• You cannot trade or transfer it.
• You cannot use it in any other strategy.
• To withdraw, you must wait for a lock-up period (7–30 days depending on the blockchain).

Your assets are frozen, even though they generate rewards.
That’s the key drawback of traditional staking.

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What Is Liquid Staking?​

Liquid staking solves this problem.
It allows you to keep earning staking rewards while retaining liquidity — meaning you can use your staked assets elsewhere in DeFi.

In short, liquid staking lets you earn twice:

1. From staking rewards, and
2. From using the liquid staking token in other protocols (farming, lending, swaps, etc.).

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Example: How It Works (stETH)​

Instead of staking ETH directly with a validator, you delegate it to a liquid staking provider such as Lido Finance.

Here’s what happens step by step:

1. You deposit 10 ETH to Lido.
2. Lido delegates your ETH to professional validators.
3. Validators perform standard staking duties — securing the network, validating blocks, and earning rewards.
4. Lido issues you stETH — a derivative token representing your staked ETH.

Your stETH is fully backed 1:1 by real ETH locked with validators.
You can redeem it at any time for your original ETH plus rewards.

1 stETH = 1 ETH (subject to minor market fluctuations and small provider fees).

Meanwhile, your ETH continues earning staking rewards, which are distributed automatically among stETH holders.

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Dual Benefits​

Liquid staking gives you the best of both worlds:

• You earn staking income continuously.
• You retain liquidity, enabling you to use staked assets across DeFi.

Providers typically charge a 10% service fee on staking rewards.
So if base yield is 3% annually, your net yield is about 2.7%.

This is the main difference between liquid staking and traditional staking — you receive a yield-bearing token (like stETH) that:

• Represents your staked asset,
• Automatically accumulates rewards,
• And can be used across other protocols.

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How Liquid Staking Tokens Work​

When you hold stETH in your wallet, its balance automatically increases over time.
A smart contract periodically distributes staking rewards among all token holders.

Example:

• You deposit 10 stETH.
• Annual yield is 3%.
• After one year, your wallet shows 10.3 stETH — rewards added automatically.

Each stETH is redeemable for ETH at a 1:1 exchange rate (adjusted for accrued rewards).
You can withdraw anytime — no unbonding delay like in regular staking.

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Cross-Network Use​

Liquid staking tokens are widely used across DeFi because they are:

1. Fully backed by real assets (1 stETH = 1 ETH).
2. Yield-bearing — rewards accumulate automatically.
3. Liquid — can be traded, lent, or used as collateral.

These tokens can move freely across Ethereum and Layer 2 networks like Arbitrum, Optimism, and Polygon.

Providers (like Lido) ensure that stETH remains functional and yield-bearing across these ecosystems, allowing you to:

• Provide liquidity,
• Lend or borrow,
• Participate in farming strategies, while continuing to earn staking rewards.

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How the Exchange Rate Works​

When you stake ETH via Lido, your ETH balance doesn’t grow directly — instead, your stETH value increases.

• On Ethereum mainnet: staking yield adds more tokens to your balance.
• On Layer 2 networks: yield is reflected in price appreciation —
  e.g. after 1 year at 5% yield, 1 stETH ≈ 1.05 ETH.

This lets users bridge stETH to other networks and still earn staking income — it’s simply expressed in the price, not the token count.

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Arbitrage and Peg Stability​

If stETH temporarily trades below its fair value (for example, 1 stETH = 0.995 ETH), arbitrageurs step in:

1. Buy discounted stETH.
2. Bridge it back to Ethereum.
3. Redeem it for 1 ETH at the provider rate.

This process restores the peg between stETH and ETH.
The peg remains stable through market arbitrage and provider-managed exchange rates.

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Major Liquid Staking Providers​

For Ethereum:

• Lido Finance
• Rocket Pool
• Coinbase Staking
• Frax ETH

For other blockchains:

• Marinade (Solana)
• Benqi (Avalanche)
• Stride (Cosmos/ATOM)

All operate on the same principle:
Users stake assets → validators secure the network → rewards distributed → derivative token issued.

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Risks of Liquid Staking​

Compared to regular staking, liquid staking introduces two additional risk layers:

1. Provider Risk​

Reliability of the liquid staking service.
If the provider fails or is hacked, access to staking rewards may be disrupted.

2. Derivative Risk​

Volatility of the liquid staking token (like stETH).
Although fully backed, its market price can fluctuate slightly (e.g., 0.995 ETH) due to:

• User redemptions and liquidity demand,
• Temporary withdrawal delays,
• Market panic or technical issues.

Example: During one transition period, stETH briefly depegged to 0.95 ETH.
Arbitrage traders bought it cheaply and earned a 5% profit when the peg recovered.

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Additional Risk Factors​

• Smart contract risk — vulnerabilities in provider contracts that issue and manage derivative tokens.
• Collateral risk — if used as lending collateral, a temporary price drop may trigger liquidation.
• Regulatory and market risk — external announcements can cause temporary volatility.

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Comparing Risk Levels​

Type	Control of Funds	Liquidity	Risk Level	Example
Regular Staking	You delegate directly to validators	Locked (7–30 days)	Very Low	Native ETH staking
Liquid Staking	Through provider smart contracts	Fully liquid	Moderate	stETH, rETH, cbETH

Regular staking is simpler and slightly safer.
Liquid staking offers more utility but introduces additional complexity.

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Personal Approach​

Many investors combine both:

• Use regular staking for long-term core holdings.
• Use liquid staking tokens (like stETH) for flexible DeFi strategies.

Personally, I sometimes use regular ETH as collateral instead of stETH, even though over $36 billion is locked in liquid staking.
The added risk — however small — doesn’t always justify the benefit.

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Summary​

Liquid staking allows users to:

• Earn staking rewards while retaining liquidity.
• Use yield-bearing tokens (like stETH) in DeFi protocols.
• Exit positions instantly, without unbonding delays.

However, it introduces:

• Provider risk,
• Derivative price risk, and
• Smart contract vulnerabilities.

It’s a powerful, flexible tool — but one that requires awareness and understanding.

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These materials are created for educational purposes only and do not constitute financial advice.

In this lesson, we’ll explore how consensus staking works, what kind of yields are available on major crypto assets, and walk through the staking cycle from the perspective of someone who wants to stake Ethereum (ETH) using a large staking service.

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What Is Consensus Staking?​

Imagine a person who holds some ETH and wants to earn about 7% per year — the current average staking yield for Ethereum.
He doesn’t want to run his own validator node, maintain hardware, or deal with block verification.
Instead, he wants to delegate his ETH to professional validators — participants who secure and decentralize the network.

To do that, he uses a staking service that allows users to delegate tokens to validator nodes.

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How Validation Works on Ethereum​

Every blockchain consists of nodes that store a full copy of all blocks and transactions since the network’s creation.
Bitcoin has its own nodes; Ethereum has its own; every network relies on validators to confirm transactions and create new blocks.

Anyone can theoretically run a node by installing the right software.
But in practice, running your own validator on Ethereum requires:

• Technical expertise
• Stable internet connection
• Reliable hardware
• A minimum of 32 ETH locked up as collateral

This makes self-staking expensive and complex for most users.

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How Transactions Get Validated​

When someone sends a transaction on Ethereum, it first enters the Mempool — a queue of unconfirmed transactions.
Validators monitor this pool, select transactions, build new blocks, and add them to the blockchain.

Once your transaction is included in a block, it receives its first confirmation, and after a few more confirmations, it becomes finalized.

Validators who create blocks receive two types of rewards:

1. A share of newly issued coins (block rewards)
2. A portion of transaction fees from the included transactions

Validators compete with each other — the more ETH staked, the higher their chance of being selected to produce the next block.
This is similar to Bitcoin mining, where greater computational power increases the chance of earning rewards.

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Staking Pools​

Just like mining pools, staking pools allow smaller holders to combine their funds.
By pooling assets together, they increase their collective chance of being selected to create blocks and share rewards proportionally.

This makes staking accessible for users who hold less than 32 ETH.

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Step-by-Step: How Consensus Staking Works​

Let’s break it down using Ethereum as an example.

Step 1 — Delegation​

You delegate your ETH to a validator node.
Delegation does not mean sending your funds to another person’s wallet.
Instead, it’s an on-chain smart contract process that:

• Keeps you in full control of your tokens
• Prevents validators from moving or stealing your funds

Your staked ETH stays locked in your wallet, and rewards are automatically distributed via smart contracts.

Once you delegate, the validator uses your stake’s weight to help secure the network, validate transactions, and produce blocks.

Step 2 — Reward Distribution​

The validator earns rewards, keeps a small commission, and automatically distributes staking rewards among all delegators.
This process is fully automated — you don’t need to manually claim or send anything.

This mechanism works similarly across most major blockchains, including Ethereum, Avalanche, Solana, Binance Smart Chain, Polygon, Cosmos, and Polkadot.

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Staking Yields by Network (Approximate Annual Returns)​

Asset	Average Annual Yield	Notes
Ethereum (ETH)	~7%	Most popular and stable staking option
Avalanche (AVAX)	~7–8%	Layer 1 chain similar to Ethereum
Near (NEAR)	~10%	Dynamic reward structure
Solana (SOL)	~7%	High-speed network; rewards vary
Cosmos (ATOM)	~17%	High yield, but higher risk
Polygon (MATIC)	~6%	Layer 2 scaling solution for Ethereum
Polkadot (DOT)	~15%	High return but complex unbonding rules
BNB (Binance Coin)	~6%	Earned through Binance Smart Chain validators

Yields fluctuate depending on network activity and total staked supply.
More transactions → more fees → higher rewards for validators and stakers.

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High Yield ≠ Better Investment​

A higher yield does not automatically mean a better asset.
For example, Cosmos (ATOM) offers ~17% yield, but that doesn’t make it the best staking choice.

Instead, focus on fundamentally strong assets — like Bitcoin, Ethereum, or Avalanche — and stake them if you already hold them.

Staking should be seen as a bonus yield on assets you already own, not as a speculative income strategy.

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The Golden Rule of Staking​

Stake only the assets you already hold as part of your investment strategy.

If you never planned to buy ATOM, DOT, or NEAR, don’t do it just for the yield.
High APY often reflects higher risk, whether from market volatility or protocol vulnerabilities.

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Why Staking Is a Powerful Long-Term Tool​

• It allows you to earn passive income from assets you already hold.
• It contributes to network security and decentralization.
• It offers predictable, compounding rewards over time.
• It requires minimal management once set up.

Staking is one of the safest and most consistent methods of growing your crypto holdings.
While a 7% yield on Ethereum may seem small, it’s stable and sustainable.

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Key Takeaways​

• Consensus staking = securing the blockchain + earning passive rewards.
• Delegation = on-chain process that keeps funds in your wallet.
• Validators = block producers who share rewards with delegators.
• Yields depend on network activity and total staked supply.
• Focus on assets you believe in and plan to hold long term.
• Staking = slow, consistent growth, not quick profit.

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These materials are created for educational purposes only and do not constitute financial advice.

What is staking? Broadly speaking, staking can be divided into two main categories:

1. Consensus staking — helps secure and decentralize a blockchain network.
2. Profit-oriented staking — aims to earn rewards from decentralized finance (DeFi) protocols.

Let’s look at both in detail.

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1. Consensus Staking — Securing the Network​

Consensus staking is directly related to how a blockchain operates.
It serves a similar purpose to mining — maintaining the network’s security and integrity.

For example, in the Bitcoin network, miners use powerful computing devices known as ASICs to solve complex mathematical problems. But the main purpose of mining isn’t simply to create new bitcoins — it’s to secure the network.

When you send a Bitcoin transaction, it must be confirmed by miners before being permanently added to the blockchain.
Miners compete to create the next block, include pending transactions, and receive a reward (block reward + transaction fees).

The more miners participate, the greater the total computing power, making the network more secure and decentralized.

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Transition to Staking (Proof of Stake)​

Staking is an alternative to mining, now used in most modern blockchains — for example, Ethereum.

Previously, Ethereum used mining with graphics cards, similar to Bitcoin’s Proof of Work (PoW).
Now, Ethereum operates under the Proof of Stake (PoS) algorithm, replacing mining with staking.

Instead of building mining rigs, participants lock up (stake) a certain amount of ETH in their wallets.
The more ETH you stake, the higher your chance of being selected to create the next block — and to earn both the block reward and transaction fees.

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Staking Pools​

What if you only have a small amount of coins?

That’s where staking pools come in — groups of users who combine their coins to increase their collective chance of validating blocks.
When the pool earns rewards, they are distributed proportionally to each participant’s contribution.

This makes staking accessible even to users who don’t hold large amounts.

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Rewards and Returns​

Staking is considered one of the safest forms of passive income in crypto — especially for long-term holders who want to support the network and earn consistent rewards.

For example, in Ethereum, the average annual staking yield is around 7%.
This means that 1 staked ETH will earn about 0.07 ETH per year in rewards.
Rewards are paid in the same token you stake.

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2. Profit-Oriented Staking — DeFi Rewards​

Now let’s move to the second category: staking in DeFi protocols.

As covered in earlier lessons, decentralized exchanges (DEXs) earn from transaction fees.
Some share part of their profits with users who stake the exchange’s tokens.

Here’s how it works:

• You buy the platform’s token.
• You stake it (lock it up in a smart contract).
• You earn a share of the platform’s total revenue from trading fees.

Your rewards depend on the proportion of tokens you’ve staked compared to the total tokens staked on the platform.

This form of staking has nothing to do with network security — it’s purely profit-oriented, used to generate income from protocol activity.

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Comparing the Two Types of Staking​

Type	Purpose	Example	Rewards	Risk
Consensus (Network) Staking	Secures and validates the blockchain	Ethereum, Cardano	~5–7% annually	Very low
Profit (DeFi) Staking	Generates yield from protocol revenue	Uniswap, PancakeSwap	10–200%+ APY	Moderate to high

Consensus staking is about security and stability, while profit staking is about yield and risk.

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Practical Application​

In this module, we’ll focus on consensus staking — staking that helps secure the network.
This approach offers lower returns but minimal risk, making it ideal for:

• Long-term investors
• Portfolio builders
• Users seeking predictable, steady growth

In later modules, we’ll cover DeFi staking and yield pools, which can provide higher returns — but with increased exposure to market and smart contract risks.

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These materials are created for educational purposes only and do not constitute financial advice.