A Guide to Understanding BNB Liquid Staking
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A Guide to Understanding BNB Liquid Staking
Liquid staking offers the same benefits as staking, but with fewer drawbacks.
Navigating Web3 tides with focused insights
Staking is a way to generate passive income from assets while supporting the security and availability of blockchain networks. Liquid staking offers the same benefits as traditional staking, but with fewer drawbacks.
How does it work?
Staking allows idle cryptocurrency to earn yield, but it also restricts your funds in the process. Fortunately, liquid staking gives us the opportunity to stake while receiving liquid tokens that generate yield in return. This works by having protocols mint on-chain representations of staked assets, enabling you to utilize your staked assets while still earning returns from them.
Liquid staking can be a profitable technique to put unused crypto assets to work and generate passive income. As such, it appeals to investors from various backgrounds.
According to Blockdaemon, “$7.5B worth of Ethereum is staked across liquid staking protocols. This equates to 20% of the total Eth2 staked Ether supply.”
Clearly, liquid staking isn’t going away. Since it serves as the mechanism for validating transactions on proof-of-stake networks, it will remain a core component in securing blockchains.
Does this defeat the purpose of staking?
Not entirely. The original assets are still staked on the blockchain, which strengthens network security and infrastructure. It’s important to remember that just because you receive liquid tokens as a reward for staking doesn’t mean you can unstake at any time.
We can think of liquid tokens as receipts that can be unstaked. For example, suppose you stake BNB on Ankr and receive aBNBb. If you want to unstake these tokens, you’ll need an equivalent amount of liquid staked tokens to initiate the unbonding period and exchange them back for your original assets (+ staking rewards). On the other hand, if you choose to invest these tokens into liquidity pools and ultimately lose them, you won’t be able to unstake until you regain the aBNBb through other means (e.g., purchasing them on a DEX).
Risks
The primary risk of liquid staking is that tokens may become depegged. As we’ve seen with stETH, liquid staking is not without risks. While generally stable, there’s always some risk of depegging and token depreciation. This stems from the fact that many liquid staking tokens operate via elastic supply or base adjustments.
Conclusion
In summary, liquid staking is an innovative DeFi technology built upon the success of proof-of-stake as a consensus mechanism. It secures PoS blockchains by returning leverage on staked assets to investors. Although some argue that liquidating non-liquid staked assets defeats the purpose of staking, this is a myth. While the minted liquid derivative tokens hold value equivalent to the staked assets, the original assets remain locked within the network until the unbonding period is triggered.
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