Why use Liquid Staking Derivatives?

The benefit of using liquid staking derivatives like Lido or Rocket Pool is to earn yield on your ETH without having to worry about lock up time. This is because you receive a token that represents the underlying ETH and any staking rewards it has earned. With this token (e.g Lido Staked Ether (STETH) you can earn extra yield by depositing it into a money-market like AAVE, or borrowing collateral against it.

Liquid Staking Derivatives AAVE

What Ethereum Liquid Staking Derivatives are there?

The main three liquid staking derivatives (LSDs) available on the Ethereum mainnet are stETH by Lido, rETH by RocketPool, and SETH2 by Stakewise. stETH has the largest market share and the most liquidity, but there are concerns about centralization and censorship with the Lido DAO.

rETH is considered the most decentralized LSD and lets stakers source outside capital to run validator nodes with as little as 16 ETH instead of the usual 32. SETH2 is a smaller competitor that pays out rewards in a separate token to keep its peg close to 1:1.

While these three are the main options, Coinbase’s cbETH and FRAX’s sfrxETH are also available on the market. You can find the complete list of liquid staking derivatives on Defillama.

Defillama Liquid Staking Rankings

Are there Liquid Staking Derivatives on other Chains?

Yes, there are Liquid Staking Derivatives (LSDs) on other chains besides Ethereum. For example, Solana has a Liquid Staking Derivative called "stSOL," and Avalanche has an LSD called (sAVAX). Most proof-of-stake Layer 1, Layer 2 and even app-chain tokens will eventually have their own liquid staking derivative as liquidity continues to grow on-chain.

What is the Best Liquid Staking Derivative?

There is no single "best" liquid staking derivative on Ethereum, as each has its own unique features and drawbacks.

stETH has the largest market share and the most liquidity, while rETH is considered the most decentralized and lets stakers source outside capital to run validator nodes. cbETH is a newer entrant to the market but brings a centralized counterparty option while still retaining the key benefits of LSDs in DeFi.

If you are looking for the highest and safest yields (9% APY), we recommend checking out frxETH but be mindful that Frax Finance is a relatively new protocol. Ultimately, the best LSD for a particular user will depend on their individual needs, risk tolerance and preferences.


Final Thoughts

Liquid Staking Derivatives (LSDs) are an important part of the DeFi space, allowing users to earn yield on their ETH, SOL, AVAX and other PoS tokens without having to lock it up for long periods of time.  Each LSD has its own set of features that make it attractive to different types of users and risk profiles, so be sure to do your research before you decide which one is right for you.  There are also several other chains with their own LSDs, such as Solana and Avalanche, so make sure to check those out too.