In crypto, staking means locking your coins to help run a blockchain network and earn rewards. It is like keeping money in a fixed deposit, but instead of a bank, you help a blockchain.
Staking has become important for crypto investors in 2025 because it gives passive income while supporting networks like Ethereum and Solana. But today, investors also have another option– liquid staking, which makes staked assets flexible.
This blog will clearly explain staking vs liquid staking, their pros and cons, and how to decide which is better for you.
Crypto staking works on blockchains that use Proof-of-Stake (PoS). In PoS, instead of mining with machines, people lock coins (stake them) to support the network. These people are called validators. Validators confirm transactions, secure the blockchain, and in return, they get rewards; think of it as an interest.
For example, you can stake coins like Ethereum (ETH), Cardano (ADA), or Solana (SOL). If you stake 10 ETH, the blockchain rewards you with extra ETH over time.
Staking is easy to understand and use, and gets you regular rewards, making it safer than trading daily because returns are predictable. On the flip side, when you stake crypto, your coins are locked for weeks or months, and you cannot use them in DeFi (lending, borrowing, trading).
Additionally, if your validator misbehaves, you can lose part of your stake (slashing risk).
Liquid staking is a new way of staking that removes the lock-up problem. Normally, when you stake, your coins are frozen. But with liquid staking, you get a derivative token in return.
For example, if you stake ETH with Lido, you get stETH (staked ETH). You keep earning staking rewards on ETH, but you can also trade or use stETH in DeFi. This gives you both rewards and liquidity.
Popular liquid staking platforms include Lido, Rocket Pool, and Coinbase.
With liquid staking, you can earn rewards and still use your coins. Synthetic tokens issued in place of the staked tokens, like stETH, can be used in lending, borrowing, or trading. This is a very flexible option for both small and big investors.
However, liquid staking relies heavily on third-party platforms and smart contract have their own risks (if the code has bugs).
| FEATURE | TRADITIONAL STAKING | LIQUID STAKING |
| Liquidity | Locked funds | Tradeable derivative tokens |
| Risk Profile | Slashing or validator risks | Smart contract bugs or derivative coin price risks |
| Rewards | Fixed/APR-based | Similar APR but may vary |
| Accessibility | Directly through blockchain or exchange | Via third-party platforms |
| Use of Assets | Idle during lock-up | Can be used in DeFi (lending/borrowing) |
In traditional staking, users lock their crypto in a blockchain protocol to support network operations. These funds are typically inaccessible for a fixed period, known as the lock-up or bonding period, which can range from days to months, depending on the blockchain.
This lack of liquidity means users cannot trade, transfer, or use their staked assets during this period, which can be a significant drawback for those needing flexibility.
Liquid staking addresses the liquidity problem by issuing derivative tokens that represent the staked assets. These derivative tokens can be traded, sold, or used in other decentralized finance (DeFi) protocols while the original assets remain staked. This provides users with immediate liquidity.
Traditional staking carries risks primarily related to the validator or the blockchain network. If a validator misbehaves (e.g., goes offline or attempts malicious actions), the staked funds may be subject to slashing, where a portion of the stake is confiscated as a penalty.
Additionally, technical issues or network vulnerabilities could lead to losses. While these risks are generally low with reputable validators or staking pools, they are inherent to the process and require users to carefully select their staking provider.
Liquid staking introduces a different risk profile. In addition to validator-related risks like slashing, liquid staking relies on smart contracts to manage the staking process and issue derivative tokens.
These smart contracts could contain bugs or vulnerabilities, potentially leading to loss of funds. Moreover, the value of derivative tokens (e.g., stETH) may fluctuate independently of the underlying asset due to market dynamics, introducing price risk. F
In traditional staking, users earn rewards in the form of additional tokens, typically at a fixed or predictable annual percentage rate (APR). The APR depends on the blockchain protocol, network participation rates, and validator performance.
These rewards are straightforward but may be subject to variability based on network conditions, such as the total amount of staked assets.
Liquid staking offers rewards similar to traditional staking, as the underlying assets are still staked in the same blockchain network. However, the APR may vary slightly due to fees charged by the liquid staking platform or fluctuations in the value of derivative tokens.
Additionally, market-driven price changes in derivative tokens can affect the overall return, making liquid staking rewards less predictable in some cases.
Traditional staking can be done directly through the blockchain protocol (e.g., running a validator node) or via centralized exchanges like Binance, Coinbase, or Kraken, which offer staking services.
Running a validator node requires technical expertise and significant capital (e.g., 32 ETH for Ethereum 2.0), making it less accessible for retail investors. Staking through exchanges is more user-friendly but often involves trusting a third party with custody of funds, which introduces counterparty risk.
Liquid staking is typically facilitated by third-party platforms like Lido, Rocket Pool, or Ankr, which simplify the staking process. Users can stake smaller amounts without needing to run a validator node, making liquid staking more accessible to retail investors.
However, this reliance on third-party platforms introduces additional dependencies, as users must trust the platform’s infrastructure and smart contracts. These platforms often provide user-friendly interfaces, broadening participation in staking for those without technical expertise.
In traditional staking, staked assets remain idle during the lock-up period, meaning they cannot be used for other purposes, such as trading, lending, or providing liquidity in DeFi protocols. This opportunity cost can be significant, especially in fast-moving crypto markets where users might want to capitalize on other investment opportunities.
Liquid staking unlocks the potential of staked assets by allowing derivative tokens to be used in DeFi ecosystems. This enables users to earn staking rewards while simultaneously generating additional yield through DeFi activities.
The answer to this question depends on your needs:
For example, staking ETH directly locks it for months. But if you stake ETH with Lido, you get stETH, which you can trade anytime.
So, staking vs liquid staking is not about which is best; it’s about what matches your style.
ALSO READ: Understanding Crypto Staking Taxation in India
We learned that staking vs liquid staking has clear differences:
Staking = simple but locked.
Liquid staking = flexible but riskier.
Neither is always better. It depends on your goals, risk tolerance, and how active you are in crypto. Remember to always DYOR before investing.
If you are ready to begin your crypto journey, you can explore trading, investing, or even crypto SIPs on the Mudrex app.
1. What is the main difference between staking and liquid staking in crypto?
Staking locks your coins, while liquid staking gives you tradeable tokens so you can still use your funds.
2. Is liquid staking safer than traditional staking?
Not always. It solves liquidity issues but adds smart contract risks.
3. Which gives higher rewards: staking or liquid staking?
Both give similar rewards, but liquid staking may vary depending on platform fees.
4. Can I use staked tokens in DeFi?
Yes, with liquid staking. For example, stETH can be used in lending and borrowing.
5. Is liquid staking good for beginners?
Beginners may find regular staking easier. Liquid staking is better once you understand DeFi.
