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Ethereum (ETH) Liquid Staking: How to Maximize Your Returns and Access Your Staked Assets

Posted on March 16, 2023

Ethereum is a multifaceted blockchain with many features. However, this article will focus on one of its most intriguing aspects: Eth Liquid Staking. This liquid staking may sound like a complicated concept, but don’t worry – we will explain it all before we’re done.

Eth Liquid Staking

Staking on the Ethereum blockchain now offers real-life yield, thanks to last year’s Eth merge. This process involves users staking 32 ETH to secure the network and earns various perks. However, the 32 ETH is locked and cannot be accessed now.

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That’s where liquid staking comes in. If you need to familiarize yourself with it, liquid staking unlocks the 32 ETH you staked using derivatives. The benefits of liquid staking are clear: it allows you to earn staking rewards while still having the flexibility to use your staked assets for other purposes. It can help you maximize your returns and exploit new investment opportunities.

Liquid Staking Derivatives

Liquid Staking Derivatives (LSD) is a term used to describe the tokens you receive when you use liquid staking. These tokens are worth what you originally staked but are more flexible and liquid.

The term “liquid” eliminates the downside of traditional staking, where your assets are locked up and cannot be accessed. With LSD, users can access their capital and use it more efficiently.

The Importance of Liquid Staking

One of the main advantages of liquid staking is rehypothecation. This word sounds like a dictionary coined, but it simply refers to using your collateral in multiple places.

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In other words, rehypothecation allows you to give up one asset as collateral to buy two or more other assets. This strategy can be extremely useful in the liquid staking protocol, where you can use ETH to get an ETH loan and then use the same ETH as collateral to stake and secure another DeFi loan.

Why Stake?

Staking yield is an important concept that all investors in the cryptocurrency world should be familiar with. If you’re not staking, you’re missing out on potential returns.

Like any protocol, those not staking are paying an implicit tax on the chain. So if you’re not contributing to the community effort to secure the chain, don’t be angry when stakers are paid for doing so.

By staking, you’re helping secure the chain and ensure it remains stable and reliable. In return, you receive staking rewards that can help you earn even more returns on your investment.

The ETH Shanghai Upgrade

The upcoming ETH staking upgrade will allow users to unstake their staked ETH on the protocol. This massive upgrade will shorten the unstaking time to just over 2 hours.

Previously, the ETH staked on the protocol was unmovable unless using the liquid staking providers we discussed earlier. Some participants are worried that the upgrade will lead to a bear scenario for the token, but there are arguments against this statement.

Some analysts suggest that the upgrade will enable full withdrawals for the protocol, even though just six validators can leave per epoch. As a result, only 1,350 validators can move their stake in a day, equating to 0.8% of ETH trading volume and easily absorbed by the market.

According to CoinMarketCap, a partial withdrawal will be able to take out 2 ETH in rewards that the validators staked. However, according to the outlet, this represents a mere 10% of ETH’s supply and will have little impact on the token.


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