Liquid staking allows users to stake ETH, receive a derivative token representing their staked position, and use that token in DeFi. This unlocks yield layering — staking rewards + DeFi yield on the same capital.

Why It’s Gaining Traction

• Capital efficiency: Staked capital remains “liquid” to participate in yield farms.
• Layered rewards: Earn staking returns while deploying derivatives in other protocols.
• Restaking: Some ecosystems allow re-staking of validator rewards for further yield.

Concerns & Considerations

Liquid staking introduces risk of slashing, smart contract bugs, and composability conflicts in DeFi. However, many believe it’s a core building block for next-gen Ethereum yield strategies.