Liquid staking and restaking explained
Staked ETH you can still use, and the extra layers of risk that come with it.
Liquid staking lets you stake ETH through a protocol such as Lido and receive a token (stETH) that earns staking rewards and can still be traded or used in DeFi. Restaking, led by EigenLayer, reuses staked ETH to secure other services for extra rewards, but those services can slash your stake. Each layer adds yield and adds risks: contract bugs, depegs, withdrawal queues and slashing.
The problem liquid staking solves
Staking ETH directly means locking 32 ETH in a validator, running it reliably, and waiting in a queue to withdraw. Liquid staking protocols pool deposits of any size, run validators through professional operators, and give you a token representing your share. That token earns the staking rewards and can be traded, lent or used as collateral while the ETH stays staked.
How liquid staking tokens work: Lido's stETH
Lido is the largest example. Deposit ETH and you receive stETH at 1:1. About once a day an oracle reports the validators' balances, and every stETH balance is adjusted ("rebased") to include the rewards: your stETH count simply goes up. It can also go down if validators are penalized.
Many DeFi apps can't handle balances that change by themselves, so Lido also offers wstETH, a wrapped version whose count stays fixed while each token becomes worth more stETH over time. Other liquid staking tokens, such as Rocket Pool's rETH and Coinbase's cbETH, use this value-accrual design from the start.
Getting ETH back. You can sell stETH on an exchange at the market price, or request a withdrawal from Lido: you submit stETH, receive an NFT representing your place in a first-in, first-out queue, and claim ETH once the request is processed. Lido's own documentation says redemption normally happens at 1:1 but that this isn't guaranteed in every case.
When "1 stETH = 1 ETH" breaks
On the open market, stETH trades at whatever buyers pay. In May and June 2022, after the Terra collapse, large holders including the lender Celsius and the fund Three Arrows Capital pulled liquidity and sold stETH while withdrawals from Ethereum staking weren't yet possible. stETH traded several percent below ETH for weeks, and borrowers who had used it as collateral for ETH loans were liquidated. Ethereum enabled staking withdrawals in April 2023 (Lido's withdrawal queue opened in May 2023), which makes a lasting gap less likely, but in a panic the queue can be long and the market price can still dip.
Restaking and EigenLayer
Restaking reuses staked ETH (or liquid staking tokens) to secure other services as well, in return for extra rewards. EigenLayer, launched in 2023 and now part of the EigenCloud platform, is the main example. Restakers delegate to operators, who run software for "actively validated services" (AVSs) such as data-availability layers, oracles and bridges. Those services pay rewards, and since April 17, 2025, when slashing went live on Ethereum mainnet, they can also slash (confiscate) part of a restaker's stake if their operator misbehaves.
Liquid restaking tokens (LRTs) wrap this up again: you deposit ETH or stETH, the protocol restakes it, and you get a token such as rsETH or ezETH. Each layer adds a new contract, a new team and a new set of rules.
The stacked risks
| Layer | What can go wrong |
|---|---|
| Ethereum staking | Validator penalties and slashing; ETH's own price |
| Liquid staking token | Contract bugs, operator failures, trading below ETH, withdrawal queues, concentration of validators in one protocol |
| Restaking | Slashing by services you may not have looked at; complex, newer contracts |
| Liquid restaking token | Thin markets and depegs; bridge and contract hacks (in April 2026 an exploit involving the rsETH token left lending protocol Aave with an estimated $124–230 million of bad debt) |
| DeFi on top | Using any of these as loan collateral adds liquidation risk if it trades below ETH |
Each layer adds yield and adds a way to lose money. Extra percentage points of reward are payment for those risks, not free money. Rewards are taxable income in the US when received. See staking and yield and the staking calculator.
Related reading: How to stake Ethereum (ETH): the four ways and their risks · Bridges and interoperability: how they work and why they get hacked · Smart contract exploits and bridge hacks
Frequently asked questions
What is liquid staking?
Staking through a protocol that gives you a tradable token, such as stETH, representing your staked ETH plus rewards, so you can use or sell it while the ETH stays staked.
What is the difference between stETH and wstETH?
stETH's balance increases daily as rewards are added (it rebases). wstETH is a wrapped version with a fixed balance whose value in stETH rises instead, which works better in many DeFi apps.
Is stETH always worth 1 ETH?
No. On the market it trades at whatever buyers will pay, and it fell several percent below ETH for weeks in mid-2022. Redemption through Lido normally gives 1:1 but isn't guaranteed in every case.
What is restaking?
Reusing staked ETH to secure additional services, such as those on EigenLayer, for extra rewards, with the added risk that those services can slash part of your stake.
Is restaking risky?
Yes. It stacks slashing, smart-contract, liquidity and depeg risks on top of ordinary staking, and liquid restaking tokens have been involved in large exploits.
Where to next
Sources
- Lido tokens integration guide: stETH, wstETH and withdrawals (Lido docs)
- Staking (ethereum.org)
- EigenLayer activates mainnet slashing on April 17 (The Defiant)
- Intro to slashing on EigenLayer (EigenCloud blog)
- On-chain forensics: demystifying the stETH depeg (Nansen)
- The KelpDAO/LayerZero exploit and DeFi (Galaxy Research, April 2026)
Written for beginners and checked against the sources listed. Last reviewed November 5, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.