In terms of economics, risk and management, the data has always been on the side of staking, but for some time now a new financial structure seems to be gaining more traction among holders, producers and DeFi managers, which is Liquid Staking.
Due to the simplicity of the product, its versatility and the high interest rates that can be generated over the course of a year by applying specific strategies, we have moved from liquidity delegation (in many cases encouraged by not wanting to complicate things with technicalities or because it is the only real alternative) to liquidity generation with the same token.
No doubt liquid staking has forced us to redesign deeper strategies in defi, assume new risks in the management of synthetic assets and take on new structural challenges, due to the innovation that comes with the flexibility of having immediate liquidity just by depositing your digital assets. Imagine for example that you have ETH and you deposit them in a smart contract created specifically for this purpose, in return you receive a tokenized version of these ETH, you receive stETH, being now a kind of derivative or wrapped token which represents your ETH 1:1 being able to transfer, store, spend, exchange, lend or use it as collateral.
This not only allows you to be able to maximize returns, but it also minimizes the attack surface, drawing a much more controlled, efficient and horizontal scenario. Almost all major networks (SOL, ETH, DOT, ) already have this system. On the one hand the industry has willingly accepted this new defi application and on the other hand, they know that the native token of the network happens to have a significant and real discount rate (if we talk about sustainable terms in time) applicable to the total number of tokens that will be in circulation once they are all issued. In many cases between 9% and 16% of the tokens will not be in the supply/demand order book of the exchanges. Prisoners in these liquid staking programs will have to be removed from that total. If we add to this the fact that we may soon be working with technology agnostic platforms, which allow us to deposit not only the native token of their network, but also other native tokens from other networks, we may be talking about discount rates for the next 5 years much higher than 16%, which organically boosts the price of the token.
Liquidity is a vital element in the DeFi ecosystem, but until now it has been a very scarce commodity. It is our duty to take advantage of this opportunity provided by technology, because thanks to it we can build better arguments to attract professional money (eager for new markets) both to the crypto sector and to regulated vehicles that can offer institutional grade investment services, as Belobaba does, generating tangible benefits between client, entity and ecosystem.
If Staking in PoS networks is already approaching $200 billion, I fear that the liquid staking shockwave will raise that number by some 0 more, making it a perfect companion, as it encourages more participation to secure the network through staking. More investors to support proof-of-stake networks with their capital, more developers to come in to build new DeFi tools and solutions that empower users by making them more participatory.
In terms of profit margin, time and risk (which are the variables that we DeFi account managers always measure through an MVP) liquid staking wins hands down over lending and yield farming as liquid staking does not work solely on the built protocol, but works coordinated and open to other protocols, connecting high levels of liquidity and delegation, bringing more use cases and functions to these synthetic tokens across the entire Defi ecosystem.
While this innovative deposit modality has many benefits, it also carries some risks. However, through education and strategy, the risk of loss can be minimized. Once we withdraw our synthetic token we step into the ocean of opportunities. We are exposed to the implicit risks of leverage, which can lead to liquidation risk. Liquid participation protocols require collateral to back up the liquid token borrowed, thus guaranteeing that if a black swan event occurs where the market turns extremely bearish and you lose part of the synthetic tokens borrowed (you get 10 and return 5), they will be liquidated and you will only get back the proportional part of the native token deposited.
Greed, negligence and high-risk decision making are also direct causes of loss of managed capital. On the other hand, without prior research and education it is probably not profitable to try to trade and interact with numerous liquid participation protocols simultaneously, as you will lose control of the actions taken and the set annual target rate of return will not be met.
To finish the post, I want to leave you with 3 leading platforms for liquid staking in 3 different chains, which are:
https://lido.fi/ (for you to use and maximize production among other tokens, your ETH).
https://marinade.finance/ (for you to use and maximize production among other tokens, your SOL)
https://parallel.fi/ (for you to use and maximize production among other tokens, your DOT