What are liquid staking tokens and restaking, and what extra risks do they add?

A receipt you can move

When you stake through a pool, many pools give you a receipt token, called a liquid staking token (LST). It is an ERC-20 token that stands for your claim on staked ETH and its rewards.¹ SEC staff describe it as a receipt that shows you own the deposited coins and the rewards they earn.²

Lido is one example. Its documentation says stETH is a token that represents ether staked with Lido, minted one for one when you deposit.⁵ Naming it here is not a recommendation.

There is a catch in the word "staker". ethereum.org points out that the protocol pays the pool's validators and doesn't know your token exists. When you hold an LST, you are not a staker from the protocol's point of view.¹

Two ways to show rewards

LSTs show rewards in one of two ways.¹

• Rebasing tokens, such as Lido's stETH: your token balance grows as rewards come in, so one token stays roughly equal to one ETH.¹
• Exchange-rate tokens, such as Rocket Pool's rETH: your balance stays the same, but each token can be swapped back for more ETH over time.¹

Lido's documentation says stETH balances are normally updated once a day. The update can be negative too, if Lido's validators are slashed or penalised.⁵ Its wrapped version, wstETH, works the other way: the balance stays still and each wstETH becomes worth more stETH.⁵

Fees

The pool takes a cut. Lido's documentation says it charges a 10% fee on staking rewards, split between node operators and the Lido DAO's treasury, and that the DAO can change it by vote.⁶ It works out the rate users see as the protocol's rate × (1 − the fee).⁶

Getting out

There are two ways out of an LST.^1,7

• Redeem it with the pool for the ETH underneath. Lido runs a first-in, first-out queue and gives you an NFT that marks your place.⁸ Its documentation says you earn no rewards while you wait, but still carry the risks.⁸
• Sell it to someone else. Lido's risk disclosure warns that in stressed markets, the token may trade below the value of the ETH behind it.⁷

The extra risks

An LST carries the normal risks of staking, plus some of its own.¹

• Smart contract risk: the ETH sits in contracts that could have bugs or be exploited.^1,7
• Depegging: the token's market price can fall below the value of the ETH backing it.¹
• Governance: fees, operators and even how the token works can be changed by the pool's governance, where token holders usually have no vote.¹
• Slashing pass-through: if the pool's validators are slashed, the loss is usually shared across all token holders.¹

What happened in 2022

The FSB described one stress. It said reports indicated that holders had used stETH to boost their returns on Anchor, a protocol on the Terra blockchain.⁹ The lending platform Celsius had offered depositors high returns on stETH, with daily redemption.⁹ After TerraUSD collapsed and stETH fell against ETH, the FSB said, Celsius was forced to halt client withdrawals in June 2022.^9,10 Module 20 tells the rest of the Celsius story.

Restaking

Restaking means using ETH that is already staked to help secure other services too. In return, restakers can earn extra rewards from those services.³ ethereum.org calls the services "Actively Validated Services", or AVSs.³

ethereum.org says EigenLayer introduced the idea of restaking in 2023.³ EigenLayer's documentation describes rewards for running a service properly, and slashing, a burning or loss of funds, for failing at tasks an AVS has set.¹¹ Eigen Labs announced on 17 April 2025 that slashing was going live on EigenLayer's main network that day.¹²

The extra rewards come with extra risks.^3,13

• More ways to be slashed. Each service adds its own slashing conditions.⁴
• Chain reactions. ethereum.org warns that a restaker slashed while securing several services could weaken the security of the others.³
• Longer waits. Getting out means the normal queue plus an extra "unbonding period".³
• Your job to watch. As of October 2026, EigenLayer's documentation says stakers must keep monitoring how their chosen operators use their stake, and that slashed funds can be burned or passed to others.¹³

ethereum.org is clear that restaking is not part of Ethereum's own staking, and its extra rewards do not come from the Ethereum protocol.⁴