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Liquid Staking
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Why do we need Liquid Staking?

Liquid Staking is solving a problem

Liquid Staking solve the problem of locked up liquidity when staking assets on Proof-of-Stake networks.
Staking rewards from Proof-of-Stake networks can be one of the most stable streams of income available (in percentage terms). However typically you have to wait until the end of the staking period to realize your staking rewards. **** ****For example, if I stake 0.5 ETH on the Beacon Chain today, I lose access to that staked ETH and I won’t realize any rewards until late 2021/2022. This is because the Ethereum 2.0 Proof-of-Stake network won’t be launched until the minimum genesis threshold of 16,384 validators or 524,288 ETH (genesis/32) is reached. Until this security threshold is reached, rewards will not be issued to anyone that deposits ETH.
So in the meantime, I have no access to my stake, nor do I have any income from rewards.

Enabling Liquidity Staking

Ankr Liquid Staking as a Solution

The 0.5 ETH that I successfully staked on the Beacon Chain is immediately represented by liquid staking tokens issued directly to my StakeFi Dashboard. These liquid staking tokens are equivalent in value to my staked 0.5 ETH. However, I can now utilize liquid staking tokens in a number of ways.
For example,
  1. 1.
    I can use my AVAX liquid staking tokens - aAVAXb and AVAX to provide liquidity to aAVAXb/AVAX liquidity pools on Decentralized Exchanges (DEXs). As more people trade, I can earn a share of transaction fees (Liquidity Mining), on top of my AVAX staking rewards from aAVAXb.
  2. 2.
    By providing liquidity, I also often have the possibility to receive farming rewards on top of Liquidity Pool tokens, representing my share of a liquidity pool on a DEX.
  3. 3.
    I can harvest the farmed tokens and stake those tokens to earn more yield, or simply sell them to buy more AVAX and aAVAXb to generate more yield. Repeating this operation periodically will add a compounding effect on my yield.
**NOTE: **
There are two types of liquid staking tokens:
  1. 1.
    Reward bearing tokens (e.g. aETHc, formerly known as aETH or ankrETH)
  2. 2.
    Reward earning tokens (e.g. aAVAXb or aETHb, formerly known as fETH)

What is Liquid Staking?

Liquid Staking tokens are automatically issued to your StakeFi Dashboard when you successfully stake ETH in the form of aETHb and aETHc and AVAX in the form of aAVAXb. Liquid Staking is tokenized staked tokens with an equivalent in value to the staked tokens, including its staking rewards.

Liquid Staking is not only about providing liquidity

When tokenizing staked ETH, the main benefit is liquidity as it is not possible to unstake ETH for the moment until phase 1.5 of Ethereum 2.0.
For other native tokens from other Blockchains such as Avalanche, there are other benefits in using liquid staking from tokens from blockchains allowing unstaking, is the Elastic Supply of Liquid Staking tokens.
elastic supply tokens work in such a way that the circulating supply expands or contracts to offset changes in a token's price via rebasing. In the context of Avalanche liquid staking for example, when a user stakes in Ankr StakeFi, the circulating supply of aAVAXb increases. When a user wants to unstake Avalanche tokens in Ankr StakeFi, returning aAVAXb to Ankr StakeFi is required. aAVAXb will be burnt and AVAX will be returned to the user.
The Elastic supply feature of liquid staking has an important impact on the price staking of liquid staking tokens. With ETH liquid staking, the main factor of price stability is the amount of liquid in DEXs. With AVAX liquid staking, the price stability becomes less dependent on the amount of liquidity on a DEX because any price deviation of aAVAXb create a trading opportunity for other users that might want to buy aAVAXb at a discount, and return aAVAXb to Ankr StakeFi (unstake) to claim the aAVAXb fair value, realizing a gain after waiting the unstaking lock-up period, which is up to 28 days for aAVAXb.
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Last modified 5d ago