Introduction

Ethereum introduced staking in December 2020, but users could not access or withdraw their staked ETH before the Shanghai/Capella upgrade on April 12, 2023. The Shanghai upgrade significantly boosted participation in staking, with Ethereum’s staking rate increasing from 15% to 28.82%. At the same time, the market share of liquid staking grew steadily, eventually surpassing centralized exchanges (CEX) to become the largest staking service provider. This reflects a strong demand for liquid staking in the market. According to DeFiLlama, as of November 4, the total value locked (TVL) in liquid staking reached $43.9 billion, making it the largest DeFi sector.

With the increasing complexity of blockchain technologies, solving the issue of cross-chain liquidity has become a priority. First, multiple PoS public chains are emerging in Layer 1, and new competitors will continue to join the market. Second, the development of Layer 2 solutions and modular blockchains are making multi-layer blockchain systems more feasible. We might even see Layer 3 and Layer 4 solutions in the future. Furthermore, major decentralized applications (dApps) such as Uniswap and dYdX are expanding into multi-chain environments, amplifying the “island effect” in blockchain ecosystems. As a result, there is a growing demand for capital liquidity and efficiency, making cross-chain interoperability a hot topic. In this context, multi-chain liquid staking has become a crucial issue.

This article explores the current development status and future trends of multi-chain liquid staking, concluding that:

• Liquid staking plays an important role in PoS public chains, and multi-chain liquid staking holds great potential and advantages but also presents challenges.
• Liquid staking is one of the most important sectors in DeFi, yet multi-chain liquidity development still faces resistance. On one hand, liquid staking outside Ethereum remains underdeveloped on PoS chains. On the other hand, current liquid staking only has limited multi-chain support. Hence, achieving true multi-chain liquid staking will be a long-term challenge.
• New drivers for multi-chain liquid staking are emerging, including re-staking, the expanding Bitcoin ecosystem, and progress in cross-chain technologies.

Overview

Layers of Staking

Staking refers to participating in the consensus mechanism by staking native cryptocurrency. After each new block is validated, validators can earn a commission proportional to the amount they have staked. During staking, the staked assets typically lack liquidity and cannot be transferred or used.

Liquid staking is the process of injecting staked assets (such as ETH) into a unified staking liquidity pool, while receiving liquid staking tokens (LST) that represent the staked assets. This method allows users to freely trade or use these tokens in decentralized finance (DeFi) applications while still earning staking rewards, enabling dual benefits.

Cross-chain liquid staking involves bridging the LST tokens from Chain A to Chain B, allowing the staked assets on Chain A to participate in DeFi applications on Chain B. In an ideal scenario, staked assets from Chain A can be freely bridged to any chain, providing users with more options and flexibility, fully releasing liquidity and enhancing cross-ecosystem DeFi opportunities.

Business Process

Liquid Staking process

The typical process for liquid staking is as follows:

Liquid staking service providers aggregate users’ staked assets to form a large enough pool to meet the minimum capital requirements for establishing a validator node on the blockchain. These deposits are used to build and maintain validator nodes responsible for participating in PoS consensus, generating blocks, distributing rewards, and managing staked assets. These validator nodes are typically set up and operated by professional node operators working with the liquid staking service providers and are available for management around the clock.

When users deposit their assets, the liquid staking protocol issues and distributes derivative tokens (LST) that represent the user’s staking amount and time. These LST tokens reflect the user’s share in the staking pool and the rewards generated over time. These liquidity tokens can be used to earn DeFi yields, traded on decentralized exchanges (DEXs), provide liquidity, or used for other financial activities. This allows users to maintain the liquidity of their assets while participating in staking.

If users wish to withdraw their funds, they can return the LST tokens to the smart contract (which will burn the tokens) in exchange for the underlying assets they originally staked, plus any rewards earned during the staking period. Liquid staking service providers charge a fee to cover node operation costs and generate a portion of the profits.

Compared to regular liquid staking, cross-chain liquid staking involves an additional step: users must bridge the LST tokens from the native chain to the target chain.

Technical Points

Technical Architecture of Staking

Liquid staking protocols are middleware composed of smart contracts, serving as crucial staking infrastructure for various PoS networks, fulfilling the needs of retail crypto users, exchanges, and custodians.

Users can stake part of their assets below the minimum threshold. After staking, users mint a standard token (e.g., ERC-20) compatible LST token, which corresponds to the amount of tokens they staked. When they un-stake, they burn the LST token to initiate the network-specific withdrawal process, which typically takes 1 to 5 days to complete.

Smart contracts package the staked assets and assign them to validators (node operators) within the network, routing the staking package to the network’s staking contract. Smart contracts protect staked funds, and validators cannot directly access the funds, which are instead managed by the DAO organization of the liquid staking protocol through multi-signature management. Additionally, the user’s staked assets are distributed across multiple validators to reduce the risks associated with single validators.

LST tokens, as standard tokens, can integrate with a wide range of dApps and services on the base chain. Cross-chain bridge protocols can convert LST tokens into a standard token on another chain, enabling participation in activities on other chain ecosystems.

There are two main types of LST tokens, offering users flexibility in staking participation and responding to market needs and investment strategies.

Rebasing Token: This type of token automatically adjusts its balance based on staking rewards or potential reductions, typically rebasing once a day. This process is automatic, requiring no action from the user. For example, when users stake 1000 ETH on Lido, they receive 1000 stETH, and after a week, based on a 3.5% annual rate, the stETH balance automatically increases to about 1000.67 stETH. The advantage of this token mechanism lies in its intuitive nature and ease of understanding.

Yield-Bearing Token: This token’s balance remains unchanged, but it becomes a token that accrues rewards over time, with the exchange rate between the staking asset and the token fluctuating as rewards accumulate. Unlike rebasing tokens, wrapped tokens change through minting, burning, or transferring, and rewards are integrated into the exchange rate. For example, after staking 1000 ETH on Stader, the user receives 989.78 ETHx, and after a week, its number remains the same, but its value rises to 1000.68 ETH. Yield-bearing tokens are not affected by rebasing and are technically easier to integrate with other blockchains, dApps, and services, making them more popular in DeFi and trading markets. As a result, Lido also supports wrapping stETH (a rebasing token) into wstETH, and users must exchange their stETH for wstETH before cross-chain usage.

Advantages and Disadvantages of Multi-Chain Liquid Staking

Advantages

Lowering Professional Barriers and Cost Optimization: By participating in liquid staking pools, users do not need to master complex technical knowledge such as infrastructure management, key generation, node verification, or security maintenance. Professional node operators are responsible for running validator nodes, which have higher cost-effectiveness and effectively reduce the risk of “slashing” penalties due to operational errors. Additionally, users can further reduce risks by diversifying investments across multiple liquid staking protocols.

Lowering Capital Barriers and Improving Asset Efficiency: Liquid staking allows ordinary users to participate in staking without meeting high capital requirements and without sacrificing the liquidity of staked assets. Moreover, users can freely trade LST tokens on secondary markets without having to wait for staking redemption, greatly enhancing the flexibility and efficiency of funds.

Increased Yield Opportunities: Through multi-chain liquid staking, users can flexibly utilize LST tokens across different protocols and applications, obtaining different yields. This means users can adjust staking strategies based on market changes and select higher-yield liquid staking pools, thereby optimizing investment returns.

Disadvantages and Potential Risks

Complexity and Additional Costs: Liquid staking usually offers lower rewards than traditional staking methods. Most protocols charge about 10% of staking rewards as fees. Users of cross-chain liquid staking need to transfer assets between native chains and target chains through cross-chain bridges. Currently, there are many cross-chain bridges, leading to relatively cumbersome operations and additional transaction fees.

Inherent Risks: Liquid staking faces common risks of direct and delegated staking, such as staking penalties, slashing, and counterparty risks. Furthermore, market fluctuations and delays in validator node entry and exit may cause liquid staking tokens to decouple from the underlying staked assets. During a liquidity squeeze in the pool, withdrawing staked assets may also face delays.

Market Risks: Liquid staking unlocks liquidity for staked assets, allowing users to earn rewards through DeFi. However, this also brings dual risks during market downturns. The high liquidity of liquid staking tokens makes them prone to malicious attacks, such as liquidation attacks, especially when used in DeFi protocols for lending or leveraged trading.

Regulatory Risks: Compared to direct staking, liquid staking carries higher regulatory risks. Since liquid staking protocols involve intermediary entities, these entities may be subject to regulations such as anti-money laundering (AML), know-your-customer (KYC), and securities laws.

Centralization Threats: The dominance of LSTs could lead to ETH being concentrated in a few staking pools, increasing centralization risks. Currently, Lido holds 27.8% of the staking market share, and such a high concentration could impact Ethereum’s security and censorship resistance. Ethereum needs more small-scale individual nodes to participate to enhance decentralization and censorship resistance.

Trust Issues: Excessive issuance of LSTs could reduce the circulation of native ETH and result in the circulation of more ETH derivatives issued by third parties. This may cause users to rely on relatively centralized tokens, undermining trust in ETH. Ethereum researchers recommend promoting the use of native ETH and avoiding excessive reliance on third-party tokens.

Development Overview

Overall Growth Situation

According to DefiLlama data, the total value locked (TVL) in liquid staking has reached $50.5 billion. The two main phases of growth in this area are:

a. The second half of 2021 to the first half of 2022, mainly driven by rising cryptocurrency prices.
b. From early 2023 to early 2024, driven by increased staking rates due to Ethereum upgrades and increased cryptocurrency asset values.

Overall, liquid staking is a cyclical industry highly dependent on the fluctuations of the cryptocurrency market, and it is also significantly affected by technological updates.

Total Value Locked in Liquid Staking (Source: defillama)

Cross-Department Comparison

In terms of both TVL and revenue, liquid staking ranks just below DEX and lending protocols in the DeFi space.

While liquid staking has a much higher total value locked (TVL) than DEX and lending protocols, its overall revenue is lower. This is due to the differences in business models. Liquid staking’s income comes from a share of staking rewards, and typically, the larger the TVL and the longer the staking period, the higher the income. In contrast, DEX income comes from trading fee shares primarily affected by total trading volume. Therefore, despite having a smaller TVL, DEXs generate higher revenue due to large trading volumes. Lending protocols also generate more diverse income, primarily from lending spreads, minting income, and various extra charges like liquidation fees and real-time liquidity service fees, which makes their income levels higher than those of liquid staking.

Source: defillama

The chart below compares the total market capitalization of DEXs, lending protocols, and liquid staking protocols in the secondary market. Liquid staking protocols have a total market cap of $2.665 billion, lower than DEXs and lending protocols. Based on revenue and market cap data, the price-to-earnings (P/E) ratios of the three are 31, 17, and 18, respectively, suggesting that liquid staking protocols may be undervalued relative to DEXs. However, it’s important to emphasize that this is just a rough estimate, and investors should conduct a detailed analysis of specific projects and more dimensions.

Source: coingecko

Differences Between Chains

Currently, the staking rate of proof-of-stake chains varies widely, ranging from 22% to 80%, depending on each chain’s economic model and monetary policy. The differences in liquid staking share are even more noticeable, with the most prominent points being:

a. Although Ethereum’s staking rate is lower than most public chains, its share of liquid staking is the highest. Whether in total value or proportion, Ethereum dominates the liquid staking space. This is likely due to Ethereum’s rich DeFi ecosystem and large, relatively mature user base, which drives higher demand for liquid staking.

b. Despite Ethereum and Solana having similar total staking values, Ethereum’s liquid staking value is seven times higher than Solana’s. This may be because Lido became one of the few channels supporting low-threshold ETH staking early on. Solana, however, offers a simpler native protocol-based staking method. This convenience may be one reason why Solana’s liquid staking is relatively underdeveloped. However, with rising popularity and increasing user demand for liquidity, Solana’s liquid staking market holds great growth potential.

Source: stakingrewards, defillama

Cross-Chain Liquid Staking

Although some liquid staking protocols support multiple blockchains, liquid staking on different chains usually operates independently, and progress in cross-chain liquid staking remains relatively slow. For example, Lido’s stETH bridged to Layer 2 accounts for only 2% of its total liquid staking assets. This could be due to the complexities involved in cross-chain operations and a lack of sufficient economic incentives for cross-chain activities.

Source: dune

Overview of Liquid Staking Projects

According to DefiLlama data, 193 liquid staking projects are based on various public chains. However, the industry remains highly concentrated. Thanks to the dominance of the Ethereum ecosystem and its early mover advantage, Lido captures more than half of the liquid staking market share. Rocket Pool and Jito are the major decentralized liquid staking protocols following Lido. Centralized exchanges like Binance and Coinbase also hold a significant share of the market. Other notable projects include Mantle, Sanctum, Marinade, Jupiter, and Stader.

Liquid Staking TVL Market Shares (Source: defillama)

The table below outlines the key features of leading liquid staking projects. Key competitive factors in liquid staking include security, liquidity, DeFi integration, partnerships, and multi-chain support. Overall, Lido leads in decentralized node operations, liquidity depth, diverse DeFi integrations, and multi-chain support. Its infrastructure tailored for institutional investors provides it with a competitive advantage in the institutional market.

Leading Projects

Unfortunately, for two primary reasons, most major projects still face limitations when it comes to multi-chain, especially cross-chain support. First, cross-chain technology involves complexity and security issues. While cross-chain technology has made some progress, its technical implementation remains challenging, particularly in ensuring asset security, transaction reliability, and seamless cross-chain communication. As a result, most projects prefer to provide stable services within a single blockchain ecosystem and cautiously assess the risks associated with cross-chain support. Second, protocol upgrades and iterations require significant strategic decisions and resource investment. Many liquid staking protocols already dominate specific ecosystems, and users are accustomed to these protocols, so development teams tend to prioritize optimizing their existing ecosystem rather than supporting other chains. Additionally, expanding to multi-chain and cross-chain requires substantial adjustments and development in technical architecture, governance models, and incentive structures. This resource-intensive work leads to longer decision-making and implementation timelines for multi-chain strategies. For instance, Lido’s main progress in multi-chain support was completed earlier this year. As cross-chain infrastructure matures and market demand for cross-chain liquid staking grows, other competitors will likely follow Lido’s lead.

Outlook and Trends

As other public chain ecosystems mature, liquid staking outside of Ethereum is expected to gradually unlock. The trend toward multi-chain development is inevitable, providing users with broader choices and greater flexibility while advancing the overall progress of the DeFi ecosystem. In this multi-chain future, liquid staking will become a core middleware that connects underlying chains and upper-layer applications, attracting more users by enhancing yield opportunities and continually creating value. Cross-chain staking is also expected to gradually become more widespread, injecting more vitality into the decentralized finance ecosystem.

In 2024, we have already seen new driving forces emerging in multi-chain liquid staking, including the rise of restaking, the booming Bitcoin ecosystem, and advances in cross-chain technology.

The Rise of Restaking

The concept of restaking emerged in May 2023 with Cosmos’ introduction of replicated security, followed by Ethereum’s integration of the restaking mechanism through EigenLayer in June 2023. Restaking allows ETH or its derivative tokens (LSTs) already staked on Ethereum to be restaked in other consensus protocols, enabling these protocols to share Ethereum’s economic security, ensuring their secure launch and operation. This shared security is seen as the “AWS moment” for Web3, as teams like EigenLayer are providing foundational support to projects aiming to build trusted distributed computing networks. By lowering the entry barriers for rewarding distributed networks, restaking protocols may bring new prosperity to the blockchain ecosystem.

The rise of restaking has further spawned liquid restaking, where restaked assets (ETH or LSTs) are issued as independent liquidity restaking tokens (LRTs). The total value locked (TVL) in restaking has rapidly grown from $1 billion in January 2024 to $17.6 billion today, with liquid restaking TVL reaching $11.9 billion. Both are quickly catching up to liquid staking.

Although liquid staking and restaking (and liquid restaking) are typically discussed separately, they share similarities in unlocking the liquidity of native staked assets. Restaking allows staked ETH to be reused across multiple protocols, providing holders with dual yield opportunities, while liquid restaking issues derivative tokens to further earn rewards from double staking. This aligns with liquid staking’s goal of expanding yield opportunities for staked assets.

As a result, we believe restaking will become a key driver for developing multi-chain liquid staking. By sharing security, a connection between the underlying network and its upper-layer networks is established, making it easier for staked assets to unlock liquidity within upper-layer ecosystems. This enhances interoperability between chains and provides more yield opportunities for staked assets.

Restaking (and liquid restaking) can reshape the current liquid staking landscape.

On the one hand, restaking (and liquid restaking) opens up new cross-chain use cases and revenue sources for existing liquid staking tokens (LSTs). For instance, the dominant liquid staking token, stETH, is supported by almost all liquid restaking protocols, and some restaking protocols accept multiple LSTs. Major restaking protocols like EigenLayer, Kelp, and Renzo support native and LST restaking. Eigenpie focuses on LST restaking and accepts 12 different LSTs, issuing 12 corresponding LRTs. Lido is also actively integrating third-party restaking or liquid restaking services to expand the use cases for stETH.

On the other hand, existing liquid staking protocols may enter the liquid restaking space and compete. For example, Swell, initially a liquid staking protocol with its token, swETH (with a market size of $400 million), has introduced restaking services and issued its liquid restaking token, rswETH. Mantle, with $1.3 billion in liquid staking tokens, has also launched its restaking services and issued its LRT for mETH restaking, including EigenLayer, Symbiotic, Karak, and related active validation services. As competition intensifies, Lido may also launch its restaking services.

In summary, restaking has introduced exciting developments, facilitating cross-chain liquidity unlocking for liquid staking tokens and injecting new energy into the development of multi-chain liquidity.

Development of the Bitcoin Ecosystem

Bitcoin’s native features do not directly support staking. However, through innovative mechanisms by projects like BounceBit, pSTAKE Finance, and Goat Network, Bitcoin has been transformed into a form that can participate in liquid staking. For example, pSTAKE Finance and Goat Network introduce wrapped Bitcoin (such as wBTC and goatBTC), enabling Bitcoin to participate in staking on other chains or protocols. BounceBit, on the other hand, leverages its dual-token system to enhance Bitcoin’s role within its platform, allowing Bitcoin to serve as collateral for validation and consensus, thereby yielding to Bitcoin holders.

The Bitcoin ecosystem has introduced a staking mechanism, allowing Bitcoin to participate in staking for rewards and contribute to network security. Projects like BounceBit and Babylon offer innovative self-custody staking solutions, enabling Bitcoin holders to enjoy secure consensus services within multi-chain ecosystems without relying on third-party custody.

With the introduction of restaking and liquid staking, the Bitcoin ecosystem offers new yield-generating opportunities for Bitcoin holders. Platforms such as Babylon and pSTAKE Finance enable users to stake Bitcoin for returns and also use liquid staking tokens (like yBTC) to participate in broader DeFi activities. This novel yield model has attracted a large number of investors, increasing market interest in Bitcoin staking and advancing the development of Bitcoin’s liquid staking.

These innovations free Bitcoin from the limitations of passive holding, allowing it to engage with a wider blockchain ecosystem through staking, thus driving the evolution of multi-chain liquid staking.

Progress in Cross-Chain Technology

One major reason for the slow development of cross-chain liquid staking is the complexity of cross-chain operations. However, cross-chain infrastructure such as Chainlink is gradually changing this situation.

Recently, major liquid staking protocols like Stader and Lido have launched direct staking functionality based on Chainlink’s Cross-Chain Interoperability Protocol (CCIP). Previously, LSTs (liquid staking tokens) could only be issued on the Ethereum mainnet, and users had difficulty staking ETH on Layer 2 networks. ETH holders on Layer 2 had to either convert ETH to LSTs through exchanges or manually stake ETH on the Ethereum mainnet before bridging it back to Layer 2, which could take up to 7 days. Now, using CCIP’s programmable token transfer, users can stake ETH directly on Layer 2 networks like Arbitrum, Base, or Optimism in a single transaction and receive the corresponding LST.

This innovation greatly simplifies the process of cross-chain liquid staking on Ethereum, enhancing cross-chain interoperability and increasing the utility of LSTs in multi-chain ecosystems. This functionality can also be expanded to any Layer 2 or alternative Layer 1 networks.

In the future, as the process of cross-chain liquid staking continues to be simplified, users will be able to enjoy the advantages of LSTs in a more cost-effective and efficient environment.

Conclusion

As blockchain technology evolves, liquid staking has become an indispensable part of the crypto ecosystem. It overcomes the limitations of traditional staking mechanisms by transforming staked assets into liquid staking tokens, unlocking liquidity for users. This enables them to continue participating in trading, lending, and cross-chain operations while enjoying staking rewards, bringing greater flexibility and potential returns. However, the development of multi-chain liquid staking still faces challenges regarding technical complexity and economic incentives. With the rise of restaking, the development of Bitcoin liquid staking, and the continued progress of cross-chain technology, these issues are expected to be gradually addressed.

The implementation of restaking allows users to further optimize staking rewards, creating new market demand. The development of Bitcoin liquid staking opens up more possibilities for traditionally conservative investors, attracting a broader user base. Meanwhile, the advancement of cross-chain technology optimizes the process of cross-chain liquid staking, reducing the costs associated with using liquid staking tokens across chains. This further accelerates the growth of multi-chain liquid staking in the ecosystem. With these driving forces, multi-chain liquid staking is advancing towards a more mature and diversified future and is expected to become a crucial pillar in the blockchain finance sector.

In the future, as technology improves and the market gradually embraces these innovations, multi-chain liquid staking will provide users with richer investment and participation options. It will offer individual investors more competitive yield opportunities and bring greater liquidity and participation to the entire blockchain ecosystem. By improving asset efficiency and lowering funding costs, liquid staking will drive the maturation of blockchain and crypto markets, bringing more innovation and possibilities to decentralized finance and cross-chain interactions, ultimately promoting the overall development of the blockchain industry.