With the surge in the popularity of crypto over the years, the market is not left behind in terms of its growth. With this comes new investment opportunities. One such opportunity is liquid staking derivative tokens. The ability to locate the best liquid staking crypto platform can increase your income from staked assets.
We explore the top four liquid derivative tokens that investors should watch.
What are Liquid Staking Derivative Tokens?
Liquid staking is one of the most popular ways to generate passive income using crypto assets. The investment strategy allows users to stake their crypto coins without any lockup periods. It also paves the way for an alternative to reinvesting in staked coins in other DeFi systems.
In essence, liquid staking allows users to trade their staked assets on the open market value while still receiving staking rewards. Liquid staking derivative tokens take this further by representing a claim to the staked assets.
Liquid staking derivatives allow staked assets to be unlocked and traded as derivatives, such as futures and options, while still earning staking rewards. As such, investors can benefit from the rewards of staking and access to liquidity for their assets.
Overall, liquid staking derivatives provide a solution to the illiquidity problem. As such, users can earn staking rewards while retaining access to their staked tokens. Additionally, with liquid staking derivatives, users can easily deposit their tokens with a provider who handles the staking process on their behalf. As a result, users save a lot of time and effort while reducing the barriers to entry for staking participation.
Top Four Liquid Staking Derivative Tokens
1. LIDO
LIDO has been the leading crypto staking platform by market cap and total locked volume since its launch in December 2020. The liquid staking solution helps investors on the Ethereum Solana, Terra, Polkadot, Polygon, and Kusama blockchains to benefit from their staked assets. LIDO enables users to stake their ETH and receive a liquid representation of the staked assets in stETH. stETH is an ERC-20 token representing a claim to the staked ETH and can be freely traded on the open market.
LIDO continues to grow significantly, with its market capitalization at $1.76 billion. The growth can be attributed to increased demand for staking solutions from when Ethereum transitioned to a PoS consensus mechanism.
Stakers earn approximately 5% per year with LIDO. Additionally, users who deposit and receive stETH can choose to put their tokens to work in DeFi to earn additional yield. The most notable advantage of LIDO is its lucrative annual percentage yield. On average, staking coins in the platform has the potential of generating over 10.40% APY, paid daily.
2. Rocket Pool
Rocket Pool has a lower TVL and is smaller than LIDO but mainly set on decentralization. Like LIDO, the platform offers mini pools, where stakers require only 16 ETH to become a node operator compared to the usual 32. The lower barrier to entry means that stakers have easier access to the full benefits of ETH staking.
Additionally, Rocket Pool only offers to stake on the Ethereum blockchain. However, the platform lowers the staking requirements while offering better rewards and benefits. Unlike other liquid staking solutions, the platform gives users two staking alternatives, offering only one way of staking digital assets.
The first option is ordinary staking, which allows investors to stake a direct deposit of at least 0.01 ETH. On the other hand, the option of running validator nodes is normally done with a minimum deposit of 32 ETH. Rocket Pool paves the way for a better deal of just 16 ETH.
It is important to note, however, one downside of Rocket Pool is that one must hold 1.6 ETH of RPL, which has an unlimited supply.
3. Frax Finance
Before the Shanghai upgrade, Frax Finance had been accruing quite a following. The Frax ecosystem has two major tokens, FRAX, a stablecoin pegged to the US dollar, and FXS, their governance token.
The process of liquid staking on Frax works differently than on other sites. At first, the protocol requires users to stake their assets, which converts to FraxETH (frxETH). frxETH is an Ethereum-backed stablecoin.
Staking with Frax Finance rewards users 6-10% on staked ETH per year. Additionally, stakers can earn an additional 10% yield by providing liquidity in CRV (Curve Finance), with the frxETH they receive in exchange for staking their ETH. When rewards are issued in a different token, the FXS total supply does not inflate, which may cause a price drop.
4. StakeWise
StakeWise is a relatively new player in the liquid staking derivative token market, having launched in 2021. Stakers can deposit any amount of ETH into the StakeWise pool and receive staked ETH tokens (stEth) in return. The tokens are a representation of a claim to the staked ETH and can be freely traded on the open market. This allows users to access the liquidity of their staked assets while still earning staking rewards.
The uniqueness of the platform is that it offers a two-tier staking system. As such, users can choose to stake their ETH directly with StakeWise or delegate their ETH to a validator and receive stETH tokens in return.
Stakers can deposit any amount of ETH with StakeWise, as there is no minimum amount.
Final Thoughts
In Liquid staking, every platform offers different staking options, rewards, and benefits that investors should consider before making investment decisions. As such, conducting thorough research and understanding the risks before investing in any cryptocurrency becomes essential.
Ultimately, liquid staking derivatives tokens have the potential to generate passive income for investors. With the continued growth of the crypto market, it is worth keeping an eye on these emerging investment opportunities.