Empirical and Theoretical Analysis of Liquid Staking Protocols
Krzysztof Gogol, Benjamin Kraner, Malte Schlosser, Tao Yan, Claudio Tessone, Burkhard Stiller
TL;DR
The paper addresses the design space and risks of liquid staking protocols (LSPs) by classifying implementations into a taxonomy of token models, validator selection, and network architecture, then empirically comparing Liquid Staking Tokens (LSTs) against native staking on Ethereum, Solana, and BNB Chain. It develops an econometric framework using OLS with HC3 and autoregressive components to analyze daily excess returns and premium persistence, revealing that LSTs largely track staking rewards with persistent deviations not explained by standard macro factors, suggesting arbitrage opportunities. Key findings include Solana and BNB Chain LSTs delivering returns comparable to native staking, while Ethereum-era LSTs exhibit peg-related fluctuations around major events; post-Shanghai, unstaking reduces depeg pressure. The study highlights LSP decentralization dynamics, MEV considerations, and the potential for DeFi compounding via LSTs, with practical implications for LSP design, risk management, and capital efficiency in PoS ecosystems.
Abstract
Liquid staking has become the largest category of decentralized finance protocols in terms of total value locked. However, few studies exist on its implementation designs or underlying risks. The liquid staking protocols allow for earning staking rewards without the disadvantage of locking the capital at the validators. Yet, they are seen by some as a threat to the Proof-of-Stake blockchain security. This paper is the first work that classifies liquid staking implementations. It analyzes the historical performance of major liquid staking tokens in comparison to the traditional staking for the largest Proof-of-Stake blockchains. Furthermore, the research investigates the impact of centralization, maximum extractable value and the migration of Ethereum from Proof-of-Work to Proof-of-Stake on the tokens' performance. Examining the tracking error of the liquid stacking providers to the staking rewards shows that they are persistent and cannot be explained by macro-variables of the currency, such as the variance or return.