All About Liquid Staking

Liquid staking protocols issue special tokens that represent staked SUI, yet can be swapped and contributed to liquidity pools.

All About Liquid Staking

Liquid staking protocols on Sui let DeFi users stake SUI cryptocurrency and receive a liquid stake token that can be traded or used for other DeFi activities. This process gets around the issue of locking up tokens with Validators that occurs with traditional staking. Users can secure the network through Sui's proof-of-stake mechanism without forgoing participation in the ecosystem.

When Sui Mainnet launched on May 4, 2023, SUI staked to a Validator was locked and could not be used for any other purpose. A few months later, community members filed a Sui Improvement Proposal to allow liquid staking on Sui.

A subsequent hackathon resulted in multiple liquid staking protocols, creating options for users who want to gain rewards through staking while also using their tokens for DeFi.

Liquid staking tokens

Liquid staking protocols issue their own custom tokens in exchange for staked SUI. Owners of these liquid staking tokens (LSTs) can put them into liquidity pools or engage in other DeFi activities. The owner not only gains staking rewards, they also earn any rewards offered by other DeFi activities.

For example, a user may stake 1,000 SUI through a liquid staking protocol. That protocol issues 1,000 of its own LST in return. The owner can then contribute their 1,000 LST to any liquidity pools that support it.

Aftermath Finance, a decentralized exchange (DEX) which won first place in the hackathon, offers its LST, afSUI, in exchange for users that stake through its protocol. Users can then take that afSUI and put it into liquidity pools, swap for other tokens, and lend it out.

Second and third place in the hackathon were won by Haedal and Volo, respectively. The Haedal protocol issues haSUI as its LST, while Volo offers voloSUI. 

Graph showing price differential between SUI and haSUI
haSUI, Haedal's LST, trades at a changeable rate with SUI, similar to other cryptocurrencies. 

Liquid staking protocols support their own LSTs for DeFi, of course, but other DEXes may support them as well. LSTs with the greatest volume on Sui will likely be the most desirable, with more opportunities for use. 

Swapping LSTs for other tokens on a DEX also trades away the staked SUI associated with that LST. In that sense, LSTs may become very desirable, as they represent their own utility and the equivalent amount of SUI. Unstaking SUI becomes more complex with LSTs, as the DEX that issued the LST will have a specific method for exchanging the original stake for the LSTs given in exchange.

Leveraging LSTs

Liquid staking offers DeFi users on Sui a means of increasing their rewards through leveraging staked assets. DEXes may not have liquidity pools or swap opportunities for all LSTs. Users will need to carefully assess the different LSTs and protocols to find one best suited for their goals.