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Liquid Staking: When Does It Help?

Author

Listed:
  • Sylvain Carré

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Franck Gabriel

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

Liquid staking, which allows to redeploy capital from a blockchain's staking pool into decentralized finance (DeFi), is a recent instance of a financial innovation promoted for its ``capital efficiency". But is it always desirable? We build a tractable general equilibrium setup to answer this question, where for concreteness the DeFi outlet is a lending pool. In the benchmark case without friction, liquid staking does improve upon traditional staking. But we prove that liquid staking can backfire when a friction is at play. (i) When investors are large, liquid staking exacerbates concentration issues, so that replacing traditional by liquid staking may be inefficient. (ii) When the security of the blockchain is endogenous, liquid staking can worsen security.

Suggested Citation

  • Sylvain Carré & Franck Gabriel, 2024. "Liquid Staking: When Does It Help?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04867678, HAL.
    • Handle: RePEc:hal:cesptp:hal-04867678
    Note: View the original document on HAL open archive server: https://hal.science/hal-04867678v1
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    Cited by:

    1. Hasret Ozan Sevim & Christof Ferreira Torres, 2026. "Financial Dynamics and Interconnected Risk of Liquid Restaking," Papers 2604.03274, arXiv.org.

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