Liquid staking: how LSTs freed the collateral and what they took in return

Classic staking freezes the asset: the coins work in a validator and are unavailable. Liquid staking (LST) broke that trade-off: deposit ETH - receive stETH (or an analog) that accrues the staking yield while remaining tradable, pledgeable, and usable in DeFi.

Mechanics

The protocol collects users' ETH, distributes it across validators, and issues a receipt token in return. The yield arrives via rebase (the balance grows) or via the receipt's exchange rate rising against the base asset. Exit - through the protocol's queue or instantly through a market pool (with a possible discount).

Three specific risks

• The receipt's depeg. An LST is not the asset itself: under stress the market price deviates from "fair" (the historical precedent - stETH's discount in 2022 amid Celsius/3AC). If your LST is pledged as collateral, a depeg can liquidate the position while the base asset is fine.
• Slashing and operators: mistakes by the protocol's validators cut your yield/principal too.
• Centralization: one LST provider's dominance is a network-level systemic risk and governance's eternal argument.

The LST is one of DeFi's most useful primitives, but it is a derivative with a counterparty layer, not "the same ETH". The topic continues with restaking, which added one more layer on top.