Liquid Staking 101

What Is Staking?

Staking is the locking up of cryptocurrency tokens as collateral to help secure a network or smart contract, or to achieve a specific result.

Most broadly, staking is a cryptoeconomic model that incentivizes the correct behavior of network participants using penalties and rewards in order to strengthen its underlying security. It is used by a range of Web3 protocols, including proof-of-stake blockchain networks like Ethereum and individual DeFi applications. SUI also natively adopts staking as part of the protocol validation.

What Is Liquid Staking?

Liquid staking provides all of the benefits of traditional staking services while unlocking the value of staked assets for use as collateral across the SUI DeFi ecosystem.

Liquid staking providers take user deposits, stake those tokens on behalf of users, and provide them with a receipt in the form of a new token, which is redeemable for the tokens they staked (plus/minus a share of rewards and penalties). This new token can also be traded or used as collateral in DeFi protocols, thereby unlocking the liquidity of the staked assets.

Traditional Staking vs. Liquid Staking

Traditional StakingLiquid Staking

Contributes to cryptoeconomic security

Yes

Yes

Liquidity

No (locked tokens)

Yes (tokenized receipts)

Methods

Run a validator, staking as a service, pooled staking, centralized exchanges

Liquid staking as a service

Rewards

Staking rewards

Staking rewards and the opportunity to earn additional yield in DeFi

Risks

Penalties

Penalties and additional smart contract risk

Benefits of Liquid Staking

Unlocked Liquidity

Tokens staked in a network such as Ethereum are locked and cannot be traded or used as collateral. Liquid staking tokens unlock the inherent value that staked tokens hold and enable them to be traded and used as collateral in DeFi protocols.

Composability in DeFi

By representing receipts for staked assets as tokens, they can be used across the DeFi ecosystem in a wide variety of protocols, such as lending pools and prediction markets.

Reward Opportunities

Traditional staking provides users with the opportunity to receive rewards for verifying transactions. Liquid staking enables users to continue receiving these rewards while also earning additional yield across various DeFi protocols.

Outsource Infrastructure Requirements

Liquid staking providers enable anyone to share in the rewards of staking without having to maintain complex staking infrastructure. For example, even if a user doesn’t have the minimum 30 Million SUI required to be a solo validator in the SUI network, liquid staking enables them to still share in block rewards.

Boosted Yields

Liquid Staking addresses the capital inefficiency problem of (Nominated) Proof-of-stake networks, thus allowing for the earning of additional rewards on your staked SUI. This in turn enables new yield farming strategies. The main components of SUI Liquid Staking include:

  • Liquidity Mining Opportunities: By providing liquidity for pools in decentralized exchanges, liquidity mining opportunities are enabled.

  • Farming Rewards for Liquidity Providers: Liquid Staking offers several yield farming strategies, enabling users to contribute to liquidity pools and earn a share of the trading fees and governance tokens. The resultant LP tokens can then be used to generate another layer of earnings.

  • Staking Rewards on Farmed Tokens: After employing yield farming strategies, users can reinvest their farmed LP tokens into additional staking opportunities. This process is highly repeatable, as layers of rewards from farming and staking quickly accumulate.

  • Yield Aggregators/Vaults: These can automate yield farming rewards and enable compounding returns with minimal effort from users. This is an excellent strategy for maximizing your passive income.

  • Trading Opportunities: The elastic supply nature of voloSUI allows for more trading opportunities. This implies you could potentially buy voloSUI at a discounted price on a Decentralized Exchange and redeem it (unstake it) on Volo Staking to reclaim its fair value within 7–15 days (the SUI Liquid Staking unbonding period).

More Flexibility

With Liquid Staking, you have the flexibility to unstake your SUI at any time using the “unstake” option. More details in How to Stake and Unstake

No Technical Knowledge Required

Liquid Staking simplifies the staking process, making it as easy as a swap. You can exchange your SUI for the reward-bearing vSUI token without needing any technical knowledge.

Enhanced Decentralization

You can read more about how we select our validators in vSUI Contract Infrastructure

Contribute to the Security of the SUI Network

By staking with SUI Liquid Staking, you're playing a crucial role in enhancing the network’s security. Volo’s SUI staking system intelligently distributes staked tokens across the SUI ecosystem to help the network achieve optimal decentralization.

Additional Yield

To gain additional yield on your SUI stake, refer to our upcoming guide on how to earn more rewards.

Instant Liquidity

By using Volo Staking to stake SUI, you gain instant liquidity in the form of the voloSUI token. This prevents your tokens from being locked up with the SUI network — a significant advantage. It allows you to use the value of your staked tokens to earn multiple layers of rewards on DeFi platforms and multiply your ROI potential. Yield farming, arbitrage trading, lending, and more will all be possible using the value of your staked assets.

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