Traditionally, staking in Proof-of-Stake (PoS) protocol-based projects has involved locking up tokens for a long period of time in exchange for a fixed, predetermined staking reward. While this guarantees a return on investment, it also limits the opportunity to generate higher returns on those tokens from the DeFi ecosystem. For example, if you have staked all of your crypto holdings, you cannot invest or trade in more profitable crypto pairs on exchanges.

Liquid Staking Derivative is a new technology that allows you to earn staking rewards on your tokens without having to lock them up. With LSD, you can still use your tokens in DeFi protocols, such as lending and borrowing, while still earning staking rewards. This gives you the best of both worlds: you can earn a guaranteed return on your investment while also having the flexibility to use your tokens in other ways.

The Ethereum status quo can be described as including a large share of emergent two-tiered staking. By two-tiered staking, I mean here a staking model where there are two classes of participants

• Node operators, who run nodes and put up either their reputation or some fixed amount of capital of their own as collateral
• Delegators, who put up some quantity of ETH, with no minimum commitment and no strict requirement to participate in any other way beyond bringing their collateral

This emergent two-tiered staking arises through the actions of a large share of stakers who participate in staking pools which offer liquid staking tokens (LSTs), eg. Rocket Pool and Lido.

By Vitalik Protocol and staking pool changes that could improve decentralization and reduce consensus overhead