stETH: What It Is, How It Works, and Why It Matters in DeFi
When you stake Ethereum, you lock up your ETH to help secure the network and earn rewards. But what if you could still use that ETH while it’s staked? That’s where stETH, a tokenized representation of staked Ethereum issued by Lido Finance. Also known as staked ETH, it lets you keep earning staking rewards while using your assets in DeFi protocols like lending, trading, or liquidity pools. Unlike locking ETH directly on Ethereum’s beacon chain, stETH gives you liquidity—something most staking solutions don’t offer.
stETH is tied directly to the value of ETH, but it grows over time as staking rewards accumulate. Every day, your stETH balance increases slightly, even if the price of ETH stays flat. This makes it different from other staking tokens that just represent a fixed amount. You can trade stETH on exchanges like Uniswap or use it as collateral on Aave or MakerDAO. That’s why it’s the most widely adopted liquid staking solution—over 20% of all ETH in circulation is now staked through Lido. But it’s not without risks. If Lido’s infrastructure fails, or if Ethereum’s staking mechanism changes drastically, stETH could temporarily lose its 1:1 peg to ETH. That’s why traders and yield farmers watch stETH-ETH spreads closely—they’re a signal of market confidence.
Related to stETH are other liquid staking tokens like rETH from Rocket Pool or wstETH from Lido’s wrapped version, but stETH remains the market leader. It’s also deeply tied to the broader Lido Finance, a decentralized protocol that manages Ethereum staking on behalf of users. Lido doesn’t hold your ETH—it uses a distributed set of node operators to validate blocks. This decentralization is why many trust it more than centralized staking services. Meanwhile, Ethereum staking, the process of validating transactions on Ethereum’s proof-of-stake network. is what makes stETH possible in the first place. Without staking, there’d be no rewards to tokenize.
What you’ll find below are real-world examples of how stETH is used—not just as a passive income tool, but as a core building block in DeFi. You’ll see how traders hedge stETH-ETH price gaps, how yield farmers compound rewards across protocols, and why some users avoid it entirely. There’s also coverage of what happens when stETH trades at a discount, how regulatory pressure might affect it, and which exchanges support it best. This isn’t theory. These are the moves people are making right now.
Understanding Liquid Staking Derivatives: How LSDs Unlock Yield Without Locking Up Your ETH
Liquid staking derivatives let you earn Ethereum staking rewards while keeping your ETH liquid. Discover how stETH, rETH, and cbETH work, their risks, top providers, and how to start earning yield on yield in DeFi.
- June 11 2025
- Terri DeLange
- 11 Comments