Introduction
Staking has become a popular way for cryptocurrency holders to earn passive income by locking up their coins. However, there may come a time when they need access to their staked coins without waiting for the lock-up period to end. In such cases, a particular token comes into play. Let’s explore what this token is and how it works.
What is the Term?
The term for a token that enables the trading of staked coins by liquidating them is called a ‘staking derivative’ or ‘staking liquidity token.’ These tokens represent a claim on the staked coins’ value and can be used to move the locked assets in and out of the staking process.
How Does it Work?
When a user stakes their coins, they receive staking derivatives in return. These tokens can then be traded on various platforms, allowing users to sell or transfer their staked coins without waiting for the staking period to end. Once the staked coins are liquidated, the staking derivatives are burned, and the staked coins are released.
Examples
One popular example of a staking derivative is the ‘LQTY’ token, which is used in the Liquity protocol to provide liquidity for staked LUSD stablecoins. Another example is the ‘rToken’ in the Rari Capital platform, which represents a claim on the underlying staked assets.
Case Studies
In a hypothetical case study, let’s say Alice has staked her ETH for a year but needs access to some of her funds urgently. By minting staking derivatives, she can sell them on a decentralized exchange and retrieve her ETH without waiting for the staking period to end.
Statistics
According to recent data, the use of staking derivatives has been on the rise, with more users opting for this method to access their staked assets easily. As the DeFi space continues to evolve, we can expect to see even more innovations in staking derivatives and liquidity tokens.
