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In Proof-of-Stake blockchains, the network is secured by assets staked with validators. These validators validate transactions and produce new blocks. Staked assets accrue rewards for supporting the network and are subject to a penalty in case of malicious activity.
Liquid staking allows users to access the underlying tokens while they're being staked. Liquid-staked assets allow users to earn staking rewards while maintaining the liquidity of their holdings. With liquid-staked assets, users can stake their assets and still retain the ability to trade or use them on other DeFi platforms. This is accomplished through tokens (Liquid Staked Derivatives) representing a user's staked position. These tokens are issued to users when they liquid-stake their assets which can be used in other DeFi protocols while still earning staking rewards.
These tokens can be redeemed for the underlying tokens plus staking rewards accrued, transferred between wallets, instantly exchanged for the underlying unstaked token or other tokens on a decentralized exchange, or used across various DeFi applications. Some examples of liquid staking protocols include pSTAKE, Lido, and Stride, each allowing users to stake their assets and receive liquid staking tokens in return.