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📈 With BlackRock’s ETF filing news, in addition to Coinbase stock price increase, the governance tokens of key liquid staking protocols surge. So, what is the relationship between ETH liquid staking and ETH ETF?
For context, in 'traditional staking,' tokens are 🔒 locked up in a validator to provide economic security to the network, earning inflation rewards in return. However, this comes with a liquidity challenge: in addition to the staking period where funds are locked, there is also a long wait time for validators to exit until the funds become liquid again. In liquid staking, investors are given a liquid 'derivative' token that tracks the principal plus the rewards earned. Effectively, holding the 'derivative' token is equivalent to holding the ETH staking position but with the option to exit the position by selling the 'derivative' in the DEX pools.
Some benefits of incorporating Liquid Staking in ETH ETF:
💰Staking as a Revenue Source - Similar to to dividends in equity ETFs. Staking rewards, earned through bonding ETH to validators, can serve as a recurring income source for the ETF. (Note that ETH is deflationary after the Merge.)
🌊 Enabling Liquidity and Returns - Liquid staking meets shorter redemption periods requirements, allowing investors to earn yield while remaining liquid without the complicated process of staking/unstaking and additional wait time for funds to be fully withdrawn from the validator.