What is LSTs and LRTs?

Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs)

Liquid Staking Tokens (LSTs) and Liquid Restaking Tokens (LRTs) are innovative DeFi financial instruments designed to increase the utility and liquidity of staked assets, each playing a unique role in enhancing staking potential. While they share similarities, they serve distinct functions within blockchain networks and contribute to the security and scalability of Bitcoin Validated Services (BVS) like SatLayer.

---

Liquid Staking Tokens (LSTs)

LSTs represent staked assets in a blockchain network, allowing holders to earn staking rewards while maintaining liquidity. When users stake tokens, they receive an equivalent amount of LSTs, which they can use across various DeFi applications, such as lending, borrowing, or trading. This mechanism enables users to benefit from staking rewards without locking up their liquidity, thereby enhancing capital efficiency.

Key Features of LSTs

• Liquidity: LSTs allow immediate access to the value of staked BTCs, enabling stakers to participate in other Defi activities.

• Flexibility: Users can engage with multiple DeFi protocols simultaneously, leveraging their staked assets across Defi applications.

• Capital Efficiency: By retaining liquidity, LSTs allow for more effective asset utilization, maximizing potential yield returns.

Liquid Restaking Tokens (LRTs) and Bitcoin Validated Services (BVS)

LRTs extend the concept of LSTs by enabling to maximize staker yields with restaking of already staked assets. In this model, users can stake their LSTs to secure additional protocols or services (like Data Availablity layers, Rollups etc.), known as Bitcoin Validated Services (BVS), which require robust decentralize needed security. By contributing to BVS, users can earn extra rewards, maximizing the earning potential of their staked assets and enhancing security across multiple BVS protocols and platforms infrastructure.

Key Features of LRTs

• Enhanced Yield: LRTs allow users to maximize their yields by restaking their LSTs, and also compounding their returns.

• DeFi Composability: LRTs can be integrated into various robust DeFi protocols, supporting complex ecosystem needed protocols such as Bridging, Swapping and Rollups etc.

• Security Contribution: By restaking, users contribute to the security and decentralization of multiple BVS protocols.

Differences Between LSTs and LRTs

While both LSTs and LRTs aim to increase the utility of staked assets, they differ in their application and underlying assets:

• Underlying Asset: LSTs are derived directly from staked native tokens, while LRTs represent restaked LSTs.

• Functionality: LSTs provide liquidity for staked assets, allowing participation in DeFi. LRTs enable further staking of these liquid assets, offering additional earning opportunities and providing security to BVS.

• Risk Profile: LRTs may carry additional risks due to their involvement in multiple staking layers and BVS protocols, each with unique slashing conditions and security requirements.

In summary, LSTs and LRTs are essential in enhancing the flexibility, earning potential, and security of staked assets within the DeFi ecosystem. By understanding their distinct functions and the role of BVS, users can make informed decisions to optimize their participation and contribution to blockchain networks, leveraging the added security and income potential that restaking provides.