The Rise of Liquid Staking: A Market Overview

Research question and scope

This article compares traditional staking and liquid staking on capital usability and systemic risk profile, and examines the documented concentration concern liquid staking's growth has raised -- including why published market-share figures for the same provider can disagree sharply depending on how "share" is measured. It does not track any live total-value-locked or market-share figures for any specific provider in real time; dated figures cited below are snapshots, not current data.

Background and context

Proof-of-stake networks require validators to lock capital as a bond securing their validating duties; that capital is traditionally illiquid for as long as it remains staked. On Ethereum specifically, staked ETH was entirely non-withdrawable from the network's launch in December 2020 until the Shapella upgrade in April 2023 introduced withdrawals -- during that multi-year window, a liquid staking token representing a staked position was the only way to access that capital's value without physically unstaking, which is one documented reason liquid staking protocols grew large before withdrawals even existed. Liquid staking tokens (LSTs) and the newer liquid restaking tokens (LRTs) -- which represent capital restaked to secure additional protocols via EigenLayer, Babylon, or similar systems -- are now a large, actively studied segment of DeFi.

Methodology

This article draws on one academic source read directly in this pass -- the abstract of Gogol, Velner, Kraner, and Tessone's "SoK: Liquid Staking Tokens (LSTs) and Emerging Trends in Restaking" (arXiv:2404.00644, first submitted March 31, 2024, last revised December 26, 2024) -- plus dated market-share and TVL figures from secondary press coverage of Lido's own disclosures. The paper's full body text could not be extracted from its PDF in this research pass (the fetch returned raw, non-text-extractable PDF bytes), so claims below are limited to what its abstract explicitly states, not its detailed empirical findings. Separately, three different secondary sources reported three different "Lido market share" figures for overlapping periods in 2026 -- this discrepancy is itself examined below rather than treated as resolved.

Key findings

• Liquid staking's core innovation is letting staked value remain productive elsewhere in DeFi, solving traditional staking's capital-lockup limitation -- a limitation that was absolute on Ethereum specifically until the April 2023 Shapella upgrade enabled withdrawals.
• That same tradeable-token design is what creates the systemic-concentration concern — widespread use as DeFi collateral means a staking-mechanism issue could propagate across multiple connected protocols.
• Published "market share" figures for the same liquid staking provider can differ by a factor of three or more depending on whether the denominator is all staked ETH network-wide, the liquid-staking subsector specifically, ETH-denominated stake, or dollar-denominated TVL -- a genuine transparency problem in how this market's concentration gets reported, not just a rounding difference.
• The academic literature on liquid staking's concentration and slashing risk remains comparatively thin, per the systematization paper cited here, which frames the field as still early in being formally studied.

The problem liquid staking addresses

Traditional staking generally locks capital, making it unusable for other purposes while staked. Liquid staking addresses this by issuing a tradeable token representing a staked position, letting that value remain productive elsewhere in DeFi while the underlying deposit stays staked.

Why it has grown significantly

Liquid staking tokens can be used as collateral, traded, or deployed into other DeFi strategies, meaningfully increasing capital efficiency compared to staking that locks funds with no secondary use. On Ethereum, this was especially consequential before the April 2023 Shapella upgrade, when staked ETH itself had no native exit at all -- a liquid staking token was the only mechanism for accessing that value's liquidity. Liquid restaking has extended the same logic one layer further, letting a liquid staking token (or native assets) be restaked to secure additional protocols for supplementary rewards.

Systemic considerations

• Concentration of staked capital within a small number of large liquid staking providers has been raised as a genuine network-decentralization concern on some networks.
• Liquid staking tokens becoming widely used as DeFi collateral means a serious issue with the underlying staking mechanism could have effects across multiple connected protocols.
• The academic systematization cited here explicitly compares protocol mechanics -- including node-operator selection, staking-reward distribution, and slashing design -- as the dimensions along which different liquid staking protocols' risk profiles actually differ, rather than treating "liquid staking" as a single uniform risk category.

Traditional staking vs. liquid staking

Evidence and findings: three conflicting market-share figures for the same provider

Lido, the largest liquid staking provider, illustrates the measurement problem directly. Per a March 25, 2026 Lido tokenholder update (reported via a KuCoin flash summary of a ChainCatcher article), Lido's share of all staked ETH network-wide was reported at 24.12%, alongside an 18.2% year-over-year decline in total protocol revenue for 2025, attributed to APR compression and outflows toward exchange and institutional staking. A later update reportedly put that same network-wide figure at 20.8% by May 2026, and a separate September 2026 report estimated it at roughly 23%, attributing the decline to ETF issuers, corporate treasuries, and regulated custodians absorbing a growing share of new stake. Measured a different way -- as a share of the liquid-staking subsector specifically, rather than all staked ETH -- DefiLlama's category page reported Lido at 42.3% of a $53.9 billion liquid-staking total. A separate June 2026 figure, measured in ETH rather than dollars, put Lido at 8.89 million ETH out of a 14.41 million ETH liquid-staking segment -- about 61.7%. DefiLlama's own Lido protocol-level TVL figure was reported at roughly $22.86 billion on October 29, 2026, down from about $26.4 billion at the start of that month.

Independent critical analysis

The three-to-one spread between Lido's lowest reported "market share" figure (20.8%) and its highest (61.7%) is not a disagreement about underlying facts -- it is four different questions being asked under one shared headline. "Share of all staked ETH network-wide" and "share of the liquid-staking subsector specifically" are structurally different denominators: the first includes solo validators, centralized-exchange staking, and institutional custody that never touches a liquid staking token at all, while the second excludes all of that by construction and can only ever shrink as more of those alternatives enter the market. Within the liquid-staking-specific denominator, the ETH-based and dollar-based figures can also diverge if staking rewards accrue disproportionately to one provider's token relative to price movements. This matters beyond pedantry: a reader comparing a 20.8% headline against a 61.7% headline without checking which question each answers could reach opposite conclusions about whether staking concentration is rising, falling, or stable -- when in fact all four figures can be simultaneously true and mutually consistent once the denominator is specified. This is itself a documented transparency gap in how liquid staking concentration gets reported, distinct from the underlying decentralization concern the figures are meant to measure.

Limitations of this comparison

• This describes a general mechanism trade-off, not current staked-value, market-share, or concentration figures for any specific network or provider — the figures cited above are dated snapshots from 2026 reporting, not live data.
• "Systemic risk profile" describes a structural possibility documented in research and commentary, not a specific predicted event or probability.
• A specific liquid staking provider's actual decentralization and risk profile depends on its own real validator distribution and governance, not captured by this general comparison.
• The arXiv systematization paper's full body text (empirical results on node-operator selection, slashing design, and restaking risk specifically) could not be extracted from its PDF in this research pass -- claims attributed to it above are limited to its published abstract, not its detailed findings.
• The market-share and revenue figures cited in Evidence come from secondary press summaries of Lido's own disclosures, not Lido's primary report read directly, and were not cross-verified against a second independent data provider.

Implications and conclusion

Liquid staking solves a real capital-efficiency limitation of traditional staking -- a limitation that was absolute on Ethereum until withdrawals existed at all -- driving significant adoption, but its growth has also raised genuine, documented concerns about staking concentration and systemic risk across connected DeFi protocols. Evaluating any specific concentration claim requires checking which denominator a reported "market share" figure actually uses; this research pass found three materially different figures for the same provider over the same general period, each defensible on its own terms but incompatible with the others as a single number.

References

• Primary, directly read (abstract only): Gogol, Velner, Kraner, and Tessone, "SoK: Liquid Staking Tokens (LSTs) and Emerging Trends in Restaking," arXiv:2404.00644 (submitted March 31, 2024; last revised December 26, 2024), arxiv.org/abs/2404.00644.
• Secondary, directly read: KuCoin flash news, "Lido 2025 Report: Total Revenue Down 18.2%, ETH Staking Market Share at 24.12%" (published March 25, 2026), summarizing a Lido tokenholder update originally reported by ChainCatcher.
• Secondary, via search synthesis (not directly fetched): DefiLlama's Lido protocol and liquid-staking category pages (defillama.com/protocol/lido; TVL and category-share figures as reported in aggregated search results dated through October 29, 2026); a June 2026 ETH-denominated liquid-staking segment figure; a September 2026 report on institutional stake absorption.