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Liquid Staking Derivatives Meaning

(Also known as LSTs). These are the tokens (like stETH, rETH, or jitoSOL) that are issued by liquid staking protocols.

They are "derivatives" because their value is derived from the underlying staked asset. LSTs have become a foundational pillar of modern DeFi.

They are often used as the "primary" collateral in lending protocols like Aave. Because an LST grows in value (or amount) relative to the underlying asset, it is a "productive" form of collateral, making it much more attractive to hold than "raw" ETH or SOL.

The rise of these derivatives has led to a "Layered Yield" economy. However, it also introduces "Governance Risk." If a single liquid staking protocol (like Lido) becomes too large, it could theoretically exert too much control over the underlying blockchain, leading to concerns about centralization.

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