What Is Liquid Staking? How It Works, LSTs and Risks (2026)

Last updated: 8 September 2026

Liquid staking is a way to earn staking rewards on a proof-of-stake token without locking it up. You deposit the token with a liquid staking protocol, the protocol stakes it with validators on your behalf, and you receive a liquid staking token (LST) that represents your stake and its rewards. You keep earning, but you also hold a token you can trade, lend, use as collateral or provide as liquidity. The same capital does two jobs at once.

This guide explains how liquid staking works step by step, the two kinds of liquid staking tokens you will meet, how liquid staking compares with native staking, the risks, and then how JewelSwap implements it with a dual-token model across Sui, MultiversX and Radix.

What is liquid staking?

In a proof-of-stake network, validators lock tokens to earn the right to produce blocks, and they share the rewards with the people who delegate to them. Native staking works, but it locks your tokens: on Ethereum you need 32 ETH to run a validator and your stake sits behind an exit queue, as the official Ethereum staking guide describes. On Sui, staked SUI is wrapped in a self-custodial stake object that accrues rewards epoch by epoch, per the Sui documentation. On MultiversX, undelegated EGLD sits idle for 10 days before it is withdrawable. While tokens are staked natively they cannot be used for anything else.

Liquid staking adds a layer on top. When you deposit your token with a liquid staking protocol, you receive an LST in return: a freely transferable receipt that represents your underlying stake plus its accruing rewards. The protocol handles validator selection and delegation; you keep earning validator rewards while holding a token that is usable everywhere else in DeFi.

How liquid staking works, step by step

Deposit. You send the native token (SUI, EGLD, XRD, ETH, and so on) to the liquid staking protocol.
Mint. The protocol issues you a liquid staking token that represents your deposit.
Delegate. The protocol delegates the deposited tokens to one or more validators. Good protocols spread stake across many validators to limit the impact of any single one.
Accrue. Validator rewards flow back to the protocol and are reflected in the LST, either by increasing your balance or by increasing what each LST is worth.
Use. Meanwhile you trade, lend, farm or post the LST as collateral.
Exit. You either swap the LST back to the native token on a DEX instantly, or redeem it through the protocol and wait out the network's unbonding period.

Two kinds of liquid staking tokens

Liquid staking tokens reflect rewards in one of two ways, and the difference matters for how you use them.

Rebasing tokens keep a constant exchange rate with the underlying and instead increase your token balance as rewards arrive. They are intuitive to read in a wallet but awkward in DeFi, because a changing balance breaks many lending and AMM integrations.
Value-accruing tokens keep your balance constant and let each token become worth more of the underlying over time. They integrate cleanly with DeFi, because a contract can treat them as a normal token with a rising price.

JewelSwap uses a value-accruing design, split across two tokens so that one stays pegged 1:1 for trading and collateral while the other carries the yield. That design is explained in the next section.

Native staking vs liquid staking

Liquidity. Native staking locks tokens; liquid staking gives you a transferable token.
Rewards. Both earn validator rewards. Liquid staking typically deducts a protocol fee (JewelSwap keeps 10%) and can add DeFi yield on top.
Validator selection. Natively you pick one validator; a liquid staking protocol spreads stake across a set.
Exit. Native unbonding is the only way out of a native stake. With an LST you can also sell on a DEX immediately.
Risk. Liquid staking adds smart-contract risk and the possibility that the LST trades below its backing on a DEX during stress.

That is the concept. JewelSwap's implementation takes it further with a two-token design and a liquidity mechanism that keeps its tokens deeply tradable without diluting the rewards stakers earn.

JewelSwap's dual-token model

JewelSwap uses two tokens per chain, and understanding the split is the key to understanding everything else. On each network there is a base liquid staking token and a staked, yield-bearing variant:

Sui: JWLSUI (base) and SJWLSUI (staked)
MultiversX: JWLEGLD (base) and SJWLEGLD (staked)
Radix: JWLXRD (base) and SJWLXRD (staked)

The base token — JWLSUI, JWLEGLD or JWLXRD — is a 1:1 claim on the underlying asset. One JWLSUI is always redeemable for one SUI; one JWLXRD for one XRD. It does not accrue rewards on its own. Think of it as the liquid, spendable form of your deposit: you can hold it, trade it on a DEX, or pair it in a liquidity pool.

The staked variant — SJWLSUI, SJWLEGLD or SJWLXRD — is what you get when you stake the base token inside JewelSwap. This is the yield-bearing token. It does not increase in quantity; instead it appreciates in value against the base token as validator rewards flow in. Over time, each SJWLSUI is worth progressively more JWLSUI. This reward-bearing design is explained in more depth in our overview of JewelSwap derivative tokens, and the Sui-specific mechanics are covered in our guide to JWLSUI dual-token liquid staking on Sui.

Splitting the roles this way is deliberate. The base token stays pegged and liquid so it works well in trading and lending markets, while the staked variant quietly compounds your yield. You choose which one you want to hold depending on whether your priority is liquidity or accumulation.

Extra minting and Protocol-Owned Liquidity

Here is where JewelSwap does something unusual. When you deposit the underlying asset, the protocol can mint more base tokens than you deposited: it can mint extra tokens as protocol-owned liquidity (the amount varies; the extra never goes to the user). At first glance that sounds like it breaks the 1:1 backing. It does not, and the mechanism that makes it safe is Protocol-Owned Liquidity (POL).

The extra minted tokens never enter circulation as unbacked supply. Instead, each extra derivative token is paired with an equal amount of the deposited underlying asset and placed directly into the protocol's own AMM liquidity pool — liquidity the protocol owns and does not withdraw. The remaining underlying tokens are staked with validators to generate rewards for users.

The subtle but important principle is that the tokens are backed at the point of the swap. The extra JWLSUI only ever leaves the protocol's pool when someone swaps real SUI in to buy it, so backing is restored the instant the token reaches an external holder. If redemptions ever exceed the available underlying, the protocol withdraws its own AMM liquidity and burns the excess derivative tokens; the system is designed to maintain 1:1 backing (per the docs).

The payoff is deep, permanent, protocol-owned liquidity for the JWL tokens. That means tighter pegs, lower slippage for traders, and a better experience for everyone — all without skimming rewards away from stakers. The POL model ties token creation directly to liquidity provision rather than to unbacked issuance.

Daily rewards and how value accrues

Once your deposit is staked, the underlying asset is delegated across multiple validators on the respective network. The validator rewards those delegations earn are collected and distributed daily, and each distribution nudges the SJWL-to-JWL exchange ratio upward.

Concretely, the bulk of validator rewards flows to holders of the staked variant — on Radix, for instance, 90% of rewards accrue to SJWLXRD holders while JewelSwap retains 10% as protocol fee. Because rewards raise the exchange rate rather than minting new tokens, your SJWL balance stays constant while each unit becomes redeemable for more of the base token every day. It is auto-compounding by construction: you never have to claim or restake anything.

And because the staked variant is a normal transferable token, you can move your accrued yield to another wallet, sell it, or deploy it as collateral — the yield ownership travels with the token.

Gauge governance

Where your staked tokens get delegated is not decided unilaterally by the team. JewelSwap runs a Gauge system in which stakers vote on how validator delegation is allocated across a whitelisted validator set: JWLSUI stakers on Sui, and staked JWLASH holders on MultiversX. More votes toward a given validator direct more of the protocol's stake there. Percentages are refreshed every epoch on Thursdays, and each vote can be changed every 10 days.

This keeps delegation decentralized and aligned with the people who actually bear the staking risk, and it lets the community steer the protocol toward reliable, well-performing validators. We break down exactly how voting weight and delegation work in our deep dive on the Gauge governing validator delegation.

Unbonding and the transferable claim NFT

Unwinding a position happens in two steps, and only one of them takes time.

First, converting your staked variant back to the base token — SJWLSUI to JWLSUI, say — is instant and fee-free. You simply unstake at the current exchange rate and receive the corresponding amount of base tokens immediately.

Second, redeeming the base token for the actual underlying asset triggers the network's unbonding period of 10 days, because the validators need time to release the stake. Rather than freeze your position during that window, JewelSwap issues you a transferable claim NFT — a SUI, EGLD or XRD claim NFT depending on the chain — that represents your pending redemption. When the 10 days elapse, you burn the NFT to collect your underlying tokens at the 1:1 rate.

Because the claim NFT is transferable between wallets, your unbonding position is not dead weight. You can send it or sell it to someone who wants the underlying without waiting out the full period. Note that while redemption is currently fee-free, the protocol reserves the option to apply dynamic fees during periods of unusually high redemption demand.

Instant liquidity on DEXs

If you do not want to wait 10 days at all, you usually do not have to. Because the base tokens trade on-chain, you can swap JWLSUI straight for SUI on Cetus, the leading DEX on Sui, or swap JWLXRD for XRD on Ociswap on Radix — at the market rate, instantly. The Protocol-Owned Liquidity described earlier is what keeps those pools deep and the peg tight, so exit slippage stays low even for sizable trades.

Providing liquidity to those pools is itself a second way to earn. As covered in our walkthrough of JewelSwap on Sui, you can stake JWLSUI for SJWLSUI yield, or LP the JWLSUI–SUI pair on Cetus for trading fees — a two-way mechanism designed to stack returns beyond plain staking.

A worked example

Suppose you hold 100 SUI and want to put it to work.

You deposit 100 SUI into JewelSwap and receive 100 JWLSUI. The protocol can also mint extra JWLSUI as protocol-owned liquidity (the amount varies; the extra never goes to the user), paired with an equal amount of the deposited SUI in the protocol's Cetus liquidity, while your usable position is a full 1:1 claim on your 100 SUI. You stake your JWLSUI and receive SJWLSUI at the current exchange rate — let us say the rate is 1.00, so you get roughly 100 SJWLSUI.

Over the next several months, daily validator rewards push the exchange rate up. Say it climbs from 1.00 to 1.05. Your 100 SJWLSUI is now redeemable for about 105 JWLSUI — a 5% gain earned passively, with no claiming or restaking on your part.

When you want out, you unstake instantly and fee-free, receiving ~105 JWLSUI. To get SUI back, you have two choices: swap that JWLSUI for SUI on Cetus immediately at the market rate, or redeem it directly for 105 SUI and receive a claim NFT you burn after 10 days. Either way, your original 100 SUI came back with its rewards attached.

Benefits and risks

The benefits are straightforward: your staked capital stays liquid and composable, rewards auto-compound daily through a rising exchange rate, Protocol-Owned Liquidity gives you deep exit liquidity and a tight peg, Gauge voting hands delegation control to token holders, and the transferable claim NFT means even your unbonding position has a market.

The risks are real and worth naming. Smart-contract risk applies to any DeFi protocol. Validator performance and slashing can affect rewards. The base token's market price on a DEX can briefly deviate from its 1:1 backing during volatile periods, even though redemption remains 1:1. And redemption fees, while currently absent, could be applied dynamically during heavy redemption demand. Liquid staking removes the liquidity trade-off — it does not remove market and technical risk.

Chain-by-chain notes

JewelSwap runs the same architecture on three networks, with local details that follow each chain's conventions. On Sui, JWLSUI and SJWLSUI anchor the flagship deployment, with Cetus providing the primary DEX liquidity for instant swaps. On MultiversX, JWLEGLD and SJWLEGLD bring liquid staking to EGLD; JewelSwap runs two staking models there to suit different market needs, as outlined in the MultiversX staking introduction. On Radix, JWLXRD and SJWLXRD use the same protocol-owned liquidity model, 90/10 reward split and 10-day unbonding, with Ociswap serving as the on-chain liquidity venue. The full JWLSUI specification lives in the JWLSUI liquid staking docs if you want to go deeper.

Frequently asked questions

Is JWLSUI always redeemable 1:1 for SUI?

Yes. The base token is a 1:1 claim on the underlying asset. Any extra tokens minted as protocol-owned liquidity (the amount varies; the extra never goes to the user) are paired with deposited SUI, so every circulating token is backed at the point of the swap, and the protocol burns excess supply from its own liquidity if needed; the design aims to maintain 1:1 backing (per the docs).

How do I actually earn yield?

By holding the staked variant (SJWLSUI, SJWLEGLD or SJWLXRD). Its exchange rate against the base token rises daily as validator rewards are distributed, so each unit becomes worth more over time without your balance changing.

Do I have to wait 10 days to exit?

Only if you redeem the base token directly for the underlying asset. Converting the staked variant to the base token is instant, and you can swap the base token for the underlying on a DEX like Cetus at any time — no waiting required.

What is the claim NFT for?

It represents your pending redemption during the 10-day unbonding window. It is transferable, so you can sell or send your in-progress redemption; burn it after 10 days to collect your underlying tokens.

Which chains does JewelSwap support?

Three: Sui, MultiversX and Radix. Each has its own base and staked token pair, but they share the same dual-token, POL-backed liquid staking design.

What is a liquid staking token?

A liquid staking token (LST) is the transferable receipt a liquid staking protocol issues for your deposit. It represents your staked tokens plus the rewards they earn, and can be traded, lent or used as collateral while the underlying stake keeps working.

Is liquid staking safe?

It carries the same validator risk as native staking, plus smart-contract risk and the chance that the LST trades below its backing on a DEX during volatile periods. Redemption through the protocol remains 1:1; only DEX sales are exposed to a discount.