Definition
LSD, or Liquid Staking Derivative, is a financial token that represents a claim on underlying staked assets and their associated staking rewards. It is issued by a liquid staking protocol when assets are deposited for staking, allowing the original position to remain locked for consensus while the derivative token circulates freely. LSDs are designed to track the value of the staked position, including accrued rewards, according to the rules of the issuing protocol.
As a concept in DeFi, LSDs separate the economic exposure to staking from the operational act of running validators or locking funds directly. They function as on-chain abstractions that encode ownership, yield entitlement, and in some cases governance rights over the staked position. The specific behavior, risk profile, and reward accounting of an LSD depend on the underlying liquid staking implementation and its smart contract design.
Context and Usage
LSDs are closely related to the idea of a Liquid Staking Token, which is the concrete token form that users hold and move across DeFi protocols. Well-known liquid staking platforms such as Lido popularized LSDs by issuing tokens that mirror staked positions on major networks. In this context, LSDs serve as a bridge between staking and broader DeFi activity, enabling composability with lending, trading, and other protocols.
The emergence of restaking has extended the conceptual role of LSDs, as positions represented by these derivatives can be reused as security for additional services on frameworks like EigenLayer. This creates layered staking exposure, where a single base asset may underpin multiple forms of economic security. Across these designs, the LSD remains the core conceptual primitive that encodes the staked position and its reward stream in a liquid, transferable form.