A liquid staking token (LST) is a receipt for staked ETH. You deposit ETH into a protocol like Lido and receive stETH (or rETH via Rocket Pool, cbETH via Coinbase) that accrues staking rewards while staying tradeable.
Normally, 1 stETH ≈ 1 ETH on the open market. An LST depeg is when that ratio breaks down and the LST trades at a discount.
Why LSTs exist
Native ETH staking locks your coins with an unbonding period. LSTs let you stay liquid — trade, lend, or use the token in DeFi — while still earning staking yield. The LST’s value should track ETH plus accumulated rewards over time.
What causes a depeg
| Driver | What happens |
|---|---|
| Panic selling | Holders rush to exit into plain ETH; LST supply floods DEX pools |
| Withdrawal delays | Can’t redeem stETH for ETH instantly → discount appears on secondary markets |
| Protocol fear | Concerns about the staking operator, slashing, or smart contract risk |
| Leverage unwinds | Borrowers liquidated, collateral dumped, discount widens |
The March 2023 banking crisis is the textbook example: stETH briefly traded meaningfully below ETH as leveraged positions unwound.
Who gets hurt
- Holders selling at the bottom — crystallise a loss vs. holding through recovery.
- Borrowers using LST as collateral — a depeg triggers liquidations even if ETH’s “real” price is stable.
- Liquidity pools pairing LST/ETH — impermanent loss accelerates.
Arbitrageurs eventually buy discounted LST if they trust redemption at par — that pressure helps restore the peg. During chaos, that process is slow.
Treat LSTs as ETH-like, not identical. If you borrow against stETH or park life savings in a discounted LST hoping for recovery, understand you are taking correlation and liquidity risk on top of normal staking risk.