Conference Agenda

Liquid staking allows agents to sell ownership of an illiquid claim to satisfy a liquidity need. We develop a model of liquid staking and characterize the effect of the secondary market on protocol stability. We establish that the liquid market has two effects: first, it allows agents to redeem illiquid assets and thus reduces run risk on the protocol, but also conveys information and can act as a coordination mechanism and increase market run risk. Using novel data on the Lido protocol, we present stylized facts on the staking market and relate our results to the design of digital deposits.