Liquid Staking Tokens (LSTs) Explained for Australian DeFi Users

Liquid staking tokens (LSTs) have become one of the most important DeFi primitives in the last three years. Instead of locking your ETH or SOL with a validator and waiting through an unstaking delay every time you want liquidity, you deposit the asset into a liquid staking protocol and receive a tradable token that accrues the staking yield while remaining usable across DeFi. This guide explains how LSTs work for Australian DeFi users, the major options (Lido stETH, Rocket Pool rETH, Marinade mSOL, Jito jitoSOL), the AU tax complications, and the risks.

What an LST actually is

A liquid staking token is a tokenised receipt for staked assets. When you deposit ETH into Lido, you receive stETH — a token that represents your share of the pooled staked ETH. The validator earns staking rewards in the background; the value of stETH against ETH rises slowly over time to reflect the accrued yield.

Two main LST design models exist. Rebasing tokens (like Lido’s stETH on Ethereum) keep a 1:1 nominal ratio against the underlying asset — instead of rising in value, the holder’s balance increases as rewards accrue. Reward-bearing tokens (like Rocket Pool’s rETH) maintain a fixed balance but rise in price against the underlying as rewards accumulate. Both achieve the same economic outcome with different on-chain mechanics.

Why Australians use LSTs

Three reasons. First, liquidity — staked ETH or SOL is locked, but the LST can be sold, used as collateral, or deployed in liquidity pools at any time. Second, yield-stacking — by using the LST as collateral in a lending market, holders can earn the staking yield on the underlying plus borrow against the LST and deploy the borrow elsewhere, multiplying their exposure. Third, simplicity — running your own validator or selecting a validator manually has overhead that LST protocols handle for you.

Lido stETH (Ethereum)

Lido is the dominant Ethereum liquid staking protocol, with the largest share of staked ETH. Deposit ETH, receive stETH. The token accrues yield via rebasing — your stETH balance grows daily as validator rewards arrive. Current yield is around 3% annualised. stETH is widely accepted as collateral across Aave, Morpho, MakerDAO and most major Ethereum DeFi protocols.

The Lido governance question — Lido’s share of total staked ETH has at times exceeded 30%, which has produced ongoing community debate about decentralisation. As of 2026 the position is somewhat improved but Lido remains the largest single staking entity on Ethereum by a significant margin.

Rocket Pool rETH (Ethereum)

Rocket Pool is the second-largest Ethereum liquid staking protocol and is positioned as the more decentralised alternative to Lido. Rocket Pool node operators stake their own ETH alongside delegated ETH, creating a partial alignment of interest. Deposit ETH, receive rETH — a reward-bearing token whose price rises against ETH over time.

rETH is widely accepted as DeFi collateral and is the LST of choice for Ethereum users who specifically want exposure to a more decentralised validator set. Yields are broadly comparable to stETH after fees.

Marinade mSOL (Solana)

Marinade is the largest Solana liquid staking protocol. Deposit SOL, receive mSOL — a reward-bearing token whose price rises against SOL over time. Current yield is around 6–8% annualised, reflecting the higher base yields on Solana. mSOL is accepted as collateral across most Solana DeFi (Marginfi, Drift, Kamino).

Jito jitoSOL (Solana)

Jito is a Solana liquid staking protocol that includes MEV (maximum extractable value) capture from its validators. The result is a slightly higher yield than Marinade — typically 7–9% annualised. jitoSOL is widely accepted across Solana DeFi and has been one of the fastest-growing LSTs on the chain.

Australian tax treatment of LSTs

LSTs are one of the most complex categories in Australian crypto tax. Three distinct events have to be handled. First, the wrap into the LST — on the ATO’s published position, depositing ETH into Lido for stETH is a CGT event with matching AUD values on both sides (so no immediate gain or loss, but the event must be recorded). Second, the ongoing yield — the rising balance (for rebasing LSTs) or rising price (for reward-bearing LSTs) is ordinary income at the AUD value on the day each portion accrues. Third, the unwrap or sale — selling the LST back for the underlying asset, or for any other asset, is another CGT event.

Manual reconciliation of these three events at any meaningful volume is impractical. CryptoTaxCalculator is the best Australian tool for LST handling, with explicit categorisation rules for Lido, Rocket Pool, Marinade and Jito built in.

Risks

Smart-contract risk: an LST is a token issued by a smart-contract protocol. A bug in the protocol can affect your ability to redeem the LST. Lido has been audited extensively, Rocket Pool likewise — but no smart-contract system is risk-free.

Depeg risk: the LST trades at or near the value of the underlying staked asset, but the peg is not enforced by a redemption that can happen instantly. Under stressed market conditions, LSTs have traded at meaningful discounts to the underlying. The 2022 Terra crisis saw stETH trade at a discount of several percent for an extended period.

Validator slashing risk: if the validators a protocol uses are slashed for misbehaviour, the LST holders bear part of the loss. Major LST protocols spread across many validators to reduce this risk, but it is not zero.

Verdict

Liquid staking tokens are a meaningful improvement on direct staking for active DeFi users — they preserve liquidity, allow yield-stacking, and reduce the operational overhead of validator selection. The trade-off is additional smart-contract risk, additional Australian tax complexity, and the depeg risk under stressed conditions. For Australian DeFi users, the choice is between Lido or Rocket Pool on Ethereum and Marinade or Jito on Solana. Use CryptoTaxCalculator to handle the tax reconciliation, and treat the LST as a position you manage rather than a set-and-forget allocation.

Related guides

Frequently asked questions

What is a liquid staking token?

A tokenised receipt for staked assets that accrues the staking yield while remaining tradable and usable as DeFi collateral. Holders earn staking yield without locking the underlying asset.

What are the main LSTs Australians use?

On Ethereum: Lido stETH (largest) and Rocket Pool rETH (more decentralised alternative). On Solana: Marinade mSOL and Jito jitoSOL (includes MEV capture for higher yield).

How are LSTs taxed in Australia?

Three events: the wrap (CGT event with matching values), the ongoing yield (ordinary income on accrual), and the unwrap or sale (CGT event). CryptoTaxCalculator is the best Australian tool for handling the reconciliation.

What is the difference between stETH and rETH?

stETH is a rebasing token — your balance grows as rewards accrue. rETH is a reward-bearing token — your balance stays fixed but the price rises against ETH. Same economic outcome, different on-chain mechanics.

Can LSTs depeg from the underlying asset?

Yes. The peg is not enforced by instant redemption. Under stressed conditions LSTs have traded at meaningful discounts — the 2022 Terra crisis saw stETH discount for an extended period.

Important Australian disclosure — The information in this article is general and educational only. It does not constitute personal financial product advice and should not be relied on as such. Cryptocurrency products are highly volatile and many crypto exchanges or platforms operating in Australia are not licensed by ASIC. You should consider whether crypto suits your objectives, financial situation and needs before making any decision. Tax treatment varies by individual circumstance — consult a registered tax agent or financial adviser, and refer to the official guidance at ato.gov.au and moneysmart.gov.au.