LST in Yield Aggregators vs Native Stake in Yield Aggregators

Unlocked Liquidity: LSTs like Lido's stETH, Rocket Pool's rETH, and Frax's sfrxETH can be simultaneously deployed in DeFi (e.g., as collateral on Aave, liquidity in Curve pools, or deposited in other yield vaults). This enables leveraged yield strategies ("stake-and-borrow") that native staking cannot match.

Immediate Liquidity: Exit positions via secondary market swaps (e.g., on Uniswap) in seconds, bypassing typical unstaking cooldown periods (7-28 days on Ethereum). This reduces opportunity cost and allows rapid portfolio reallocation. LSTs are native ERC-20s, making them compatible with the entire Ethereum DeFi stack.

Direct Network Alignment: Staking natively (e.g., via Lido, Rocket Pool, or solo) contributes directly to the consensus layer's security. You capture the full staking APR (~3-5% on Ethereum) without sharing fees with LST LP providers or aggregator platforms. This is the baseline for all other yield.

Reduced Counterparty Exposure: Avoids smart contract risk associated with LST issuers and the depeg risk of the LST asset itself (e.g., stETH trading at a discount). Your stake is governed solely by the underlying blockchain's slashing conditions, not additional protocol failures.

Unlocked Liquidity: LSTs like Lido's stETH, Rocket Pool's rETH, and Frax's sfrxETH can be simultaneously staked and deployed in DeFi. This enables composability with protocols like Aave, Curve, and Convex for leveraged yield strategies. This matters for protocols seeking to maximize APY through recursive strategies or use staked assets as collateral.

Risk Transfer: The underlying node operator (e.g., Lido, Rocket Pool) bears the slashing and infrastructure risk. For the end-user or aggregator, the LST is a simple ERC-20 token, simplifying integration and risk management. This matters for teams that want exposure to staking yield without the operational overhead of running validators.

No Fee Dilution: Bypasses the ~10% operator fee taken by LST providers. Directly accrues all MEV, priority fees, and consensus rewards. This matters for large, long-term holders (e.g., DAO treasuries) where basis point optimization on billions in TVL is critical and operational complexity is acceptable.

Price Stability: Native stake is not subject to the secondary market volatility or potential de-pegs that can affect LSTs (e.g., stETH's temporary depeg during the Merge). This eliminates a layer of smart contract and market risk. This matters for risk-averse institutions or protocols where capital preservation is the primary objective over yield maximization.

Unlocked liquidity: LSTs like Lido's stETH or Rocket Pool's rETH can be used as collateral across DeFi (e.g., Aave, MakerDAO) while still earning staking yield. This enables complex strategies like leveraged staking or delta-neutral positions. This matters for protocols seeking to maximize capital efficiency.

Yield stacking: Aggregators (e.g., Yearn, Convex) can farm additional yield on LSTs through lending, LP provision, or restaking (EigenLayer). Native staking yields are typically fixed by network issuance (~3-5% on Ethereum). This matters for funds targeting absolute return, not just base security rewards.

Direct validator slashing: Bypasses smart contract and centralization risks of LST providers. Your stake is secured directly by the consensus layer (e.g., Ethereum's Beacon Chain). This matters for risk-averse institutions or protocols where asset preservation is paramount over extra yield.

No premium/discount volatility: Native staking rewards are not subject to the secondary market price fluctuations of LSTs (e.g., stETH trading at a discount during market stress). Yield is predictable and paid in the native asset. This matters for treasury management requiring stable, non-correlated returns.