A Wrapped Staked Token (WST) is a derivative token that represents a staked asset, enabling its use in decentralized finance (DeFi) applications while the underlying asset remains locked and earning staking rewards. It solves the core problem of capital inefficiency in proof-of-stake (PoS) networks by unlocking the liquidity of otherwise illiquid staked assets. For example, a user who stakes their Ethereum to become a validator receives a token like Lido's stETH (staked ETH), which is a form of WST. This token can then be used as collateral for lending, liquidity provision, or trading, all while the original ETH continues to secure the network and accrue staking yields.
LABS
Glossary
Wrapped Staked Token
A Wrapped Staked Token (WST) is a tokenized derivative that represents a liquid staking token, enabling its use across DeFi protocols and blockchain networks.
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definition
DEFINITION
What is a Wrapped Staked Token?
A Wrapped Staked Token (WST) is a derivative token that represents a staked asset, enabling its use in decentralized finance (DeFi) applications while the underlying asset remains locked and earning staking rewards.
The creation of a WST typically involves a custodial or non-custodial staking service. In a custodial model, users deposit their assets with a protocol like Lido or Rocket Pool, which stakes them collectively and mints a corresponding WST. In non-custodial systems, users may interact directly with smart contracts. The WST's value is pegged to the underlying staked asset and automatically accrues value through rebasing—where the token balance increases—or through a rising exchange rate against the base asset, reflecting the accumulated staking rewards. This mechanism ensures the WST holder benefits from the underlying staking yield without needing to manually claim rewards.
Wrapped Staked Tokens are fundamental to DeFi composability, acting as a key primitive in money legos. They allow stakers to participate in yield-bearing activities on multiple layers simultaneously—a concept known as restaking. For instance, a stETH holder can supply their tokens to a lending protocol like Aave to borrow stablecoins, then use those stablecoins to provide liquidity in a Curve pool. This creates complex, layered yield strategies. However, WSTs introduce specific risks, including smart contract risk in the wrapping protocol, depeg risk if the token's value diverges from the underlying asset, and slashing risk if the underlying validator is penalized, which may affect the WST's value or redemption.
how-it-works
MECHANISM
How a Wrapped Staked Token Works
A technical breakdown of the multi-step process that transforms a staked asset into a liquid, tradeable derivative token.
A Wrapped Staked Token (WST) is created through a multi-step process that begins with a user depositing a native staking asset, such as ETH, into a smart contract-based staking protocol. This initial deposit is locked to secure the underlying blockchain network, a process known as staking. The protocol then issues a liquid staking token (LST), like stETH, which represents a claim on the staked principal and its accrued rewards. This LST is the first layer of liquidity, but it is still tied to the specific staking protocol's reward mechanics and redemption rules.
To achieve broader interoperability, the LST is subsequently deposited into a separate wrapping contract, often adhering to a token standard like ERC-20 or ERC-4626. This wrapper mints the final WST, a fully composable derivative. The wrapper's smart contract manages the exchange rate between the WST and the underlying LST, which increases over time to reflect the accrual of staking rewards. This mechanism allows the WST's value to appreciate relative to the base asset without requiring the holder to manually claim rewards.
The final Wrapped Staked Token can be freely traded on decentralized exchanges (DEXs), used as collateral in lending protocols like Aave, or integrated into yield-bearing vaults. Its utility stems from decoupling the staking yield from the liquidity of the asset. Users benefit from continuous reward accrual within the token itself while maintaining the ability to exit their position instantly on the open market, solving the traditional staking problem of locked capital and unbonding periods.
Key technical components include the wrapping contract's exchange rate logic, which is typically viewable via a pricePerShare() or convertToAssets() function, and the underlying staking protocol's slashing risk. While the WST holder is exposed to the slashing penalties of the base staking pool, the wrapper itself is a non-custodial, transparent smart contract that does not add additional custodial risk. Examples in practice include Lido's wstETH, which wraps stETH, and Rocket Pool's rETH, which functions as a wrapped staked token natively.
key-features
MECHANICS & UTILITY
Key Features of Wrapped Staked Tokens
Wrapped Staked Tokens (WSTs) are derivative assets that represent staked positions, enabling liquidity and composability while the underlying assets remain secured in a proof-of-stake network.
01
Liquidity for Locked Capital
A Wrapped Staked Token unlocks the liquidity of staked assets, which are traditionally illiquid and locked in a validation contract. By minting a WST, a user receives a liquid, tradeable representation of their staked position (e.g., stETH for staked ETH, stSOL for staked SOL). This token can be sold, used as collateral in DeFi, or transferred instantly, solving the opportunity cost problem of native staking.
02
Composability in DeFi
WSTs are ERC-20 or equivalent standard tokens, making them composable building blocks across the decentralized finance stack. They can be integrated into:
- Lending protocols (e.g., using stETH as collateral on Aave)
- Automated Market Makers (e.g., providing liquidity in a stETH/ETH pool on Curve)
- Yield aggregators (e.g., depositing stSOL into a strategy on Marinade) This transforms a static staking position into an active financial instrument.
03
Yield-Bearing Nature
A WST is a yield-bearing asset. Its value, relative to the underlying asset, increases over time as it accrues staking rewards. For example, 1 stETH will be redeemable for more than 1 ETH after rewards are distributed. This yield accrual is typically handled via a rebasing mechanism (where the token balance increases) or a price-per-share model (where the token's exchange rate appreciates).
04
Underlying Asset Custody
The underlying staked assets (e.g., ETH, SOL, ATOM) remain securely locked with the native protocol's validators or a dedicated staking pool. The WST is a claim check on this position. Custody models include:
- Non-custodial staking pools (e.g., Lido, Rocket Pool)
- Custodial staking services The security of the WST is directly tied to the security and slashing risk of the underlying validators.
05
Redemption & Unwrapping
WST holders can unwrap their tokens to reclaim the underlying staked assets, but this often involves a cooldown or unbonding period. For instance, converting stETH back to ETH via Lido requires a request and a delay, mirroring the native network's unstaking period. Some protocols offer instant liquidity pools where users can swap the WST for the base asset immediately, albeit at a slight market-determined discount.
06
Protocol Examples
Prominent implementations demonstrate the core features:
- Lido Finance (stETH, stSOL): Largest liquid staking protocol; uses a rebasing token model.
- Rocket Pool (rETH): Decentralized Ethereum staking; uses a price-per-share model.
- Marinade Finance (mSOL): Liquid staking on Solana; mSOL appreciates against SOL.
- pSTAKE (stkATOM): Brings liquid staking to Cosmos and other ecosystems.
primary-use-cases
WST
Primary Use Cases
Wrapped Staked Tokens (WSTs) unlock liquidity and composability for staked assets, enabling them to be used across DeFi applications while continuing to earn staking rewards.
examples
IMPLEMENTATIONS
Real-World Examples
Wrapped Staked Tokens (WSTs) are not a theoretical concept but a widely adopted standard. These examples demonstrate how major protocols have implemented the pattern to unlock liquidity for staked assets.
TOKEN MECHANICS
Comparison: WST vs. Related Tokens
A technical comparison of Wrapped Staked Tokens against related token standards and staking derivatives.
| Feature / Metric | Wrapped Staked Token (WST) | Liquid Staking Token (LST) | Rebasing Token | Wrapped Native Token (WETH, WBNB) |
|---|---|---|---|---|
Primary Function | ERC-4626 vault token representing a staked position | ERC-20 token representing staked assets and rewards | Token with a dynamic balance that increases with staking rewards | ERC-20 wrapper for a native chain currency |
Balance Mechanics | Static balance, increasing exchange rate | Static balance, increasing exchange rate | Dynamic balance, static exchange rate | Static 1:1 peg to underlying asset |
Reward Accrual | Via price-per-share appreciation | Via price-per-share appreciation | Via automatic balance increase (rebasing) | None (no yield mechanism) |
Underlying Asset | Staked LP position or yield-bearing token | Staked native token (e.g., stETH for ETH) | Staked native token (e.g., staked ATOM) | Native base-layer token (e.g., ETH, BNB) |
Composability | High (standard ERC-20, ERC-4626) | High (standard ERC-20) | Low (incompatible with many DeFi protocols) | High (standard ERC-20) |
Tax Implications | Simplified (capital gains on disposal) | Simplified (capital gains on disposal) | Complex (each rebase is a taxable event) | N/A (no yield) |
Protocol Standard | ERC-4626 (Vault Standard) | ERC-20 (common), no single standard | Protocol-specific implementation | ERC-20 |
Example | WST-ETH/USDC LP | Lido's stETH, Rocket Pool's rETH | Cosmos Hub's ATOM (when staked) | Wrapped Ether (WETH) |
security-considerations
WRAPPED STAKED TOKEN
Security & Risk Considerations
Wrapped Staked Tokens (WSTs) introduce a unique risk profile by combining the security of the underlying staking protocol with the smart contract risk of the wrapping mechanism. Understanding these layers is critical for risk assessment.
01
Smart Contract Risk
The primary risk is concentrated in the wrapping smart contract that mints and burns the WST. Users must trust that this contract is free of critical bugs or malicious logic that could lead to loss of funds. This risk is compounded if the contract is upgradeable, introducing governance or admin key risk. Audits are essential but not guarantees.
02
Underlying Staking Slashing
A WST represents a claim on staked assets that may be subject to slashing penalties on the native chain (e.g., Ethereum, Cosmos). While the WST's value is designed to accrue rewards, its underlying collateral can be reduced by slashing events due to validator misbehavior. The WST holder bears this economic risk indirectly.
03
Custodial & Bridge Risk
Many WSTs rely on a bridge or a custodial entity to manage the underlying staked assets. This introduces centralization points:
- Bridge Exploits: The bridge holding the native assets can be hacked.
- Custodian Risk: The entity controlling the validator keys could act maliciously or be compelled by regulation. Examples include wstETH (non-custodial, Lido DAO) vs. custodial offerings from centralized exchanges.
04
Oracle & Pricing Risk
WSTs depend on price oracles (e.g., for DeFi lending) to determine their value relative to the base asset. If the oracle reports an incorrect price for the WST or its underlying staked assets, it can lead to inaccurate collateral valuation, unfair liquidations, or protocol insolvency. This is a systemic risk for DeFi integrations.
05
Liquidity & Depeg Risk
A WST should trade at or near the value of its underlying staked position. Liquidity risk arises if there is insufficient market depth, causing high slippage. Depeg risk occurs if the redemption mechanism fails or is paused, causing the WST to trade at a significant discount to its net asset value (NAV), as seen during market stress events.
06
Governance & Upgrade Risk
The protocol issuing the WST (e.g., Lido DAO for wstETH) typically controls its parameters and contract upgrades. Governance attacks, voter apathy, or contentious forks could lead to changes that adversely affect WST holders. Users are exposed to the political risk of the governing DAO or development team.
WRAPPED STAKED TOKEN
Frequently Asked Questions
Wrapped Staked Tokens (WSTs) are a foundational DeFi primitive that unlock liquidity for staked assets. This FAQ addresses common questions about their mechanics, use cases, and risks.
A Wrapped Staked Token (WST) is a liquid staking derivative that represents a claim on a staked underlying asset and its future rewards, enabling the staked position to be traded or used as collateral while it continues to earn staking rewards. It works by depositing a proof-of-stake asset (e.g., ETH) into a staking protocol, which mints a corresponding WST (e.g., stETH). This token automatically accrues value as staking rewards are generated, and it can be freely transferred or integrated into other DeFi protocols like Aave or Curve. The wrapper contract manages the accounting of the underlying stake and its yield.
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