The $45 billion liquid staking sector is raising concerns among investors over the long-term price stability of cryptocurrencies tied to these protocols.

Risks of Liquid Staking

Liquid staking creates capital efficiency for investors by offering an equivalent of the initial staked token that can be used in other DeFi applications. However, liquid staking tokens (LSTs) could temporarily lose their price peg to Ether, raising concerns. Carlos Mercado, a data scientist at Flipside Crypto, warns that in high volatility periods, the open market price may deviate from the supported (and often verified) value of Ether.

Role of Arbitrage Bots in Stabilization

During periods of high volatility, arbitrage bots can play a key role in restoring the price peg of LSTs. These bots automatically analyze and exploit price discrepancies between assets. Alon Askal from SVV Network emphasizes that bots, along with users, can rapidly stabilize and restore the peg thanks to the Shanghai upgrade, which allows exiting the beacon chain and reclaiming Ether.

Growth of Liquid Staking Across Blockchains

Liquid staking is not only growing on Ethereum but also across other major blockchain protocols. For instance, Solana is expected to see a fivefold increase in this process over the coming years, which marks a significant step for its active staking community. Bytbit researchers suggest that Solana's LST market could grow to $18 billion thanks to active participation.

Liquid staking continues to evolve, offering new opportunities for investors. However, monitoring price stability and arbitrage activity remains essential to ensure the reliability of this sector.