The practical significance of liquid pledged tokens such as stETH or rETH

The actual meaning of liquid pledged tokens

Liquid pledged tokens are essentially a claim on the pledged positions, not the pledged assets themselves. According to relevant explanations, such tokens "represent claims on underlying pledged positions rather than independent assets" and "do not create additional value in themselves"-they only reflect changes in underlying pledged assets and are subject to the rules of the issuance agreement. bound. Holding stETH or rETH means holding this claim, not the ether behind it.

The difference between different agreements is how this claim is reflected in the token's own accounting system-and this difference changes what the holder sees in his wallet on a daily basis.

Two accounting designs for the same claim

Lido's stETH adopts a flexible adjustment design. According to Lido's official blog, the stETH balance is updated daily and is updated when Lido's oracle reports changes in ETH2 deposits and ETH rewards received by users pledged through the agreement. The Lido Help Center describes stETH as "a transferable flexible-adjustment utility token that represents a share of the total ETH pledged through an agreement" and consists of user deposits plus cumulative pledge rewards. In practice, this means that the holder's stETH balance grows over time-the number of tokens in the wallet increases roughly daily as the reward increases, rather than the value of each token increases while the number remains the same.

Lido also offers a second design: wstETH. According to the description of the two token operation methods provided by Lido's official website, wstETH is a non-elastically adjustable packaging version of stETH. Its balance remains the same-the number of tokens in the wallet does not change-while the value of each token increases over time to reflect accumulated rewards. Lido's official website pointed out that "the amount of stETH held may automatically increase over time," while wstETH increases at the exchange rate rather than the amount.

Rocket Pool also issued a liquidity pledge token, rETH. The relevant support page involves the token, but only the page title can be verified, and the body content cannot be confirmed. Therefore, this paper cannot judge whether rETH's balance mechanism is similar to wstETH's fixed balance design, nor can it explain how its redemption process behaves during network congestion. This is an actual information gap in the report of this article and is not omitted for brevity.

Redemption: Transfer claim back to ether

The process of transferring tokens back to underlying assets is not uniform across different agreements. The explanation states that "some agreements require token holders to initiate the release process and wait for a network-defined exit period," while other agreements "rely more on secondary market liquidity"-that is, holders sell tokens directly on exchanges or decentralized trading pools rather than redemption through the agreement itself. The GitHub README of Lido's core protocol states that the stETH token balance corresponds to "the amount of ether that the holder can request to withdraw" and describes the withdrawal path within the agreement. However, the README does not specify the time or conditions for withdrawal, only points out that Lido's smart contract entrusts the pledged deposits to node operators selected by the DAO, who have never directly access user assets.

Why token prices may deviate from underlying value

Since liquidity pledged tokens are traded separately from their claimed share of ether, their market prices cannot guarantee that they fully track underlying value. According to relevant instructions, prices may deviate from the value of the underlying asset; market conditions, redemption restrictions and risk perceptions can affect the way these derivatives are traded, especially during periods of volatility. The note added that during periods of volatility, derivatives may trade at lower prices than the underlying assets, reflecting uncertainty about liquidity and exit at the time.

Common misunderstandings

A common mistake is to treat liquid pledged tokens as fully interchangeable with pledged assets at any time-that is, assuming that 1 stETH or 1 rETH can always be exchanged for the same amount of ETH on demand. In effect, the token promises a claim on the pledged position and can be redeemed through any process constructed in the issuance agreement, or sold on the secondary market, but its price may deviate from the underlying value. Both cases are different from immediate, guaranteed equivalent exchanges.

What is not covered in this article

This article does not address whether stETH, wstETH, or rETH are currently traded above, below, or equal to their underlying redemption value-this requires real-time market and on-chain data that the sources used in this article do not include. This article does not independently verify the validator diversity, governance safeguards, or smart contract security of Lido or Rocket Pool; the above comes from the protocol's own documentation or general comments from the vendor, rather than an independent audit. This article does not describe Rocket Pool's accounting model or its exit process when its network is congested, because only the titles of its available sources can be verified, not the specific content. In addition, this article covers only two Ethereum-based examples-stETH/wstETH and rETH-and does not cover all liquidity pledge designs in other proof-of-stake networks.