All staked ETH will remain locked in the Beacon Chain until after the forthcoming Shanghai upgrade—expected to occur 6 to 12 months following the Merge. This means that regardless of whether you’re running your own node or staking ETH through a third-party, you won’t be able to access your staked ETH until well into the future. In addition, once withdrawals are enabled, there will be a queue that could delay them for hours or even weeks.
Locking up capital for such a long time without the ability to withdraw, sell, or use it in DeFi is a tough sell for a lot of crypto investors. To overcome these drawbacks, staking providers developed derivative liquid staking tokens that allow stakers to sell, transfer, and use their staked ETH positions as collateral in DeFi. These tokens are readily tradable on major DEXs, which is what makes them liquid.
Let’s take a look at the two types of liquid staking tokens: rebase tokens and wrapped tokens.
Rebase Tokens Rebase tokens or “elastic supply tokens” follow a model pioneered by Aave’s AToken design. These derivative tokens are pegged 1:1 to the underlying staked assets. Token holders’ balances are “rebased” daily to include new staking rewards or penalties.
Pros:
Cons:
Source:
https://banklessdao.substack.com/p/the-merge-part-ii-defi-download