Buying a liquid staking token like stETH, rETH or cbETH is already a form of passive income. Your balance quietly grows, or the exchange rate quietly rises, and there's nothing else for you to do. But some people don't stop there. They take the same token and put it to work again in DeFi, layering yields on top of the staking base. This guide walks through both approaches — the boring one and the ambitious one — and calls out what each layer actually costs in risk.
The easy path: hold and do nothing
This is the version most people should start with, and honestly the version most should stay on. Buy the token, keep it in a self-custody wallet, and let the protocol handle everything else. With Lido's stETH your balance rebases daily. With Rocket Pool's rETH or Coinbase's cbETH the exchange rate creeps up. Illustrative yield sits around 3-5% APY, though it moves as validator income shifts.
What you gain versus regular staking: liquidity. You can sell tomorrow if you need to, without waiting for the Ethereum exit queue. What you give up: a small share of yield in fees (commonly around 10%, figures shift), plus the extra risks covered in the staking risks guide.
Using the token as collateral
The first layer up: deposit your liquid staking token into a lending market like Aave, borrow a stablecoin against it, and either spend the stablecoin or reinvest it. Your original token keeps earning staking rewards while you get liquidity without selling. That's the appealing part.
The unappealing part: if ETH's price drops sharply, your loan-to-value ratio worsens, and the platform can liquidate your position — selling your token at a loss to repay the debt. Conservative users borrow 20-30% of their collateral's value. Aggressive users push higher and get liquidated. History has plenty of examples on both sides.
Liquidity pool yield
Second layer: pair your liquid staking token with ETH or a stablecoin in a decentralized exchange pool and earn a slice of trading fees plus any incentive rewards. Curve, Balancer and Uniswap all host stETH pools. Illustrative pool yields historically range from 1-5% on top of the staking base.
The catch is impermanent loss — if the two paired assets drift apart in price, your pooled value ends up below what plain holding would have been. Pairing stETH with ETH minimizes this because the two prices track each other. Pairing with a volatile token maximizes it.
Restaking and EigenLayer
Third layer: restaking. EigenLayer lets you deposit liquid staking tokens to secure additional services on top of Ethereum, in exchange for extra rewards paid by those services. Illustrative uplift depends on which services you opt into and the current fee market.
The tradeoff: your token now backs more than just Ethereum consensus. Slashing conditions from the extra services apply too. If a service you didn't fully understand penalizes you, that penalty comes out of your stake. Restaking is real yield, and it is real added risk. Read carefully before opting in.
Comparing the layers
| Approach | Illustrative added yield | Main extra risk |
|---|---|---|
| Just hold | 0% | None beyond the base |
| Borrow against it | Depends on how borrowed funds are used | Liquidation on ETH drop |
| Provide liquidity | 1-5% | Impermanent loss, pool exploits |
| Restake via EigenLayer | 1-4% | Extra slashing conditions |
These numbers are illustrative and shift constantly. Every added percent of yield is a payment for accepting a specific new risk. Nobody hands out free money in DeFi — someone always pays for it eventually.
Picking a passive income strategy with liquid staking tokens
A rough sorting logic: if the words "impermanent loss" or "liquidation ratio" already sound annoying, stop at hold-and-do-nothing. If you understand those concepts and can afford to lose part of the position, one extra layer might make sense. Two extra layers is territory for people who monitor positions daily. Nothing about liquid staking rewards you for going deeper than your comfort — real losses come from that mismatch. The rewards calculator on this page makes it easy to see whether the added complexity is really worth the extra basis points. And if you want to see how it compares to the other options, our six ways to earn passively lays them side by side.