Liquid Staking and the Control-Exposure Wedge
(joint with Gloria Christina Heesen, and Kohei Kawaguchi)Working Paper
Abstract: Proof-of-stake deters attacks by keeping validator stake exposed to slashing and depreciation losses. Liquid staking lets operators obtain voting power using pooled stake while reducing their own exposure by selling liquid staking tokens (LSTs) and shifting uncovered slashing losses onto token holders. We study the security implications of this control-exposure wedge and the protocol design problem it creates. Competitive LST pricing can partly deter attack by lowering the resale value of claims when risk rises, but it cannot fully restore deterrence because liquid staking participants do not internalize ETH-wide depreciation losses. A fee-charging protocol prefers the no-attack regime because it maximizes total stake, yet collateral requirements alone do not generally make that outcome unique. Robust security may therefore require additional tools, including permissioned participation, screening or reserve capacity.
Recommended citation: Dordal i Carreras, Marc, Gloria Christina Heesen, and Kohei Kawaguchi. “Liquid Staking and the Control-Exposure Wedge” Working Paper (2026). https://marcdordal.github.io/files/WP_Liquid_Stake.pdf