Using Your Staked ETH in DeFi: What You Can Do With stETH

This is the whole point of liquid staking. Ordinary staking parks your ETH out of reach; liquid staking hands you a token that stands for it, and that token works like any other asset you own. Your ETH keeps securing Ethereum and earning rewards, and the stETH in your wallet can be lent, pooled or moved while it does.

What do people actually do with it?

• Post it as collateral. Deposit stETH on a lending market such as Aave and borrow stablecoins or ETH against it. You keep the staking rewards and get spending money without selling - that is why stETH became the most widely accepted collateral in DeFi.
• Put it in a liquidity pool. Pair it with ETH on Curve or Uniswap and earn a cut of the trading fees on top of the staking rewards. This is the pool people use to swap out of stETH instantly instead of queueing.
• Take it to a layer 2. Bridge it to Arbitrum, Base or Optimism, where the same token is usable at a fraction of the fee.

Why does everything ask for wstETH?

Because a balance that changes on its own breaks ordinary lending code. A pool that recorded "this person deposited 10 tokens" and later sees 10.04 has no idea where the extra came from unless it was specifically built to understand rebasing, and most were not. wstETH holds the balance still and lets the value grow instead. You wrap on Lido's site, use the app, and unwrap whenever you like - nothing is lost in the round trip.

Where does this go wrong?

Looping. Deposit stETH, borrow ETH, buy more stETH, repeat. The staking yield multiplies and so does everything else: lending markets value your collateral at the market price, and stETH trades a little below ETH whenever the exit queue backs up. A few percent of discount is enough to liquidate a tightly wound position, and liquidation sells your collateral at the worst moment. The staking reward is a little over 2% a year - that is not a rate worth taking a liquidation for.

Start by wrapping a small amount and lending it with no borrowing at all. You will see how the rewards accrue and how the app reports your position before any of your ETH is at risk. Next: what wstETH is and the real risks of holding stETH.