Liquid staking tokens allow users to earn staking rewards while keeping their assets liquid. This is achieved by depositing tokens into a protocol, which then stakes them on behalf of the user and issues a new token representing the user's claim to the staked position.
There are two main designs for liquid staking tokens: rebasing and value-accruing. Rebased tokens keep their price pegged to the underlying asset one-to-one, while value-accruing tokens deliver rewards by rising in value against the underlying asset.
The biggest risk associated with liquid staking tokens is the possibility of a depeg, where the token's price falls below the value of the assets backing it. This can happen during periods of market stress or heavy withdrawals.