LST (Liquid Staking Tokens)
Liquid Staking Tokens (LSTs) are cryptographic receipt tokens issued by liquid staking protocols (such as Lido, Rocket Pool, or Coinbase Wrapped Staked ETH) that represent staked base-layer assets (e.g. ETH, SOL) along with their accrued consensus and execution rewards. Unlike native staking—where assets remain locked on the consensus layer with delayed exit queues—liquid staking provides the holder with a transferable ERC-20 asset that can be traded, supplied as collateral, or held while earning continuous protocol yield.
Token mechanics: rebasing vs value-accruing LSTs
Liquid staking protocols distribute staking rewards through two distinct architectural models:
| Token Model | Reward Distribution & Tax Mechanism |
|---|---|
| Rebasing Tokens (e.g. stETH) | The token quantity in the wallet increases daily at a 1:1 price peg with the underlying native asset; each balance increase represents newly received staking rewards recognized at fair market value |
| Value-Accruing / Reward-Bearing Tokens (e.g. wstETH, rETH) | The token quantity remains constant while its exchange rate against the native asset steadily increases; yield is realized as capital gain only upon unwrapping or swapping back to the base asset |
Tax considerations for liquid staking
1. Depositing native assets (ETH → LST)
When an investor deposits ETH to receive stETH or rETH via a decentralized smart contract or secondary market DEX:
- Taxable exchange approach: Many tax authorities treat this as a disposal of the native crypto-asset in exchange for a distinct derivative token, triggering taxable event realization on any accumulated unrealized gains.
- Deposit / wrapping approach: Some jurisdictions or interpretations view liquid staking as an administrative token wrap where original cost basis is carried forward without immediate taxation until final disposal.
2. Accruing and realizing rewards
Under rebasing models, newly minted tokens received periodically are typically treated as taxable staking income upon receipt. Under value-accruing models, rewards are embedded in the rising token price and taxed under capital gains rules upon final sale. For practical calculation and tax declaration rules in specific jurisdictions (for example, under Italian tax residency), see our dedicated guides on Calculating Capital Gains and Cost Basis and the Italian Crypto Tax Return Guide.
The information in this article is for general literacy only. It is not tax, legal, financial, or accounting advice and does not replace Agenzia delle Entrate instructions or advice from a qualified professional for your circumstances. It must not be used to evade tax obligations. We make no warranty as to accuracy, completeness, or currency; rules and practice can change. Do not file returns or make decisions based solely on this text. RIXTO is not liable for loss arising from use of, or reliance on, this information.