The Lido protocol offers two tokenized forms of the same staked ETH: stETH and wstETH. Both tokens represent staked ETH and allow users to participate in the Ethereum ecosystem while earning staking rewards, but they behave differently and are suitable for different use cases.
stETH
The default token users receive when staking through the Lido protocol. The user's stETH balance updates daily to reflect earned rewards, so the amount of stETH held can potentially grow automatically over time. Users can use stETH within various applications, and its balance adjusts without any manual action on their part. Because stETH grows in quantity, it’s useful in applications that support rebasing tokens, where the balance can change automatically. However, some DeFi protocols don’t support this type of token behavior.
wstETH
Wrapped stETH (wstETH) is a non-rebasing version of stETH. Unlike stETH, the balance of wstETH remains fixed; instead, the value per unit increases to reflect earned rewards. This wrapping process effectively locks the staking growth into the token’s price rather than its quantity, making wstETH ideal for protocols or scenarios where a constant token balance is required. wstETH is better suited for DeFi protocols that require fixed-balance tokens, for example, lending platforms, vaults, or smart contracts that don’t handle rebasing.
Converting between stETH and wstETH, and the key difference:
Key difference: The main distinction between stETH and wstETH lies in how they handle rewards:
- stETH: Balance increases as rewards accrue.
- wstETH: The token's value per unit increases while the balance stays the same. Users can convert freely between stETH and wstETH using Lido UI or supported DeFi apps. Both tokens represent the same staking position, but they differ in how that position is tracked over time (balance vs. value).