sTez & Liquid Staking
For most of Tezos' history, tez holders who wanted to participate in proof of stake without running a baker used liquid delegation. A holder delegates an account to a baker, the tez remain liquid and spendable, and the baker may distribute a share of its rewards to delegators. Nothing needs to be locked, so the same tez remain available for transfers, trading, liquidity provision, and other uses.
Staking was added to the Tezos protocol through the Paris upgrade in June 2024 following the network's on-chain governance process. Staked tez carry three times the baking weight of delegated tez, giving staking substantially higher reward potential than liquid delegation. The trade-off is liquidity: staked tez are locked, exposed to slashing, and must pass through a multi-day unstaking and finalization period before becoming freely spendable again.
For a holder who simply wants to stake, that trade-off may be straightforward. For DeFi, it creates a problem. The same tez cannot remain locked in staking while also sitting in a liquidity pool, being traded, serving as liquid collateral, or moving through other applications. The holder can earn the higher staking rewards, or keep that capital liquid and productive elsewhere, but cannot use the same tez for both at the same time.
That tension is the problem liquid staking was created to solve.
Liquid Staking
Section titled “Liquid Staking”Keeping Staked Capital Liquid
Section titled “Keeping Staked Capital Liquid”A liquid staking token, or LST, is a transferable token that represents an underlying staking position. Instead of holding only the locked native asset, a user receives another asset representing the economic value of that stake.
The underlying native tokens remain staked and continue participating in network security. The LST remains liquid. It can move between wallets, trade in secondary markets, provide liquidity, serve as collateral, enter lending markets, or interact with other DeFi applications.
This model has become an important part of DeFi across proof-of-stake networks because it brings staking capital back into circulation. A user no longer has to give up all of the financial utility of an asset simply because the underlying value is participating in staking.
The Trade-Offs of Liquid Staking
Section titled “The Trade-Offs of Liquid Staking”Liquid staking solves the liquidity problem, but conventional LSTs introduce another layer between the user and the underlying blockchain.
Depending on the implementation, that layer may include a separate issuer, smart contracts, staking operators, validator-selection policies, administrative keys, or its own governance system. Users therefore take on risks beyond those of the underlying staking protocol itself. A bug or failure in the LST system, concentration among operators, or changes to its administration can affect the token even when the underlying blockchain continues to operate normally.
Fragmentation creates another challenge. When several competing LSTs represent the same underlying asset, staking liquidity becomes divided among multiple tokens and markets. Each token needs its own liquidity, integrations, collateral treatment, and market depth. Liquidity tends to concentrate around the largest implementations, which can in turn concentrate influence around particular staking providers.
Tezos has seen earlier application-level approaches to liquid staking as well. The proposal that eventually led to sTez took a different direction: instead of introducing another privately administered representation of staked tez, create a common liquid staking token at the protocol level.
Introducing sTez
Section titled “Introducing sTez”A Protocol-Native Liquid Staking Token
Section titled “A Protocol-Native Liquid Staking Token”sTez is the protocol-native liquid staking token designed for Tezos.
A user deposits tez into a protocol-managed staking mechanism and receives transferable sTez in return. The deposited tez remain at work in staking, while the sTez represents the holder's share of the pooled staking position and remains available for use elsewhere.
What makes sTez unusual is where that mechanism lives. The core system is enshrined in the Tezos protocol itself rather than controlled by a separate LST issuer. There is no private administrator or multisig governing the underlying staking mechanism. Its rules and parameters belong to the protocol and change through Tezos on-chain governance.
This gives Tezos a common staking asset around which the rest of the ecosystem can coordinate. Wallets, exchanges, lending markets, liquidity pools, and other applications can integrate the same protocol-native representation of staked tez rather than each creating or choosing a separate staking token.
Protocol-native does not mean risk-free. Staking and slashing risk remain. The protocol itself carries technical risk. Secondary-market liquidity still matters, and every application that integrates sTez introduces its own risks. The difference is that the core liquid-staking mechanism does not add a separate issuer or administrator between the user and Tezos.
How sTez Fits Alongside Liquid Delegation and Staking
Section titled “How sTez Fits Alongside Liquid Delegation and Staking”sTez adds another option rather than replacing either of the existing models.
| Liquid delegation | Staking | sTez | |
|---|---|---|---|
| What the holder has | Liquid tez | Locked tez | Transferable sTez |
| Rewards | Delegation rewards | Staking rewards | Share of pooled staking rewards |
| Liquidity | Tez remain spendable | Tez are locked | sTez remains transferable |
| Baker selection | Holder chooses baker | Holder chooses baker | Protocol allocates pooled stake |
| Slashing exposure | No direct exposure | Yes | Shared through underlying pool |
| Exit | No unbonding | Unstake and wait for finalization | Sell sTez or redeem through protocol |
Liquid delegation prioritizes liquidity. Staking prioritizes greater staking participation and higher rewards. sTez is designed to preserve the economics of staking while giving the holder a liquid asset that can continue participating in the wider Tezos economy.
How sTez Works
Section titled “How sTez Works”Depositing tez and Receiving sTez
Section titled “Depositing tez and Receiving sTez”The user experience begins with a deposit of tez into the sTez mechanism. The protocol determines how much sTez to issue using the current sTez exchange rate and mints that amount to the user.
The deposited tez enter the shared sTez staking ledger rather than remaining associated with a personally selected baker. The protocol allocates that pooled staking power across participating bakers according to the sTez allocation rules.
The result is a separation between the two roles of the capital. The underlying tez secure the network and earn staking rewards. The user holds sTez, which remains transferable and becomes the asset used in markets and applications.
How Staking Rewards Reach sTez Holders
Section titled “How Staking Rewards Reach sTez Holders”sTez uses an exchange-rate model rather than a rebasing model.
A holder does not receive additional sTez tokens every time the underlying stake earns rewards. The number of sTez in the wallet stays the same. Instead, each sTez gradually represents more tez as rewards accumulate in the underlying staking pool.
At a high level:
sTez exchange rate = tez in the sTez staking ledger / total sTez supply
The system begins at 1 sTez = 1 tez when no sTez has previously been issued. If staking rewards increase the underlying pool while the number of sTez remains unchanged, the exchange rate rises. If slashing reduces the underlying pool, the exchange rate falls.
For example, a holder who deposits 100 tez at a 1:1 exchange rate receives 100 sTez. If accumulated staking rewards later raise the exchange rate to 1.05 tez per sTez, that same 100 sTez represents approximately 105 tez of protocol redemption value. The holder still owns 100 sTez; the amount of tez represented by each token has changed.
The return therefore comes from Tezos staking itself. It varies with Adaptive Issuance, network participation, baker performance, fees, slashing, and the protocol parameters in force at the time. It is not a fixed APY.
How the Underlying tez Are Staked
Section titled “How the Underlying tez Are Staked”With ordinary staking, the user selects a baker. sTez handles this differently because many sTez holders can share the same pooled staking position.
Bakers who want to participate register with the sTez mechanism. They specify how much sTez-related staking capacity they are prepared to accept and the fee they are willing to charge. The protocol then distributes pooled staking power among eligible participating bakers while respecting baker capacity and the limits built into the protocol. Ordinary stakers receive priority for available baker capacity, with sTez using the remaining eligible capacity.
This lets the pool distribute staking power without requiring each sTez holder to make a separate baker-selection decision.
The Uniform-Price Fee Auction
Section titled “The Uniform-Price Fee Auction”The baker-selection mechanism also creates competition over fees.
Participating bakers submit fee bids. The protocol gives priority to eligible capacity offering lower fees and determines a single global fee from the highest accepted bid among the bakers selected for that cycle. All selected bakers receive that same clearing fee rather than charging sTez holders a collection of different rates.
After the global baker fee is paid, the remaining staking rewards flow back into the shared sTez staking ledger. Those rewards increase the exchange rate for all sTez holders.
Staking Power Without Concentrating Governance Power
Section titled “Staking Power Without Concentrating Governance Power”The protocol also treats the sTez pool differently for governance.
sTez allocated to a baker contributes to that baker's baking power, because the underlying tez are securing the network. It does not add corresponding voting power to that baker.
That distinction addresses one of the concerns that can arise when a liquid staking system grows very large. The pool can distribute stake for consensus without automatically concentrating an equivalent amount of Tezos governance power in the bakers that receive it.
Exiting an sTez Position
Section titled “Exiting an sTez Position”Liquid staking gives the holder two different exit paths.
Redeeming Through the Protocol
Section titled “Redeeming Through the Protocol”A holder can redeem sTez directly through the protocol. The sTez is burned and the corresponding amount of underlying tez, calculated from the current exchange rate, leaves the active sTez staking pool.
Those tez then enter an unstaked frozen state and pass through the applicable unbonding and finalization process. Until the applicable delay has passed, they remain frozen and may still be exposed to slashing. Once finalization becomes available, the tez return to the redeemer's spendable balance.
Protocol redemption therefore provides the fundamental connection between sTez and its underlying tez, but it does not provide an instantaneous exit.
Trading sTez for XTZ
Section titled “Trading sTez for XTZ”A secondary market provides the liquid alternative.
Instead of burning sTez and waiting for the underlying tez to unbond, a holder can trade sTez for XTZ. The sTez simply passes to another holder while the underlying pool remains staked.
This is one of the central reasons a deep XTZ / sTez market matters. It turns liquid staking into something genuinely liquid in practice, giving users a market-based route between immediately spendable tez and staked exposure.
The market price of sTez does not have to equal its protocol redemption value at every moment. Supply, demand, market depth, redemption timing, and perceived risk all influence the price at which users are willing to trade. Arbitrage then creates an economic link between the secondary-market price and the underlying exchange rate.
Where sTez Stands Today
Section titled “Where sTez Stands Today”The protocol implementation of sTez arrived as part of the Ushuaia-era protocol work under a feature flag. Ushuaia activated on Tezos mainnet on June 30, 2026, while the enshrined liquid-staking feature remained disabled on mainnet for further testing and refinement. Any eventual mainnet activation remains subject to a subsequent protocol decision through Tezos governance.
A dedicated longer-running network, Snet, was subsequently created for sTez testing. Snet activated on August 14, 2026 and provides an environment where the protocol mechanism, baker participation, wallets, interfaces, and other integrations can be exercised together.
That testing covers the complete lifecycle rather than only the staking logic: depositing tez, minting and transferring sTez, observing the exchange rate, redeeming, finalizing redemptions, interacting with wallets, and testing the behavior that applications need around the asset. Snet tez and sTez are test assets without real-world monetary value.
sTez on TEZEX
Section titled “sTez on TEZEX”We have integrated an sTez interface into TEZEX so users can begin interacting with the mechanism while testing progresses.
The interface gives users a way to deposit test tez, receive and hold sTez, follow the exchange-rate relationship, and work through the redemption lifecycle. It also lets us develop the user and market experience around sTez alongside the protocol itself rather than waiting until mainnet activation to begin that work.
sTez.app is a short link to this same TEZEX interface. It is not a separate sTez application or issuer; it simply provides a direct route into the sTez experience on TEZEX.
As testing continues and the protocol mechanism moves toward broader use, the interface gives tez holders a place to become familiar with how liquid staking works before sTez becomes part of the mainnet financial environment.
Building the XTZ / sTez Market
Section titled “Building the XTZ / sTez Market”The next part of our work is the market around the asset itself.
When sTez reaches mainnet, we intend to establish deep XTZ / sTez liquidity as one of the anchor markets around TEZEX. The pair directly connects the two forms of exposure at the center of the mechanism: liquid tez and protocol-native staked tez.
That liquidity serves an immediate purpose by giving sTez holders a secondary-market entry and exit. It also provides continuous price discovery around the protocol exchange rate and gives arbitrageurs enough market depth to respond when the trading price diverges from the underlying redemption value.
The importance of the market extends beyond swapping XTZ and sTez. Once sTez has reliable liquidity, other applications have a stronger basis for accepting it as collateral, lending against it, incorporating it into leveraged positions, and building automated strategies around the relationship between liquid tez, staked tez, and staking yield.
Over time, that relationship also creates the foundation for markets built around yield itself. A liquid staking asset, lending rates, derivatives, and deeper credit markets create the ingredients for fixed-rate products, interest-rate markets, hedging, and structured exposures that would be difficult to build around locked staking positions alone.
sTez Across the Wider Tezos Economy
Section titled “sTez Across the Wider Tezos Economy”sTez implements the FA2.1 token standard, providing the transfer, approval, metadata, event, and interoperability features needed by wallets, indexers, exchanges, and other applications. The protocol also supports exporting and importing sTez through tickets, giving the asset a protocol-native route into Smart Rollup environments.
That becomes increasingly relevant as the Tezos X roadmap connects financial activity across layers and execution environments. Rather than creating a different representation of staked tez for each part of the network, sTez provides a common protocol-native asset that can move with that activity.
For TEZEX, the XTZ / sTez market therefore sits at the beginning of a larger financial relationship. The same staking asset and the liquidity around it can extend into lending, collateral, margin trading, automated execution, derivatives, and other markets as the wider Tezos execution environment develops.
Risks and Practical Considerations
Section titled “Risks and Practical Considerations”The protocol-native design removes some of the additional dependencies associated with externally issued LSTs, but it does not remove the underlying risks of liquid staking.
Staking and slashing risk. The tez backing sTez are genuinely staked. Slashing losses reduce the underlying pool and therefore reduce the amount of tez represented by each sTez.
Protocol risk. sTez depends on Tezos protocol code. Bugs, unexpected behavior, or future changes to the mechanism remain possible.
Market and liquidity risk. The price available in an XTZ / sTez market may differ from protocol redemption value, and the quality of an immediate market exit depends on available liquidity.
Redemption timing. Protocol redemption does not produce instantly spendable tez. The redeemed funds pass through the protocol's unbonding and finalization process.
Application risk. Wallets, exchanges, lending markets, liquidity pools, derivatives, and other applications that use sTez add their own contracts, interfaces, and operational assumptions.
These are part of understanding how the asset works and which risks belong to the protocol, the staking position, and the applications built around it.
Testing sTez on Snet
Section titled “Testing sTez on Snet”Snet lets users and developers work through these mechanics before mainnet use.
Useful testing includes depositing tez at the displayed exchange rate, transferring sTez between wallets, following changes in redemption value, submitting partial and full redemptions, finalizing those redemptions, reconnecting wallets, handling failed transactions, and reviewing how clearly the interface communicates each stage of the process.
The same environment lets us refine the TEZEX interface and the surrounding market infrastructure while the sTez mechanism itself continues to be tested. By the time sTez becomes available more broadly, the objective is not simply to have a protocol feature ready, but to have the user experience and liquidity infrastructure developing alongside it.