When users stake their tokens, the tokens usually become locked up for a predetermined amount of time. During this period the staked tokens are illiquid and users are unable to transfer or exchange them.
Liquid staking allows users to access the underlying tokens while they're being staked. With liquid staking, users that stake tokens are issued another token that can be thought of as a certificate of deposit. These tokens can be redeemed for the underlying tokens plus staking rewards accrued, transferred between wallets, instantly exchanged for the underlying unstaked token or other tokens on a decentralized exchange, or used across various DeFi applications
Visualising Liquid Staking - Numbers last updated 14th May 2022