Staking commits capital and removes it from circulation — the float effect in Cardano. A liquid staking token represents that staked position and can itself be traded, so a holder keeps the yield and regains liquidity.
What they now hold is a claim on staked capital rather than the capital, and that difference is the structure.
The peg is a market outcome, not a guarantee
An LST should be worth the underlying it represents plus accrued rewards. It trades at whatever the market says, and the mechanism keeping it aligned is arbitrage: buy the discount, redeem for the underlying.
That arbitrage takes time, because unstaking has an unbonding period. So the discount can persist for as long as the queue is long — and it widens exactly when many holders want out at once.
The result is a familiar shape: a peg that holds comfortably in calm conditions and stretches under stress, which is the same profile as a stablecoin depeg, driven by a queue rather than by reserves.
Where it becomes systemic
LSTs are widely used as collateral. So a discount does not stay contained in the token — it reduces collateral value across every position using it, simultaneously. That is a correlated shock arriving at many leveraged accounts at once, the mechanism behind cascades.
Reading one
Track the discount to the underlying rather than the dollar price — the price can rise while the discount widens, and the discount is the risk. Know the unbonding period, because it bounds how fast the discount can close. And treat the governing protocol as counterparty exposure, in the same category as venue risk.
Why it belongs in a structure map
Because the token trades in pools like any other, so depth and exit cost apply unchanged — and in the stress scenario, the peg widening and the depth thinning happen together.