wstETH is a wrapped version of stETH. Due to the nature of Lido, the amount of stETH on your balance is not constant - it changes daily as staking rewards come in. As some DeFi protocols require a constant balance mechanism for tokens, wstETH keeps your balance of stETH fixed and uses an underlying share system to reflect your staking rewards.
Example:
You wrap 100 stETH to 99.87 wstETH.
You continue to get rewards on your wstETH.
When you unwrap your wstETH, you receive 101 stETH
You can wrap your ETH or stETH to wstETH here.
How do I wrap my ETH to wstETH?
The process of wrapping your staked ETH is simple.
To wrap your ETH or stETH to wstETH, first head to stake.lido.fi/wrap.
Connect your wallet.
Choose the amount of ETH or stETH to wrap.
Press 'Unlock tokens & wrap'.
Confirm the transaction in your wallet.
What's the need for wstETH?
Wrapping stETH creates a DeFi-compatible version of the stETH token which allows for easier integrations with DeFi protocols including Uniswap and MakerDao.
Due to the nature of Lido, the amount of stETH on your balance is not constant - it changes daily as staking rewards come in. This is what's known as a rebasable token. In the case of stETH, this is reflected through a daily token balance change to reflect your rewards.
This rebase works across integrated DeFi platforms like Curve and Yearn. This means that if you are to stake your stETH across these protocols to get additional rewards, you will continue to benefit from daily stETH staking rewards as well. UniSwap, 1inch and SushiSwap are not designed for rebasable tokens and as a result you risk losing out on a portion of your daily staking rewards through providing stETH as liquidity across these platforms.
As some DeFi protocols - e.g. Uniswap - require a constant balance mechanism for tokens, Lido lets you "wrap" your stETH into wstETH to keep your balance of stETH fixed. Instead of updating daily, wstETH uses an underlying share system to reflect your staking rewards.
wstETH allows for seamless integrations across the DeFi space, facilitating the growth of stETH as a key piece of many unique Ethereum protocols.