Some DeFi protocols do not support rebasing tokens natively. For example, There’s stETH/ETH trading pair on Uniswap but the Uniswap contracts aren’t compatible with rebasing tokens, so you will lose out on stETH’s staking rewards.

Wrapping your stETH into wstETH allows you to deposit your staked ETH into a number of DeFi protocols, including Uniswap, without losing out on staking rewards.