An investment token that takes the form of a cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using distributed ledger technology (DLT) or other similar technology. It may also be a cryptographically secured digital representation of rights and obligations that is issued, transferred and stored using DLT or other similar technology and confers rights and obligations that are substantially similar in nature to those conferred by a derivative or has a substantially similar purpose or financial effect to a derivative.

As an investment token, a derivative token does not include virtual assets which do not either confer rights and obligations substantially similar in nature to those conferred by a derivative or have a substantially similar purpose or financial effect to a derivative.

The value of a derivative token is derived from that of an underlying staked token. In other words, the derivative represents the staked tokens as rewards issued through a certain staking protocol. Similar to traditional derivatives, derivative tokens take many forms, depending on the underlying contract form, including options tokens and futures tokens.

With liquid staking, participants can stake their tokens and receive a derivative token, allowing them to earn staking rewards. Liquid staking provides blockchain networks with the means through which users can deposit their tokens to the protocol and receive a derivative of their stake, known as a liquid staking token (LST). Later in the future, participants can use staked tokens to conduct further activities in the DeFi ecosystem and to engage with other protocols building within certain networks. Liquid staking benefits a blockchain by preventing tokens from being left idle indefinitely, as is the case with traditional staking. Network actors can benefit from staking rewards without locking their tokens until a certain point in the future. Unlocking the potential of such tokens enables owners to trade or post them as collateral.