> For the complete documentation index, see [llms.txt](https://docs.filliquid.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.filliquid.io/how-it-works/staking-and-redemption-by-fil-token-holders.md).

# Staking and Redemption by FIL Token Holders

FIL holders can stake their idle assets into the liquidity pool to be lent to borrowers to earn interest. The permissionless FILLiquid open smart contract allows market participants to stake or redeem any amount of FIL assets directly into or from the contract at any time.

When FIL Holders stake their tokens into the smart contract, they receive a Liquid Staking Derivative (LSD) token called FIT. It acts as a proof of stake and a vehicle of dividend allocation within the ecosystem. The number of LSD tokens received depends on various factors, such as the following:

* The amount of liquidity provided.
* The total amount of FIL tokens staked in the liquidity pool (deposits and interest payments from borrowers).
* The pool’s utilization rate.

Staking and redemption activities are always available and are safeguarded by mechanisms that prevent the depletion of FIL liquidity.

For example, when liquidity becomes scarce and the utilization rate reaches a certain level, the number of LSD tokens received in exchange for each unit of staked FIL token increases exponentially, encouraging liquidity provision.

Similarly, the cost of the LSD token FIT required to un-stake one unit of FIL token rises significantly, discouraging redemption activity.


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