The digital asset space offers new ways to earn passive income that are more flexible and manageable. This takes the form of soft staking. So, What is soft staking? let's see.
What is soft staking?
Soft staking allows you to use your staked coins for other purposes. Also, tokens can be withdrawn anytime, which is not the case with the traditional staking process.
How does soft staking work?
Staking is usually done directly through wallets or cryptocurrency exchanges. For example, if you are staking Ether, you need at least 35 ETH in your wallet to be locked on the network. Alternatively, you can join a staking pool through a cryptocurrency exchange. This is useful when blockchains like Ethereum require a large number of coins to stake directly.
To avoid this minimum token threshold, multiple users contribute small amounts to a large staking pool and start staking together. Staking rewards are distributed to all members in the staking pool.
However, soft staking is typically done through third-party platforms offering staking services (SaaS). These platforms accept your coins and bet on the network. In return, you will receive a tokenized version of your staked coin.
These tokenized coins can be transferred, stored, used, or traded like regular tokens. You can also withdraw your staked tokens at any time. These platforms, therefore, solve the liquidity problems associated with traditional staking. Hence the name "soft staking".
What platforms offer soft staking and how does it work?
In recent years, several platforms have started offering liquid staking services. Some of the most popular options are Lido and TosDis. Many cryptocurrency exchanges including KuCoin and Crypto com have also launched this service. Let's take Lido and Ethereum staking as an example to see how this works.
With Lido, a user can bet any amount of his Ether. In return, Lido will give the user an equal amount of stETH. stETH tokens are paired 1:1 with staked Ether and can be used as credit, collateral, etc. At the same time, staked Ether will bring users staking rewards. Parallelly, Lido also maintains a stETH-ETH liquidity pool. This allows the user to return her stETH and redeem staked Ether at any time.
Hopefully, we can provide you with a better understanding of "what is Soft staking?".
