In the ever-evolving world of cryptocurrency, staking is paramount when it comes to earning rewards. Staking literally means “dangerous” your capital for some future profits. In Crypto Finance, the term means locking digital assets into fixed periods, POS (proof of pile) blockchains like Ethereum, Cardano, Solana, etc. to earn passive income. When you place a bet, you keep your crypto as a blockchain collateral, guarantee, so the network will allow you to trust you to unlock new blocks. Pow (Proof of Work) In contrast to the Bitcoin system, POS systems are much more energy-friendly. It is sometimes called the “green blockchain.”
What is soft staking?
Soft Staking is a new concept introduced by several centralized exchanges, especially Binance, to eliminate risks from staking. Based on being completely risk-free, this new type of staking is also known as flexible staking. You can earn passive rewards at your spot holdings, but you can trade and withdraw certain cryptocurrencies at any time you wish.
How soft staking works
The exchange claims that rewards are generated through proof of stake mechanisms in the chain and distributed daily to holders in each native token. Reward calculations are usually done in an automated way by placing screenshots of specific holdings in your account.
Different exchanges will have different standards for rewarding owners. Generally, Exchange soft-staking native tokens in addition to other prominent digital currencies on the POS blockchain. Binance currently offers soft staking with $BNB, $sol, $ada, $sui, $ton, $s, $pol, $algo, $near, $axs.
Requirements for participating in soft staking
Not everyone can make money with the digital assets offered. You can only qualify for soft staking compensation if you meet the minimum holding criteria set by the exchange. However, there is a limit to the amount of holdings you need. Earn staking rewards to the limits you have defined. For example, Binance offers soft staking rewards of $POL only up to $300,000. Holdings exceeding this limit will not be considered when distributing rewards.
Soft staking vs. regular staking
Regular traditional staking works a little differently than soft staking. First, choose a cryptocurrency that uses POS ($eth, $ada, $sol, $dot, etc.) and buy it directly from the exchange or network. Next, you need to select the “platform” or method for staking. This can be an exchange, a crypto wallet, or your own staking node. Then, follow the platform’s instructions to delegate or lock the token. Finally, you’ll see you leave the coins staked for the required amount of time and earn rewards in the same currency.
Plus, Soft Staking is an exclusive solo activity. Traditional staking can be done alone (as a validator) or in a pool by combining your assets with someone else’s holdings. For example, Ethereum Network offers the role of a validator for anyone betting on an ETH of at least $32. Validator acquires dedicated nodes on the network, checks transactions 24/7, and unlocks new blocks. Validators not only earn staking rewards provided by blockchain, but also earn income in the form of transaction fees. Soft Staking does not provide a validator’s location, primarily because it is mediated and mitigated by exchange.
Soft staking restrictions
Soft staking is not directly on the blockchain, so it does not benefit the network as well as traditional staking. Post-finance is so much more bets on blockchain. This is possible due to the growth of vested interests of the community and stakeholders. Many blockchains like Polkadot and Sonic (formerly Cosmos) have forced the stakers to vote for any changes that would change.
Soft staking is less risky than regular staking
Choosing soft staking eliminates many of the risks associated with staking in the traditional sense. The first and most serious risk of normal staking is the time limits imposed by the network. If you lock your assets and swing your market experience, you cannot stop losses or make a profit freely. When you finally unlock your assets, you may find yourself robbed of a significant loss or profit. In contrast, soft staking doesn’t restrain you. You can sell your cryptocurrency anytime, you can save you against loss or deprivation of profits.
Direct staking poses pose novel risks, especially for validators. As a validator, the system must be always on. If it goes offline, the node cannot sign the requested transaction. Bitdegree.org states that the network will impose penalties, withhold transaction fees and deduct some of the stacked amounts.
There is yet another layer of risk that can affect both traditional and soft staking. Soft staking and traditional staking (when using third-party platforms such as exchanges) can entrust assets to exchanges that can hack, misuse or bankrupt, and take away all pile-on assets.
Finally, the time limit can be too long and you may play inflation. When you unlock assets from your network with regular staking, the rewards are obviously attractive, but they can be virtually ignored when balanced against growing inflation. Soft Staking offers a hedge against this pitfall of traditional staking.
Soft staking and regular staking apy
The annual rate (APY) of different assets in staking varies widely from 2% to 60%. Among the major cryptocurrencies, $ADA is highly valued at a low of 2.5-3% and 18-21% staking rewards. There is an additional risk to those surrounding this value. In soft staking, the rewards are usually lower than those offered directly by the main network. However, lower APY deserves a loss considering the extra layer of security offered by the freedom to unlock an asset at any time.
Conclusion
The sum and content of the discussion is that soft staking is an invaluable option for investors who do not want to risk locking assets for undefined periods.
