Staking your cryptocurrency has a lot of advantages. You can not only earn a passive income, but you can also contribute to the security of blockchain networks by using the Proof of Stake process. However, staking isn't the same on every platform. The types of supported tokens, staking periods, and staking methods vary depending on who you stake with. Nowadays, liquid staking is becoming more popular.
What Is Liquid Staking?
If you've staked before, you may have been required to keep your staked crypto assets locked up for some time. This is why the widely used Proof of Stake (PoS) consensus mechanism works so effectively over hundreds of blockchains. It vastly improves the Proof of Work technique as it is very energy efficient and provides rewards quickly.
If your cryptocurrency is frozen in the staking process, you won't be able to transfer, sell, or use it until the staking period has ended. The unlocking time of staked tokens varies based on the token and platform you're using, but they might range from days to weeks and even months. This isn't a significant issue in staking, but it does deter some users because they won't be able to touch their tokens for an extended period.
Furthermore, you may be charged a penalty if you un-stake before the end of the staking period. Un-staking typically takes weeks, so you'll have to wait a long time for your funds to become available. This is where liquid staking becomes a viable option. This strategy, also known as soft staking, allows you to access your funds while they are staked. The funds remain in escrow, but unlike PoS staking, they are not frozen and inaccessible.
This is accomplished by giving you a tokenized representation of the cryptocurrencies that have been staked. You can buy, sell, and use them in the same way your original cryptocurrencies are used. Furthermore, liquid staking does not require a lengthy un-staking procedure. This makes the entire process a lot easier. In a nutshell, liquid staking combines the best of both worlds: a passive revenue stream and easy access to your staked cryptocurrencies.
