In general, staking refers to committing one’s Crypto holdings in exchange for an incentive. By locking up tokens, users can contribute to the network’s security via staking.
Is Crypto staking really risky?
The annualized returns for staking the most well-known Cryptos are enticing as a means of generating passive income, like dividends from shares. No investment, however, is ever completely risk-free.
7 Risks associated with Crypto staking
#1 Market Risk#2 Liquidity Risk#3 Lockup Periods#4 Rewards Duration#5 Validator Risk#6 Validator Costs#7 Loss or Theft
#1 Market Risk
If you've invested in a Crypto asset, and its price fall drastically. This could lead to money loss even if you earned a good interest rate.
#2 Liquidity Risk
If you stake a micro-cap altcoin with little liquidity, it can be hard to sell or convert your staking rewards into bitcoin or stablecoins.
#3 Lockup Periods
If you stake an asset with a locked period and its price falls sharply, you won’t be able to withdraw your investment. This will reduce your overall earnings.
#4 Rewards Duration
If you invest in Crypto assets that don’t pay out staking rewards daily and you have to wait to receive your rewards. Your APY will not be affected much, but it will reduce the time you have to reinvest your rewards and earn more.
#5 Validator Risk
If a validator node mistakenly misbehaves, it could lead to penalties and affect your staking returns. In the worst-case scenario, your stake could be “slashed,” which means you’ll lose a portion of your staked tokens.
To know about the risks, read the complete blog!
Crypto staking gives a way to use the Crypto assets and generate passive income. However, there are risks associated with Crypto staking.