What is Crypto Staking?
In simple term, staking is the act of locking cryptocurrencies to receive rewards. You may be able to stake your coins directly from your crypto wallet, such as Trust, Ledger and Exodus. On the other hand, many exchanges such as Binance, Gemini, and Kraken allows you to stake while you hold your coins on the exchange.
So what are the risks?
- Market Risk
The value of coins which you are holding plunge.
For example, you are earning 20% APY for staking but value of the coin drops 50% throughout the year. In this case, you will still have made a loss. Therefore, you need to choose carefully which coins to stake and not to just purely based on the APY figures. - Liquidity Risk
If you are staking a coin with very low liquidity on the exchange, it will become challenging for you to sell your asset or convert the returns into any stable coin. Therefore, the coins with high trading volumes on exchanges can mitigate liquidity risk. - Lockup Periods
While staking your coins, do check if there is any lockup period. If you opt for the lockup staking, during this time, you will not be able to access to your coins. For some coins, they may be available in both with or without lockup period. If you wish to have full control of your coins, opt for without lockup period. Therefore, always remember to read term of the staking carefully. - Rewards Duration
In some cases, you do not receive staking rewards daily. As a result, stakers have to wait to receive their rewards. It will not affect your HODL, but you have to wait longer to reinvest and earn more rewards.
Therefore, always choose according to your own investment strategy. - Loss or Theft
There is always potential risks that you lose your wallet’s private keys or that your funds are stolen if you don’t pay adequate attention to security. If you are using wallet, make sure you backup your wallet and store your private keys safely. If you are using exchanges or any third-party staking platforms, make sure there are 2FA implemented. Do not skip on setting any form of 2FA. Always remember to use strong passwords and read emails and links/url carefully. All of these, which were mentioned will help you in reducing the risks of loss or theft.
Tips for Staking:
Always research and read the terms before staking a coin. Get enough information.
Always apply security procedures to reduce losing your coins and rewards.
** Disclaimer: This is not intended to be investment advice. Seek a duly licensed professional for investment advice **
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