Cryptocurrency: what are the risks associated with staking?

In matter of cryptocurrencies, the staking has a reputation for promoting easy to practice passive income with predictable profitability. A crypto-asset is immobilized for a certain period, and at the end of this period, a predefined reward is recovered. This reward is not without logic: the currency that we stake thus improves its capitalization and therefore, investor confidence. Likewise, an exchange (platform) on which we stake crypto-assets will gain at various levels, in particular by the fact that it has these assets for the management of transactions. So the staking at first glance appears to be a win-win operation. Does this mean that there is no risk in proceeding in this way? Far from there.

Here are the main risks associated with such an operation:

1. the currency we have stake can see its course crumble;
2. opportunities can be missed;
3. the platform chosen for the staking can be hacked;
4. the ” unstaking Is not always immediate.

Let’s see each of these cases in detail.

The price of a currency can collapse

Sometimes the interest offered for the staking are particularly high. Take the example of a cryptocurrency listed by the reference site Staking Rewards, the Rowan of Siftchain. This currency offers a reward of a huge amount: 117.26% per year. In short: if we stake a Rowan, after a year, we get 117.6! However, be careful, in the end, what we get are Rowans. How to know what will be the situation of this currency one year later?

At the time of this writing, if we stake 100 Rowans (an investment of $ 0.14 * 100 and therefore $ 14), we are supposed to recover 11,700 Rowans at the end of the year. Theoretically, if the Rowan’s price does not move, it would represent $ 1,638. We therefore obtain a substantial added value. If the Rowan sees its value double, we even get $ 3,276. Yes, but … If the Rowan’s value were to divide by 100 a year later, the amount recovered would only be $ 16.38, or $ 2 of capital gain in all.

What to remember? It is better to operate on ” staking »On a currency in which you have complete confidence, even if it means favoring a lower return. Thereby, Solana only offers a reward of about 6%. However, throughout the year 2021, this currency has seen enormous growth and it can be reasonably estimated that this trend is solid on the long term.

Of course, some recommend staker from stablecoins such as UDST,UST or DAI because the value of these is always equal to 1 dollar. Thereby, Staking Rewards tells us that if we stake of USDT, the reward after one year is 8.78%. Yes, but … Let’s imagine that the dollar sees its value depreciated sharply against the euro over a year. In this circumstance, the capital gain realized in the number of dollars could be neutralized by the fall in the price of this currency.

Opportunities can be missed

The peculiarity of staking, it is that one immobilizes his assets during a certain data. For example, imagine that an Internet user stake of the Rowans in January. In April, this currency sees its value multiply by 100. Then, in May, it falls back to its January rate. If the Rowans were stakes for a duration year, the Internet user will not have been able to take advantage of the increase in April.

The platform chosen for the staking can be hacked

If you have chosen an exchange to host the staking of cryptocurrencies, this platform could make the object of a hack and the risk could exist of seeing its crypto-assets disappear.

In December 2021, two exchanges were thus hacked: AscendEX which saw the equivalent of $ 77.7 million fly away while BitMart for its part lost around $ 200 million. In both cases, these platforms claimed that they would fully compensate the customers affected by this attack. However, there have been infamous cases such as the Canadian site QuadrigaCX or the New Zealand Cryptopia where the exchange’s clients were robbed of the crypto-assets they had placed.

Note that this risk is low on platforms that have proven themselves over the years such as Coinbase, Nexo, Swissborg or Coinloan. Obviously, such platforms charge for this reliability by charging commissions for the staking often higher than if we operate directly, for example, on a wallet dedicated to a token given.

The ” unstaking »Is not always immediate

When you want to unlock your assets, there may be a period of ” unstaking Which can amount to 7 days or more.

Here are some examples of unstaking – figures for January 2022:

• 7 days for Fantom’s FTM;
• 10 days for the Elrond EGLD;
• 21 days for the Atom of Cosmos;
• 28 days for the Polkadot DOT.

If you had planned to use your funds at a certain time, this possible delay should be taken into account.