7 Biggest Token Staking Risks You Should Know About
Staking has been acting as a great tool for crypto investors to earn rewards over their pre-owned assets. While some platforms like UniFarm guarantee a minimum staking reward of 36% APY, other platforms do not ensure any fixed amount of APY rewards. In such cases, the rewards depend upon many factors such as the staking platform that you have chosen, the coin that you are staking, etc. Though these factors can be controlled by the stakers, there are some factors that pose further coin staking risks that the stakers stay unaware of. In addition to this, the fact that these staking risks have the potential to make the investors lose their entire stake in the pool is something that no one tells you about. So, here we are discussing the major token staking risks that you must know before you begin lending your valuable crypto assets in a staking pool.
1. Lockup Period Risks: Token Staking Risks
Certain staking coins have a lockup period before the delegator can redeem or perform any transactions with them. For example, COSMOS tokens have a lockup period of 21 days. This means that the delegator has to stake the COSMOS tokens for at least 21 days. This condition can sometimes prove to be very risky in case the staked tokens face high price fluctuations. It is because if the price of the token falls during the lockup period, the delegator can not take them out and sell them on exchanges to prevent losses. Most of the time, such losses balance the rewards earned by the delegator after staking their coins.
The best way to eliminate the likelihood of the delegator facing such risks is to stake the tokens having no lockup period. Alternatively, the delegator can choose to stake stablecoins that do not vary in price very considerably.
2. Loss of Assets
The loss of assets has been one of the greatest coin staking risks and rising concern among investors and crypto enthusiasts. Even if the staking platforms and the crypto exchanges take the advanced level of security measures to protect the funds such as storing the funds in cold wallets, there have been cases of crypto thefts where the millions worth of cryptocurrencies have been stolen by the hackers. Therefore, it becomes highly important for stakers to research the project and introduce themselves to the refund and insurance policy of the platform in case of security breaches and thefts.
3. Indefinite Staking Rewards: Token Staking Risks
As you may be aware that the staking rewards depend upon the coin you are staking, the platform on which you are staking, the number of delegators in the staking pool, and the number of coins that you have staked in the pool. Also, the protocol chooses the delegator with the highest number of coins staked in the pool as the new validator. So, even though the delegators can control some of the factors to ensure a high staking reward, some factors are out of the control of the delegator. Therefore, the delegators can never predict the rewards that they will earn after the end of the staking period.
4. Delayed Reward Distribution
While some staking platforms may distribute the staking rewards on a daily basis, some platforms have a fixed period of time after which they deliver the rewards to the delegators. This creates problems for investors who are looking to farm yields over their pre-earned rewards. Therefore, to prevent such losses and coin staking risks from affecting your yield potential, delegate your assets to the staking pools that transfer daily returns to the delegators.
5. Liquidity Risks: Token Staking Risks
Sometimes, it may happen that the tokens you are staking have no real fan following. This may put forward liquidation risks, meaning that you may not find buyers when you go to sell your stakes. Also, you may find it difficult to convert your rewards earned from the staking pool, into valuable assets like Bitcoins or Ethereum. The ideal way to prevent such risks is to stake the coins having large market capitalization.
6. Failure of the Blockchain Project
In blockchain technology which is still wrapping its roots around the market and the potential customers, there are very high chances of failure. Even minor stumbling along the blocks may lead to the failure of the entire project and its setup. This is especially true in the case of new projects that look too good to be true. Often these projects throw high APY rewards in the picture to attract investors and delegators. Therefore, it is very important for delegators to research the project and the team behind the project well, to ensure that the project is genuine and will be there in business for a long time. The best way to do it is to look at the whitepaper of the project and analyze it thoroughly.
7. Validator Risks: Token Staking Risks
Running a staking pool is not everybody’s cup of tea. There are risks attached to the failure of validator nodes, meaning that any disruption in the working of even one node can lead to the stakers losing their stakes in the pool. In addition to this, running a pool as a validator incurs hefty costs like hardware, electricity, and system maintenance costs. In such cases, the best thing to do is stake your assets using a third-party platform like UniFarm, which doesn’t only ensure the safety of your coins but also guarantees a minimum APY reward.
Now that you are familiar with all the coin staking risks, you can pick the best cryptocurrency and start your staking journey. Refer to this guide to the best staking platforms that offer high APY rewards. For generating maximum yields, check out UniFarm where you can stake a single coin and farm many coins in addition to the minimum APY of 36%.
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