Risks

While staking itself does not involve smart contracts and is considered a low risk endeavor, it is not entirely risk-free. The following is a list of key risks you should be mindful of before beginning to stake.

Please note that not all staking mechanisms are designed alike. Some of these risks may not apply to certain protocols.

• Private key security

  • Losing or exposing your private key will put your staked coins at risk. Hackers can get access to your staked coins if you do not safekeep your private key.

• Token locks

  • While staked, coins cannot be transferred. Stakers will need to unstake before being able to transfer their coins again.

• Unbonding period (unstaking period)

  • Unstaking is not instantaneous. There will be a waiting period before a staker's coins can become transferable again.

• Price volatility

  • Staking rewards are earned in native coins. Therefore, the realized reward rates may be lower or higher than expected depending on price fluctuations.

• Penalties

  • If a validator is offline and does not perform its duties, its stakers will have their stake deducted by a small amount. The deduction may become more severe if the validator is offline for a prolonged period.

• Slashing

  • If a validator attests to two different blocks for the same height, its stakers will have a major portion of their stake deducted. This offense is considered an attack on the blockchain hence why the consequences are severe.