Top 3 risks of cryptocurrency staking

Staking has been called the future of the crypto market and the “silent giant” of crypto investment for several years now. In March 2022, the market capitalisation reached $200 billion, and the number of projects offering opportunities to earn passive income exceeded 200. Having an indisputable number of benefits, staking also carries small potential risks, which we will discuss in detail in this article.

Staking types

Staking is a method of earning passive income with crypto by holding coins for a certain period of time. Depending on its conditions, staking can be Locked, Flexible or DeFi.

Locked staking

his type of passive income resembles a bank deposit without the possibility of early withdrawal. You deposit funds for a fixed period of time, for instance, for one year. It is not possible to withdraw assets before the end of the specified period. The main advantage of licked staking is a fixed reward, which is much higher compared to others. The staking of MHC tokens on the aStake platform is a perfect example of it. You invest assets for a year, and at the end of this period, you receive a reward of 17%. Find out more about staking on aStake.

Flexible staking

In this case, the end date of staking is not specified. The user can terminate their participation in the validation process at any moment. In general, reward begins to accrue within a day after the staking of coins but most commonly, payments are made once a month. This type of staking is more flexible, but the lack of clear terms for staking coins affects the reward amount.

DeFi staking

DeFi stands for Decentralised Finance. With this option of staking coins, assets are transferred to a trust management firm. You transfer your funds to organisations or individuals at an interest rate. DeFi staking provides a higher yield compared to perpetual staking and, unlike it, allows you to collect rewards within 24 hours after the termination of the contract.

Risks of crypto staking

Each of the above-mentioned types of staking comes with potential risks. There are both general and individual risks for each type of staking:

A loss of investment

As a result of unsuccessful investments, there is a risk of losing your assets. This can happen as a result of investing in failed projects that do not have a clear business plan and a strong team of developers behind the project. It is much safer to invest in assets with low volatility and stable price growth.

A loss of access to the wallet

If you stake funds by yourself without trust management firms (meaning you do not transfer them to third parties), you are personally responsible for their safety. Therefore, it is important to keep all private keys and passwords, the tools for accessing the wallet where your assets are held, in a safe place. At the same time, if you want to use the services of trust management firms, the chance of losing access to the wallet increases since private keys and passwords are not at your disposal.

FOMO

Fear Of Missing Out or FOMO is a syndrome of lost profits caused by an investor’s state of anxiety. It can be experienced both in bullish and bearish sentiments – the rise and fall of assets’ prices. In December 2017, FOMO ruled the crypto market as a result of the almost daily increase in bitcoin’s rate. Being afraid of losing income, many investors were ready to buy BTC at exorbitant prices.

The opposite situation occurred during May-June 2021 after bitcoin reached a new all-time high and then its rate dropped twice. As a result, some investors began to frantically sell cryptocurrency, forgetting that after reaching the bottom the coin always rises in price. Also, often succumbing to FOMO, investors choose to stake with the possibility of early withdrawal of funds, receiving a smaller reward as a result.

What to choose?

If you want to be able to interrupt staking and withdraw your funds at any time, then Flexible or DeFi staking is suitable for you. Nevertheless, you will not be able to protect yourself from FOMO with such earning options. This way, if you want to earn maximum income and maintain control over your funds, you should choose Locked staking.

Before investing in crypto, it is preferable to undertake a detailed technical and fundamental analysis of the project in which you plan to invest. For the convenience of its customers, the aStake platform conducts its own detailed expertise of coins for staking. Following the link, you can find detailed information about the project’s partner, MetaHash, and its native cryptocurrency MetaHash Coin (MHC).

Also, during staking, you should comply with security standards – keeping passwords and private keys to your wallet in a safe place. In addition, it is important to adhere to risk diversification and invest only funds that you can afford for that and which are not part of your main income.

How to invest in staking?

Currently, there are two options for staking coins. Conditionally, they can be divided into cold and hot staking.

Cold staking

Coin holders stake their assets on a hardware wallet that resembles a USB. With no access to the internet, this type of staking is called cold staking. Some offline wallets allow you to stake multiple assets at once. As in the case of holding, cold staking is more suitable for large investors wishing to secure their funds. A computer or smartphone with specialised software, without requiring the need for a permanent connection to a network, is also suitable for this type of staking.

Hot staking

Conversely, hot staking involves an option with an internet connection. This includes staking pools, crypto exchanges and staking platforms.

Staking pools

To increase earnings, a group of coin holders can unite in a staking pool. The advantage of this method is that a minimum investment is sufficient to make a profit. The reward is divided between the staking participants according to the size of the initial contribution. Also, some staking pools allow you to withdraw assets before the end of the placement period. A relative disadvantage of staking pools is that their providers charge a fee for their services.

Crypto exchanges and staking platforms

A number of large crypto exchanges offer staking as a passive income service for their clients. This offers users an opportunity to diversify their income and monetise free funds. Earnings depend on the amount of reward offered by the network and the term of staking.
Staking platforms are another option to generate a stable passive income. Unlike crypto exchanges, such platforms specialise in offering staking services, therefore they often offer extra benefits to customers. For instance, on aStake, not only a guaranteed reward upon staking completion is offered but also earnings on the partnership program.

Become a part of aStake’s partnership program!

Learn more

Conclusions

Despite potential risks, staking is one of the best ways to earn a stable income. Your profit depends on the size of your contribution while you can start earning with a minimum amount of investment. On the aStake platform, you invest in staking without the involvement of trust management firms and you always have access to your funds. You receive additional income with MHC token rate changes, as well as with the aStake’s partnership program.

If you wish to earn a stable passive income with crypto without the need for large investments or active participation in the staking process (which is possible by automatisation of all processes), then register on aStake right now!