Crypto Staking: Understanding the Hidden Risks

Staking crypto promises rewards, but it's not without risks. Validators can get slashed, assets can be locked for weeks, and exchanges can go under holding your funds.

Before staking a single token, you need to know which risks you're taking on. The main ways to stake crypto include solo and self-custodial staking, delegated and staking-as-a-service, custodial or exchange staking, pooled and liquid staking.

Solo staking means running your own validator, while delegated staking lets you keep ownership of your tokens while assigning the validation work to a node operator. Custodial staking hands both your assets and withdrawal credentials to a custodian, exposing you to custody risk and counterparty risk.

Every staking method carries some combination of risks including crypto price risk, slashing and validator risk, liquidity and unstaking risk, custody and counterparty risk, and smart contract risk. The mix and severity depend on the blockchain and the model chosen.