Yellow Capital Blog/Investments/Is Staking Crypto Safe? Understanding the Risks

Is Staking Crypto Safe? Understanding the Risks

Sunday, February 04, 2024

For investors seeking passive income, crypto holders and tech enthusiasts, stalking can be a great option. Also, it must have low entry barriers and a user-friendly nature (compared to mining) so it can be used as a safe alternative to traditional banking. With numerous advantages and a growing demand for passive income, it is no surprise that numerous crypto-staking platforms became famous last year. However, there is an essential question of whether is staking crypto safe for strategic investors with any budget. Furthermore, it is crucial to understand the associated risks affecting the profitability of the staking ventures.

This guide was created to help you start your crypto journey. It provides all the essential information about staking, how it works, and its potential risks. Plus, you will find out whether it's profitable in terms of passive income. So, let's start with the basics and learn as much as possible about this relatively new type of investment.

What is Crypto Staking?

To understand this concept better, let's learn more about the critical staking crypto risks. So, first of all, staking is achieving some cryptocurrency for a particular period to support the crypto’s blockchain network operation. As a result of such actions, investors earn passive income. Because of the simplicity of the process, crypto staking has become one of the most popular options among those who want to get high passive income.

Stoking has quickly become essential to the crypto ecosystem since it ensures better network security, making it much more trustworthy for investors. Such high popularity can be explained by supporting a blockchain network that assures staking by committing cryptocurrency. Because of the unique features of such stakes, decentralized blockchain networks have become safer and more straightforward.

Parties, known as stakers, commit their funds as collateral to validate trades, create blocks, or engage in network governance. Consider a comparison with a traditional financial institution where the bank’s clients deposit their money into a "high-yield" savings account, which the bank will use for lending to others. In this case, depositors become the fund providers, earning some percentage from these loans.

Stocking is similar to banking deposits since you lock up your assets, supporting the blockchain's operations. Rewards are calculated as percentage yields that such contributors will receive, but the interest rates, in this case, will be commonly higher than at most banks.

How Staking Works

As you can see, staking works somewhat analogously to banking deposits
insofar as you agree to lock up your assets, thereby contributing to the functioning of the blockchain. However, you should understand fundamental crypto staking risks before investing. You can learn them below. But before that, let’s check how staking works since it can be an excellent technique for passive income generation.

Here are some critical points about crypto staking:

  • Two main staking approaches are to deposit funds in a smart contract and become “stake pool operators” or simply delegate their power to the experts (validators) who will manage staking pools.
  • ​The Proof-of-Stake (PoS) consensus mechanism algorithm is based on stalking operates on.
  • ​When an investor becomes a “validator”, he will earn the rewards for validating transactions, ensuring network security or any other such activities.
  • ​If the tokens were delegated to the validator who will manage them, then the only thing investors need to carry about is stake tokens in a liquidity pool. In this case, a professional validator will hand in all the technical aspects!​

Both options have some pros and cons you should take into account before making a final decision about the best approach for you. And it is one more proof of how understanding the mechanics of staking is crucial for making informed investment decisions.

Why Do People Stake Crypto?

People stake crypto for different reasons, and each plays a role in shaping that landscape. Here are some key reasons to know:

  • Source of passive income - you can forget about active participation if you make it a part of your investment portfolio. You must choose a stake-friendly currency and reliable validator to earn your first passive income.​
  • A great option for long-term investment - it is an excellent option for long-term buys with a minimum risk and high growth potential (if the cryptocurrency was chosen right).
  • ​Ensure reduction of the risk and volatility in crypto - it is a great way to minimize the risks for those who have used trading as an option before. It can also positively affect the volatility of cryptocurrencies since price fluctuations will not substantially affect the portfolio’s overall value.
  • ​Solution for diversification of the portfolio - in any kind of investment today, it's crucial to ensure the diversification of the portfolio, and you will get such an opportunity with staking crypto.​
  • ​Simple start - simple and fast start are the same essential features of staking crypto since no special equipment is needed, and investors can start with third-party platforms and still have great results!​​​

Also, it should be noted that with crypto staking, investors will get access to innovative features such as early access to new features, governance participation, or exclusive token benefits.

How Safe is Staking Crypto?

So many investors are wondering if it is staking safe and if they should add it to their portfolio. Finding the answer can be tricky since there is no guarantee for any kind of investment. However, with a clear understanding that nothing is risk-free, it will be easy to use all the pros of such investment and minimize the possible risks of staking crypto.

What Are the Risks of Staking Crypto?

Investors can get great results with any budget by understanding every risk of staking crypto and using the right strategy. You need to know and analyze all the risks associated with staking so that you can use that information for decision-making. Even if you do not actively invest in crypto by staking and just work with a validator, understanding risks ensures better results.

Market Risk

There are many local and international market risks to consider when stalking crypto, such as price depreciation, trade tensions or international conflicts. In such situations, even if investors will get some profit, they will still have significant losses. However, it can be difficult to predict these risks with 100% accuracy.

Liquidity Risk

The ability to sell or trade the staked assets depends on the overall liquidity of the market. That means it will be hard to find buyers for tokens, especially at specific prices when the market is not liquid.

Lockup Periods

Maybe you’ve heard about lock-up mining before, so you understand this factor's impact. But if not, then remember that all the staked crypto will be locked for some specific period. During that time, you will not have access to your assets, such as the trading options. It is a considerable risk when you need to liquidate your holdings quickly.

Rewards Duration

Irregular distributions of the rewards will impact your reinvestment strategy and the overall returns. Remember that frequencies for reward distribution depend on the selected blockchain network. So it can be daily or weekly, but also it can take more time.

Validator Risk

There are few controls in crypto staking now, so finding a reliable and experienced validator is crucial.

Validator Costs

These are the expenses associated with operating a validator node and its validators, which are crucial in securing the network.

Loss or Theft

Loss of private keys, hacking or poses are the significant risks to staked assets investors should remember about. It's crucial to ensure high protection for such vital information and use only secure wallets.

Can You Lose Crypto and Money by Staking?

There are risks in any investment, and crypto staking is no exception. But can you lose money staking crypto for real? To find the answer to that question, you must learn about risks such as price depreciation or cyber attacks on staking platforms. Understanding the risks and analyzing the current situation is crucial to make informed decisions.

Is Staking on Binance Safe?

It is a prevalent question if is crypto staking safe for investors with any experience, especially when using Binance. So, since this is the world's largest crypto exchange implemented, you can be sure about your safety and security. Binance clients often speak about the simplicity and security of its services.

How can Yellow Capital multiply your Money?

As an expert in crypto staking, Yellow Capital can help you in your crypto investment journey. By becoming a client of our company, you can use numerous educational resources and get access to flexible staking options. If you need detailed analytics and reporting for making important decisions, you can also get the help of Yellow Capital experts.


As you can see, crypto staking can be an amusing and profitable experience for those who will learn all its features and risks. Our help can make this process even more straightforward and faster since our experienced consultants will recommend the best solutions to achieve your goals.

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Hi, I am Alexis Yellow

Chairman of Yellow Capital

Are you ready for a wild career transition? I went from launching rockets into outer space at the European Space Center to helping Token Issuers launch their Crypto Projects!

Yellow Capital provides advisory services, strategic investments, and prime crypto market making.

Join me on this journey as I share my experiences and expertise in the crypto world, and maybe we'll even launch a few successful projects together!

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