Crypto Market Risk – One of the most daunting risks when it comes to crypto markets, and by default all crypto strategies that come with it, is the volatile nature of cryptocurrencies which makes them unpredictable.
For anyone looking to dive into the world of cryptocurrency markets, they come across many terms and concepts that may seem unfamiliar to them. It is essential to have a good understanding of crypto strategies and choose the one that best suits your individual needs and profit margins.
One of the most chosen and popular crypto trading strategies is staking. As with all strategic investments, there are both rewards and risks associated with it, and we explain in depth what exactly crypto staking is, and what the potential rewards and risks are that you should have at mind before making your investments.
What is staking in crypto?
Staking refers to the type of encryption policy where digital assets are locked away with the ultimate goal of obtaining rewards or interest in return. Staking is possible through a consensus mechanism called “proof of stake,” which allows verification of transactions, as cryptocurrencies operate through a decentralized system. This specific mechanism forces users to hold their cryptos and stake them, ultimately allowing them to earn transaction fees.
Cryptocurrencies such as Ethereum, Cardano, and Solana are available to be staked, however, not all cryptocurrencies currently allow this option.
What are the potential gains from crypto staking?
Saving time – The basic principle of staking means locking your cryptos is happening for a long time. There is no need for the trader to constantly check the price fluctuations of the chosen cryptocurrency and re-evaluate their decision, as it is a passive investment.
Increased security – Staking allows for additional security, as it makes the blockchain more resistant to foreign attacks, while increasing its efficiency in processing transactions.
Passive Income – By staking your cryptocurrencies, it means you will earn passive income on your crypto holdings. Passive income refers to earnings made without any extra effort, which is the default concept of a staking strategy, as you put your assets to work and just wait to earn your interest.
What are the potential risks of crypto staking?
Crypto Market Risk – One of the most daunting risks when it comes to crypto markets, and by default all crypto strategies that come with it, is the volatile nature of cryptocurrencies which makes them unpredictable. The price of your chosen crypto can drop completely unexpectedly in the market with little or no warning, which means staking can turn out to be a rather unfavorable endeavor.
Lock-up period risk – Some of the cryptocurrency assets available for staking may have lock-up periods, which means that you will not have access to your staked cryptos and thus will limit your strategic options depending on market fluctuations . For example, if the price of the staked asset drops quickly and suddenly during the lock-up period, you cannot sell it.
Liquidity risk – Exposure to liquidity can make it difficult to sell your cryptos. The liquidity of an asset is determined from the ease with which you can buy or sell an asset, and can therefore be easily affected by the previously mentioned lock-up periods. So, if you choose to stake an asset with limited liquidity, you may have difficulty selling the asset.
Where can you stake your cryptos?
NAGAX is an ideal exchange for stake your cryptocurrency assets. This gives you a hassle-free opportunity to do your staking and earn up to 8% interest by simply holding your cryptos and staking your coins for ultimate rewards. You just need to make sure that you have the cryptos you want to stake in your battle-tested secure crypto wallet. You can wager your coin for a minimum of 14 days, and there is no maximum wagering time, giving you the opportunity to sit back and relax and just watch your interest grow over time. Finally, when the time is right for you, you can withdraw your coins and earn your interest immediately and effortlessly!
Risk Warning: Cryptocurrencies are highly volatile and trading may result in the loss of your invested funds. Before investing, you should be aware that cryptocurrencies may not be suitable for all investors. You should therefore carefully consider whether trading or holding digital assets is right for you in light of your financial situation and not invest money that you cannot afford to lose.