Those who participate in the staking process do so by "locking" their funds to be part of the consensus mechanism of the network by helping secure the network, validate transactions and vote on its development. In return for this work, they receive rewards in the form of that network's tokens. Due to the above average returns, it has become a popular investment vehicle in the past few years but it is not without some risks. Some of these risks are more network dependent while others are intrinsic to the market as a whole.

Slashing risk

The first big risk that affects some networks is the slashing risk. To ensure that all validators in the network behave and do not act in a way that could harm the network, there are some mechanisms in place.

In staking "slashing" refers to an event that occurs when a validator fails to comply with the network rules by, for example, not validating or endorsing blocks as they should. When this happens, a portion of the validators funds will be sanctioned and will then be either burned or distributed to the other network participants.

Because this is meant to punish bad actors in the network, the occurrence of these events is rare, as an honest validator will have no incentive to do harm since that would mean losing some of their funds. In addition, not all networks have or apply slashing the same way.

This is why it is important to choose a reliable validator to delegate your funds to. P2P has a 100% payout record and has never been the subject of a slashing event. You can find more information on P2P's history in this article.

Market Risk

One of the inherent risks of cryptocurrency staking, is the risk associated with the market. Big downward market movements can nullify the returns obtained through staking. This risk is exacerbated, by the fact that some markets have low liquidity.

Because cryptocurrency markets are inherently more volatile than traditional markets this can be an issue on a short term time-frame. All of this coupled with the fact that some networks have cooldown periods when staking is stopped, which means that a period of time must pass before staked funds become available. During this period they can't be exchanged, nor are you earning any rewards since they are not being staked. Please note that not all networks have cooldown periods. Networks such as Cardano and Tezos do not have a cooldown period and funds can be immediately transferred after being unstaked, while networks such as Polkadot do.


For more information on staking with P2P Validator, visit https://p2p.org/.

For additional introduction to staking support, visit the getting started support center.

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