1.4 Risks

Introduction

Staking is not risk free and there are technical and financial risks associated with the system. The technical risks involve an issue with the individual validator’s node or an issue within the larger Ethereum community, resulting in a split with each following separate protocols. The financial risks include the inability to withdraw the staked ether and accrued rewards until some upgrades have been completed as well as losing part of the stake due to bad validator behavior. All investments have varying degrees of risk.

Reading List

• The Internet Bond

• 7 Risks of Staking Crypto

• Risk and Rewards for Staking on Eth 2.0

Learning Objectives

• Understand the different types of risks involved with staking

• Understand the different risks before and after the merge

Key Points

• Technical Risks

  • Bug existing with client could result in slashing

  • Fork in protocol that results in change of financial terms for staking or issuance

• Financial Risks

  • ETH 2.0 fails and locked up ETH is unable to be withdrawn

  • Unable to withdraw accrued awards until merge complete

  • Inactivity or bad behavior leads to slashing of ETH

  • Market risk of decrease in overall price of ETH

Review Questions

• What changes from a financial risk standpoint pre and post merge?

• What technical risks exist with staking ETH?

• What is the timeline for changes in risks?