Liquid Staking – Risks Like any other DeFi protocol, Liquid S | House Of Chimera

Liquid Staking – Risks

Like any other DeFi protocol, Liquid Staking has its downsides , such as:
Liquid token depeg
Loss of tokenised token = Loss of the funds
Smart contracts bugs

We know from previous posts that the staked funds are tokenised to provide an additional income stream potentially. However, this also means that the token operates one-to-one with the original asset because it carries the same value. This may not always be the case, as tokens can experience depegging . For instance, in the past, $stETH lost its peg to $ETH due to high usage, resulting in supply elasticity.

Moreover, if you lose the tokenised funds while utilising them to earn more, you will inevitably lose access to the deposited funds. Last but not least, smart contracts may be vulnerable to exploitation by hackers , particularly if the contracts contain bugs that bad actors can exploit.