[Staking in Crypto, why is the return so high, and where is the risk? 】

Recently, a friend has just entered Crypto, and he has always wondered why the annual income of Crypto pledge or group LP liquidity mining can be so high (annualized 60-70% is not much, and many new projects have an annualized rate of more than 2000% XD)

I explained to him some of the risks and rewards that need to be considered in doing DEFI, and after sharing it, I just thought that many people would want to know about it, so I put it up by the way.

First of all, we must understand that most of the investment or speculation, a certain reward is accompanied by risk, the higher the reward, the greater the risk.

However, the risk and reward depend on the individual's tolerance, and everyone's suitability is different. The most important thing is to find out which strategy you are most comfortable with.

Let’s talk about the common risks of staking or mining in DEX (decentralized exchange).

1. The DEX is drained, and all the money you put in it will be swept away by the project party. Just like the squid coin plummeted by 99% in one second.

2. If you buy coins with higher risk, you will have relatively high returns. This kind of high-risk currency, the bear market may fall quickly, and it will not make up for your pledge income. Your return is nothing compared to the rate at which the price of the currency is falling.

3. If you set up LP mining, you may incur free losses due to the different price fluctuations of the two currencies.

This is how Binance explains it: Impermanent losses occur when liquidity is provided to a liquidity pool and the price of the asset you deposit changes from the price at which you deposited it.

The greater the change, the greater the impermanent loss you face. In this case, your loss is that the coins are worth less money when you withdraw them than when you deposited them.

4. You will be less liquid when everyone is crashing and selling. It's a situation where people are crowded and trampled to death.

【Summarize】

Most people expect high returns from trading, but when you only see the reward and don't see the risk behind it, you are exposed to a scary place that you don't know about. It is important to think about the risks first and then look at the profits.

"The above content is not investment advice. Cryptocurrency is a high-risk investment. Please do your research before deciding whether it is suitable for you. NFA, DYOR!"

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