Reading time: Approximately 4 minutes.
Please be aware that cryptoassets carry varying degrees of risk. It's imperative to acquaint yourself with the distinct risks associated with each asset before considering any investments. We strongly advise you to examine our asset risk summaries below, which provide a comprehensive understanding of the primary risk factors tied to the various cryptoasset categories available on Blockchain.com.
Stablecoins: Imagine stablecoins like digital money that wants to have a value that doesn’t move very much, just like real money, like dollars or pounds. Even though
stablecoins try to stay the same value, there are some risks that might mean
that doesn’t always happen.
Counterparty Risk: In cases where an asset is collateral-backed, it depends on a third party to maintain the collateral, and if that party becomes insolvent or fails to maintain the required collateral, it poses a risk.
Redemption Risk: The ability to redeem an asset for its underlying collateral may not function as expected, especially during market volatility or operational issues.
Collateral Risk: The value of the collateral, which may include other crypto-assets, may fluctuate, impacting the stability of the asset.
FX Risk: Many stablecoins are denominated in US Dollars, exposing you to movements in the USD:GBP exchange rate.
Algorithm Risk: Assets relying on algorithms for stability may experience algorithm failure, resulting in a loss of value and stability.
DeFi Tokens:Imagine DeFi (Decentralised Finance) tokens like digital coins linked to special financial apps and rules, all working on a tech network that isn’t controlled by
one single group or person.
Smart Contract Risk: DeFi relies on smart contracts, and even minor coding errors can lead to significant losses due to contract exploitation.
Regulatory Risk: DeFi operates without intermediaries, making it vulnerable to new regulations that can affect its use, value, or legality.
Rug-Pulls/Exit Scams: Anonymously launched DeFi projects increase the risk of developers abandoning the project, leaving investors with worthless tokens.
Data/Oracle Risk: DeFi relies on external data sources that may be manipulated or inaccurate, leading to financial risks within the protocols.
Protocol Complexity: Some DeFi protocols are complex, making it challenging for average users to understand associated risks.
Wrapped Tokens: Digital tokens are often built to work on a particular blockchain. Imagine wrapped tokens (like cbETH, WBTC) as special digital coins that help digital
coins work on different digital networks. In reality, to wrap a token you swap its
normal version (say BTC) for its wrapped version (WBTC), just like you might
swap £1 for two 50 pence coins.
Smart Contract Risk: Vulnerabilities in smart contracts can be exploited, potentially leading to a loss of funds for wrapped tokens.
Collateral Risk: The mechanisms ensuring collateralization may fail, affecting the value of wrapped tokens.
Custodial Risk: If the custodian of underlying assets becomes insolvent or experiences fraud or hacking, the value of wrapped tokens may be at risk.
Bridging Risk: Technical issues in integration layers can hamper the transfer and utilization of wrapped tokens across different blockchain ecosystems.
Pricing Disparity: Market inefficiencies or liquidity issues can cause the price of wrapped assets to diverge from their underlying assets.
Meme coins (like DOGE, SHIB) are digital coins that get popular and valuable
mainly because lots of people online and on social media start liking them and
Volatility Risk: Meme coins experience extreme and unpredictable price fluctuations influenced by social media trends, celebrity endorsements, and speculative trading.
Lack of Utility: Meme coins often lack intrinsic value and utility, relying on community interest and online trends.
Market Manipulation: Meme coins are susceptible to market manipulation, including 'pump-and-dump' schemes.
Lack of Transparency: Limited information about development teams and financials makes it challenging to assess meme coins accurately.
Emotional Investing: Strong emotional reactions can lead to impulsive decisions, amplifying losses.
Slashing Risk: Staking may result in losses if the network penalizes your validator for malfeasance, whether intentional or due to software issues.
Liquidity Risk: Some protocols lock staked assets for specific periods, limiting quick access or sale.
APY Not Guaranteed: Staking yields are determined by the protocol and may vary over time.
Protocol Risks: Changes or updates to staking protocols can introduce new vulnerabilities or unforeseen outcomes.