There exist a number of potential risks when staking ETH using liquid staking protocols.
Smart contract security
There is an inherent risk that Lido could contain a smart contract vulnerability or bug. The Lido code is open-sourced, audited and covered by an extensive bug bounty program to minimise this risk.
ETH - Technical risk
Lido is built atop experimental technology under active development, and there is no guarantee that ETH has been developed error-free. Any vulnerabilities inherent to ETH brings with it slashing risk, as well as stETH fluctuation risk.
ETH - Adoption risk
The value of stETH is built around the staking rewards associated with the Ethereum beacon chain. If ETH fails to reach required levels of adoption we could experience significant fluctuations in the value of ETH and stETH.
Slashing risk
ETH validators risk staking penalties, with up to 100% of staked funds at risk if validators fail. To minimise this risk, Lido stakes across multiple professional and reputable node operators with heterogeneous setups, with additional mitigation in the form of insurance that is paid from Lido fees.
stETH price risk
Users risk an exchange price of stETH which is lower than inherent value due to withdrawal restrictions on Lido, making arbitrage and market-making impossible.
The Lido DAO is driven to mitigate above risks and eliminate them entirely to the extent possible. Despite this, they may still exist and, as such, it is our duty to communicate them.