How Can the Risk of Smart Contract Exploits Affect the Valuation of a Staked Asset?

The risk of smart contract exploits significantly increases the systemic risk of a staked asset, which must be factored into its valuation. An exploit can lead to the permanent loss of the staked capital, a process known as "slashing" in PoS systems, or a general loss of protocol funds.

This risk necessitates a higher discount rate in DCF models and can cause a sudden, sharp decline in market price. Investors must assess the quality of security audits, bug bounties, and protocol insurance as mitigating factors.