What is staking?
Ada held on the Cardano network represents a stake in the network, with the size of the stake proportional to the amount of ada held. The ability to delegate or pledge a stake is fundamental to how Cardano works.
There are two ways an ada holder can earn rewards: by delegating their stake to a stake pool run by someone else, or by running their own stake pool.
The amount of stake delegated to a given stake pool is the primary way the Ouroboros protocol chooses who should add the next block to the blockchain, and receive a monetary reward for doing so.
The more stake is delegated to a stake pool, the more likely it is to make the next block, and the rewards that it earns are shared between everyone who delegated their stake to that stake pool. Once a pool is saturated, extra stake no longer adds rewards.
How a pool is chosen to produce a block, and how rewards are calculated and paid out, is explained step by step in how Cardano works.
Stake pools may be either public or private. A public stake pool is a Cardano network node with a public address that other users can delegate to, and receive rewards. Private stake pools only deliver rewards to their owners.
Stake pools are run by a reliable operator: an individual or business with the knowledge and resources to run the node on a consistent basis. Ada holders can delegate to public stake pools if they wish to participate in the protocol and receive rewards, but do not wish to operate a Cardano network node themselves.
The more stake that is delegated to a stake pool, the greater chance it has of being selected as a slot leader. Each time it is selected and produces a block that is accepted onto the blockchain, it is rewarded, and these rewards are shared between the stake pool operator and stake pool delegators.
Extensive research and development has gone into ensuring a fair, competitive marketplace that proportionately incentivizes participation, and rewards the investment of time, energy, and resources. The key technical parameters influencing stake pools and the rewards received are:
Pledging Mechanism
While there is no required minimum pledge amount, pool operators can optionally pledge some or all of their stake to their pool to make their pool more attractive. All else being equal, a higher pledge slightly increases the pool's rewards. The a0 protocol parameter defines the influence of the pledge on the pool reward.
Desirability Index
The desirability of a pool is calculated by taking the pledged owner's stake, costs, and margin, and combining them with an influence from saturation and pool performance. Some wallets use this number to rank pools, as an indication of how 'desirable' or 'attractive' the pool is to potential delegators.
Saturation Parameter (K)
Saturation is a term used to indicate that a particular stake pool has more stake delegated to it than is ideal for the network, while k is the targeted number of desired pools. Once a pool reaches the point of saturation, it will offer diminishing rewards. The saturation mechanism was designed to prevent centralization by encouraging delegators to delegate to different stake pools, and to incentivize operators to set up alternative pools so that they can continue earning maximum rewards. Saturation, therefore, exists to preserve the interests of both ada holders delegating their stake and stake pool operators, and to prevent any single pool from becoming too large.
How do I set up a stake pool?
It's important to remember the role of a stake pool operator: to ensure reliable, 24/7 operation of a network node. As a stake pool operator, you have a responsibility to the ada holders who delegate to you but also to the health of the network itself. This requires a stable and reliable network infrastructure and, ideally, system operation and server administration skills along with experience in development and operations.
Anybody can learn how to operate a stake pool, but a degree of technical familiarity and knowledge is required.
Try our staking calculator to see how much ada you could receive by running a stake pool.
FAQ
Income depends on how much stake your pool attracts, how many blocks it produces and the fees you set. Every pool charges a fixed fee per epoch of at least the protocol minimum, plus an optional margin, and both come out of the pool's rewards before the rest goes to delegators. Small pools may not produce a block in every epoch, so their income varies a lot. Registering a pool also takes a refundable 500 ada deposit. The rewards calculator gives estimates only, never a guarantee.
As a stake pool operator, you will typically have:
- Operational knowledge of how to run and maintain a Cardano node on a 24/7 basis.
- System operation skills.
- Experience of development and operations. (DevOps)
- Server administration skills. (operational and maintenance)
Block producers and relays are supported on 64-bit Linux only. The node also runs on Windows and macOS, but only as a desktop client. The cardano-node release notes list the supported distributions and the minimum hardware.
Yes, this is technically possible. Register a stake pool and set its margin to 100%, so delegators to your pool receive no rewards and have no reason to join. You can still stake your own ada and test your stake pool operations.
Delegators compare pools by their block production, fees, pledge and saturation, so keep your pool online and producing the blocks it is elected for. Your pledge, the ada you commit to your own pool, is visible to everyone. Additionally, stake pool operators can inform users about:
- Security: details of how a stake pool has been secured against hackers
- Team: information on the operator’s team and experience in managing stake pools
- Communication and social media: regular updates and support for delegators
- Website: stake pool information and marketing
Pledging means committing your own ada to your pool. There is no required minimum, but the pool owners must delegate at least the declared pledge to the pool, or it earns no rewards for that epoch. All else being equal and up to saturation, a higher pledge slightly increases the pool's rewards, and the a0 protocol parameter sets by how much. Read more on pledging on the IOHK blog.
Stake pool operators need to stay available to respond to network or performance alerts and keep their node on a supported release. New node versions and required upgrades are published on the cardano-node release page.
Wallets and pool explorers show each pool's performance, which compares the blocks it actually made with the blocks it was expected to make given its stake. Delegators also look at fees, pledge and saturation. We recommend that ada holders also do their own independent research when choosing where to delegate their stake.
Yes, if you sign up for stake pool operator updates. New node versions are also published on the cardano-node release page.
No. Rewards depend on how many blocks the pool produces, which follows its stake but also involves luck, and on the fees it charges. The protocol pays rewards directly to the operator and the delegators, and a pool never holds delegated ada. Rewards also start with a delay: stake delegated in epoch N becomes active in epoch N+2, and the first rewards are paid at the start of epoch N+4.