There are over 2500+ Staking Pools in the Cardano network, each with its theme, mission, and goals behind them. In this guide, we will try to describe what to consider when selecting Staking Pool and briefly describe the pool parameters and details of ADA Staking.

This Guide will cover the following:

  1. Staking Explanation
  2. Creating Wallet
  3. Staking Rewards
  4. Describing Pool Parameters
  5. How to choose the right Staking Pool

1. Staking Explanation

Staking Cardano is a great way to earn passive ADA income. It's the process of delegating your ADA to a Stake Pool by which we can participate in transaction validation on a Proof-Of-Stake Cardano Blockchain.

By staking, we can help the Cardano network be more operational and functional, and the staking rewards are an incentive for that.

By delegating ADA to the selected pools, we can increase its chances of producing blocks. Delegators naturally want to get the highest rewards, so they must carefully choose the appropriate Stake Pool. The most important factors are the Saturation limit and specific parameters, such as commission and the capability of generating blocks by a pool.

There is a 2 ADA Fee deposit when you delegate to a pool and the 0.17 ADA transaction fee. When you un-delegate you can receive back that 2 ADA deposit.

What is worth mentioning is that your ADA never leaves your wallet when you delegate, so your coins are not at any risk. Also, there is no lock-up period, so you can move your ADA freely at any time.

2. Creating Wallet

First off, to stake, we need to have our ADA on Daedalus or Yoroi wallet. That's why we need to create a Cardano wallet and send funds from exchange to our wallet. This process may seem complicated at first, but with the guides below, we should be able to deal with it without any problems.

Yoroi Wallet Guide
Daedalus Wallet Guide

Few words about wallets...
Daedalus is Cardano's main wallet developed by Input Output. It is a full-node wallet which means it needs to synchronize with the whole Cardano Blockchain, which may take some time at first use.

Yoroi is the second Cardano Main Wallet, developed by Emurgo - one of the founding entities of Cardano. It is a light wallet, which means it doesn't have to synchronize with the blockchain as Daedalus does. Yoroi can be downloaded on mobile or can be used on a desktop as a browser extension.

3. Staking Rewards

Staking rewards are an incentive for keeping the network operational and functional. They are paid with a 15-20 days delay (3 to 4 Epochs).

This means that for the first 15-20 days, we will not receive any rewards. However, with each subsequent Epoch we will receive rewards for the previous Epochs.

After that time, the reward will be paid at the end of every Epoch (5 days). The RoA is about 5-6%, and it mostly depends on pool performance.

Our rewards are automatically compounded and staked. Any amount of ADA that we will add will be automatically staked in the current delegated pool after two epochs delay (10 days).

We can stake to multiple pools using multiple wallets. Check our previously mentioned Guides for Daedalus and Yoroi wallet on how to do that.

We can delegate our ADA to another pool at any time, and we won't miss any rewards as it needs two more epochs until our stake will count for the new pool. Until then, we will still get the rewards for being part of the previous pool.

4. Pool Parameters

As for the parameters that we've mentioned before. These are:

Epoch Fee / Fixed Fee It's a constant value of ADA that the Stake Pool Operator will earn at the end of every epoch for maintaining the pool, but the pool must produce a block in that epoch.
Margin / Variable Fee It's the cut the Pool Operator takes from the rewards before distributing them among its delegators. For example - The Stake pool gets 1340 ADA rewards for its minted blocks in a given Epoch. Pool operator gets 340 ADA (Epoch Fee), and then there's 1000 ADA left. From this 1000 ADA pool takes a 1% Margin (10 ADA), which leaves delegators 990 ADA. This will be distributed among all delegators according to their stake size.
Saturation Pool saturation is the limit to the pool size, after which the pool rewards will be capped. The saturation limit of a pool is about 64M ADA as of now. When the limit is reached, the pool will no longer be getting higher rewards for more delegations. This is intended behavior to prevent pools from growing too large and encouraging delegators to delegate to different stake pools. Thus we should consider delegating ADA to a Stake Pool with less than 50M Active Stake to receive rewards regularly. In other words - The saturation mechanism was designed to prevent centralization.
Pledge This is the amount of ADA the pool operator has staked in their own pool.
ROA - Return of ADA The expected annualized return in the current epoch, will typically be around 5-6%.

5. How to choose the right Staking Pool
To chose the best staking pool we can determine a few factors:

  • Don't delegate to over-saturated pools. You should look for a pool that is not saturated (below 60M Active Stake)
  • The pool you want to choose should have above 1M Active Stake to be able to produce blocks.
  • If you want to help smaller pools to produce their first block then look for a pool with below 1M Active Stake, it will mean a lot for them if they receive your delegation.
  • Get to know with the Pool Operator. You should be able to get in touch with the owner/operators of the pool via social media (Twitter, Telegram, Website).
  • Ensure the chosen pool is running by Single Stake Pool Operator, some operators are running multiple pools with attractive marketing of low fees, this is very bad for Cardano decentralization.
  • Check for the pool reliability - Stake pools need to maintain 24/7 uptime to be able to validate blocks.
  • Community Contributions - Check if your pool owner/operators are contributing to the Cardano Community - such as making educational content about Cardano or building projects on Cardano blockchain - or do they support Various Charities.

Credits to VALHALLA for writing this guide, please check out their pool here.