Two types of staking pools
There are private and public staking pools for participation in transaction validation within proof-of-stake networks. While private pools generate profits only for their operators, delegators can assign their coins to public nodes to help secure the blockchain and generate additional income for themselves. A node is a key point in proof-of-stake networks.
Here are some criteria you should consider before delegating your coins to a staking pool.
Staking pool fees
Delegators must pay fees to participate in a staking pool. Setting up and maintaining a pool requires time and expertise. Operators are responsible for ensuring the network functions properly, providing resources and energy for their pool 24/7, and taking responsibility for the coin or token holders who delegate to them. For this reason, most staking pool operators charge delegators a service fee, which is deducted from their share of the rewards.
Some networks also charge participants other types of fees. For example, depending on the staking pool, there may be fees for delegating coins or fees on the margin of the rewards themselves. Pool operators also regularly receive a share of transaction fees and newly minted tokens if their nodes operate in full compliance with the consensus. Minting refers to the process of creating new coins or tokens as staking rewards.
Minimum stake requirement
Another consideration when selecting a suitable staking pool is the minimum stake required. Most staking pools require a relatively small amount to participate as a delegator. Low minimum stakes provide access to staking for smaller investors. This means you can participate with smaller amounts, benefit from rewards, and gain experience in cryptocurrency staking without taking on significant risks.
Pool size
A large number of delegators contribute to the security of a blockchain network. However, as a pool grows larger, more delegators are drawn in until a saturation point is reached. After this saturation point, the rewards offered decrease, along with the return for investors.
This limit prevents individual pools from becoming too large and encourages decentralisation of the network by incentivising the creation of alternative pools. Some pools also have a delegation cap, setting the maximum number of tokens they can accept. After reaching the cap, no further coins can be delegated.
Pool pledge
To ensure functionality and security, the pledge is a mechanism that helps attract delegators to staking pools while also promoting a high degree of decentralisation. A pool pledge refers to the fixed contribution of a pool operator to the overall liquidity of the pool. The purpose of the pledge is to build trust among potential pool participants. By committing their own funds, the operator signals their dedication to the pool.
There is generally no minimum amount required for a staking pool pledge. However, if a pool operator commits only a small amount, the pool might validate transactions and produce new blocks but may not generate rewards. Validators with higher stakes are more likely to be selected to validate the next block and receive significant rewards in return.
A pool operator can deposit a chosen amount as a pledge to attract coin holders who want to delegate. Validators with higher stakes are expected to be selected more frequently for block validation and, therefore, earn higher rewards.
Live stake
It’s important to check the current live stake of a pool before joining. The live stake represents the total amount of cryptocurrency currently staked in the pool. This figure is calculated by adding the operator’s pledged stake to the current delegated stake and then dividing it by the total stake in the system.
Understanding the live stake is crucial for evaluating the size and influence of a pool within the network. This value impacts the pool's chances of validating transactions and earning rewards. The live stake shows how active and large a pool is, as well as its potential for generating returns.
Pool ranking
Pool rankings are based on key factors such as:
Overall performance in block creation (assigned vs. validated blocks)
Total number of blocks produced
Expected return
Total amount of staked coins or tokens
Pool operating costs per epoch
Live stake
Minted blocks per epoch
Pool saturation level
A pool’s appeal is often reflected in its position at the top of the rankings. An epoch refers to the period during which certain actions and processes occur in a proof-of-stake network.
Additional factors
In addition to the mentioned criteria for selecting a suitable staking pool, you should also consider external factors related to the protocol. For example, some pools use green energy or are operated by non-governmental organisations (NGOs).
If you find this selection process too complicated, Bitpanda Earn offers a straightforward way to stake your coins and tokens to secure the blockchain and earn attractive rewards.
