Dec 15, 2023 | Updated Dec 15, 2023
A staking pool is a mechanism that allows individuals to combine and lock their digital assets in a proof-of-stake blockchain. It is a way for users to increase their chances of successfully verifying and validating new blocks. What is a Staking Pool?
Staking is the process of locking funds to maintain the operations and security of a cryptocurrency network. It is only possible in proof-of-stake (POS) networks like Ethereum, Solana, and Cardano. Typically, PoS networks rely on the staked assets for decision-making and validating blocks. So where does a staking pool come in?
Validators earn rewards for validating blocks, but validators are selected based on factors including staked amount and randomization. The network is more likely to select a validator with higher stakes, since they have more to lose by being dishonest. Network participants can combine their assets in a staking pool to increase their chances of being selected as validators.
Staking pools are run by pool operators or administrators. Individuals contributing to the pool lock their funds in a specific wallet. By combining their resources, they increase their staking power. This improves the chances that the consensus mechanism will select their pool to verify a batch of transactions and add them to the blockchain. The staking reward is distributed among the participants based on their contributions.
Types of Staking Pools
The common types of staking pools include third-party staking pools and cold staking pools.
- Third-Party Staking Pools: Also called custodial staking pools, these pools require users to lock their funds with a third-party staking pool service provider, such as an exchange. It often means that the users hand over custody of their private keys and digital assets to a third party. It controls the entire staking process and, based on the agreement, sends the staking rewards to the user’s wallet.
- Cold Staking Pools: Also called non-custodial staking pools, this option allows users to stake coins while still maintaining control over their private keys. For instance, users can hold their funds in a non-custodial wallet while still participating in the staking process. Ledger device users can connect their devices to Ledger Live to explore solo staking, delegated staking, or pooled staking without losing control over their private keys.
Staking pools allow individuals to earn passive income without worrying about the technicalities of operating a validator node. However, compared to solo staking, the returns are relatively low as it is distributed across pool participants. However, staking pools offer more consistent and regular staking rewards.
FAQs
A staking pool is a mechanism that allows individuals to combine and lock their digital assets in a proof-of-stake blockchain. It is a way for users to increase their chances of successfully verifying and validating new blocks.
What is the point of a staking pool? ›
Staking pools allow crypto holders to earn passive income by contributing to a pool of funds that collectively earn block validation rewards from a Proof of Stake (PoS) blockchain. Individually, small stakers can't access the rewards available to validators of PoS chains like Ethereum.
What is the purpose of staking? ›
Staking is a way long-term crypto investors (“HODLers”) earn passive income in the crypto world. Staking cryptocurrency means agreeing not to trade or sell your tokens. Crypto staking creates opportunities to earn crypto rewards and diversify your crypto portfolio—but it's inherently risky.
What is the difference between staking and pooling? ›
One of the primary differences between staking and pooling is that staking means only single-sided exposure to a certain asset, while pooling usually requires 50:50 exposure to two assets in a pool. The liquidity must be balanced evenly between the two assets in order to allow fair trades.
What is staking mining pool? ›
A staking pool is a method that enables individuals to combine and lock their digital assets in a Proof-of-Stake (PoS) blockchain, enhancing their chances of successfully verifying and validating new blocks. Staking pools are managed by pool operators or administrators.
Why does staking pay so much? ›
The reason your crypto earns rewards while staked is because the blockchain puts it to work. Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle.
Is staking a good option? ›
The primary benefit of staking is that you earn more crypto, and interest rates can be very generous. In some cases, you can earn more than 10% or 20% per year. It's potentially a very profitable way to invest your money.
What is staking usually done for? ›
Staking can be done in various ways with a wide range of materials, but when done properly, it helps your garden plants to look their best and facilitate healthy growth. Plants lean, topple or flop over for various reasons: Some plants have weaker stems due to a floppy growth habit, stunted growth or etiolation.
What is the objective of staking? ›
As discussed, the point of crypto staking is to secure and scale blockchains. In that process, participants benefit by earning rewards and passive income, and can sometimes take part in network governance.
Is staking better than holding? ›
HODLing vs Staking: Key Differences
Here are some of the key differences. Hodling does not increase the number of tokens a person is holding. Staking, apart from blocking the tokens, also rewards the user for validation and other purposes the tokens are staked for. So, the number of tokens increases in staking.
While doing your research as a delegator, make sure that you are selecting a professional pool with a detailed and transparent web presence containing all data and information delegates may need about the operator (such as their security measures, team and social media presence) and costs involved, which may vary ...
What are the risks of liquidity pool staking? ›
Hacks. Another huge risk of liquid staking tokens is that the smart contract would get hacked and the assets held as collateral would be stolen. For example, let's say you mint liquid staked ETH from a protocol.
What is the staking pool rate? ›
The owners of stake pools and crypto exchanges determine the value of staking fees and rewards for each investor. The fees often fall within 1% to 25% of the total staking rewards. On the other hand, investors will earn rewards between 75% and 100% for staking their assets.
What is the purpose of a staking pool? ›
A staking pool is a mechanism that allows individuals to combine and lock their digital assets in a proof-of-stake blockchain. It is a way for users to increase their chances of successfully verifying and validating new blocks.
Is staking better than mining? ›
Mining is hardware-intensive and costly but can offer substantial rewards. Staking, on the other hand, is more accessible and environmentally friendly, with rewards tied to the amount and duration of staked coins. Choosing between crypto mining and staking depends on individual resources, goals, and risk tolerance.
How much of ETH is in a pool of staking? ›
This means that, on average, stakers of Ethereum are earning about 2.05% if they hold an asset for 365 days. 24 hours ago the reward rate for Ethereum was 1.91%. 30 days ago, the reward rate for Ethereum was 2.07%. Today, the staking ratio, or the percentage of eligible tokens currently being staked, is 28.40%.
Does staking increase coin value? ›
Though reward structures vary, in return for locking cryptocurrency in an illiquid contract, validators typically receive rewards in proportion to their staked cryptocurrency, and those rewards will generally grow in value if the blockchain successfully scales and becomes more popular.
