Proof-of-stake blockchain networks are opening up avenues for cryptocurrency holders to create passive income streams through public and private Stake Pools, without the added hassle and effort required for running miners, nodes, or other complex computer hardware on their own.
Of the many thriving proof-of-stake blockchains operating today, Cardano (ADA) is pioneering a particularly appealing approach to giving average users the opportunity to get involved with earning from staking, or in Cardano terms: Delegating their ADA tokens for rewards.
ADA token holders have the option to Delegate their tokens to specific Stake Pools, which in turn generate ADA yield for minting blocks on the Cardano network itself. There are a wide range of Stake Pools in existence on the network, with metrics available at adapools.org for monitoring.
The decision process for choosing the best option for delegating your ADA brings several factors in play. For one, if you learn about a stake pool that has been organized in order to directly fund a project or charitable cause that you wish to support financially, then delegating your ADA there is your best bet. If your goal is to make the most profits for the immediate term, then locating a stake pool with sizable returns is right for you.
If bigger pools bring in bigger rewards, how does Cardano maintain decentralization?
Cardano programmatically incentivizes network decentralization, and ensures distribution of ADA Rewards without sacrificing network scalability.
A key element of Cardano network’s on-chain governance is something called a Saturation Point which essentially caps a stake pool’s ADA rewards at a certain level, then induces a decrease in rewards. This encourages stakeholders within the saturated pool to seek out smaller, unsaturated stake pools to realize ADA rewards. The saturation point prevents gigantic stake pools from emerging, and centralizing the network.
If I can choose which Stake Pool I can Delegate to, why don’t I just Delegate to the very best ones?
If you’ve become acquainted with Cardano, and how ADA rewards are disbursed to stake pools, then you are familiar with Epochs, which are five day periods of time that determine ADA rewards for blocks produced.
Epochs also function as timestamps that measure the lock up periods for staking, along with eligibility for ADA rewards. The epoch waiting periods are designed to create fairness and prevent rapid movement of funds around within the network which facilitates healthy balance for ADA tokenomics.