status

Cardano Wiki

Staking is the process of allowing people to participate in the decentralisation and security of the Cardano network. People can earn rewards for participating. In a decentralized network, decision-making power must be distributed among the participants. ADA coins are used to do this. Everyone who owns an ADA coin holds a stake, i.e. a certain share of decision-making power. These people are called stakeholders.

ADA coins can be used to actively participate in the network consensus. New blocks must be created in the network at regular intervals. Entities called pools are responsible for producing blocks. A pool is a network node that is operated by a pool operator. Anyone with the necessary technical knowledge, equipment and a certain number of ADA coins can operate their own pool.

Stakeholders can take advantage of ADA coins and engage in staking. It is necessary to have coins in your own wallet, which will allow you to choose one of the many pools to which coins can be delegated. By delegating coins, the selected pool gains a stronger position in the network and gets the opportunity to create more blocks. The strength of the pool is capped and can grow to the point of saturation. Stakeholders become stakers/delegates. Let's add that by delegating, stakers are essentially putting their trust in a selected pool. It is a kind of voting process.

During staking, i.e. after the process of delegating ADA coins to the pool, the coins still remain in the owner's wallet and are not locked. The owner cannot lose the coins and can even spend them at any time. Time is divided into epochs of 5 days in the Cardano ecosystem. Between the transition from epoch to epoch, a so-called snapshot is taken, during which the exact number ADA coins in the wallets involved in the staking is scanned.

The staker may spend some of ADA coins or, conversely, acquire new ones. During the snapshot, the current state is taken into account. If the stakers have delegated to a pool producing blocks, in a few epochs the stakers will start receiving regular rewards. The rewards are automatically counted into the staking during subsequent snapshots. A staker can delegate to another pool at any time.

Staking is similar in principle to bitcoin mining, but more inclusive. There is no need to acquire expensive hardware and pay electricity bills, so anyone who owns ADA coins can get involved.

The heart of the Cardano protocol is decentralization. To prevent existence of big pools, there is a limit to the size of rewards a pool can earn per epoch. The total stake of a pool consists of ADA coins of the pool operator (pledge) and delegated ADA coins. If the number of ADA coins in the pool exceeds what is considered the saturation point, the rewards for the pool operator and stakers begin to diminish. The saturation mechanism was designed to prevent centralization. The network encourages stakers to delegate to different stake pools and incentivize new operators to set up alternative pools.

Each pool operator must consider whether it is economically worthwhile to operate another pool after ADA coins fill the existing pool to the point of saturation. Stakers have free will in deciding whether to delegate their ADA coins to other pools of the same operator. Operators should earn the trust of stakers through some form of active work for the ecosystem. Stakers should consider whether a given pool operator deserves to operate multiple pools.

The Cardano protocol can be parameterized. The parameter K determines the number of existing pools, which is currently considered ideal. Maximum rewards for pool operators and stakers would be achieved if a few conditions were achieved. One of these conditions is that there are just the number of pools defined by parameter K, these pools are just before the saturation point, and all pools are 100% successful in producing blocks. You can calculate the saturation point by taking the number of ADA coins in circulation and dividing by K. Setting the K parameter to 500, this would be e.g: 34,000,000,000 / 500 = 68,000,000.

Each pool operator sets two fees, fixed fee and margin. The fixed fee determines the number of ADA coins the operator receives each epoch if the pool is eligible for a reward. A pool gets a reward if it creates at least one block per epoch. The fixed fee minimum is set by protocol at 340 ADA coins and is not changed by most operators. Margin is a variable component given as a percentage of the remainder of the pool reward after the fixed fee has been deducted.

The total stake of a pool consists of ADA coins of the pool operator (pledge) and delegated ADA coins. Based on the size of the pools, the element of luck and the success rate of block production, the Cardano protocol calculates the rewards for the pools in each epoch. The protocol first calculates the reward for the pool operator and then the rewards for the stakers. Rewards for stakers are calculated proportionally to the number of ADA coins they have delegated to the pool.

Let's take an example. A pool operator has a fixed fee set at 340 ADA coins and a margin set at 2%. The pool receives a reward of 30,000 ADA coins. The first 340 ADA coins are deducted, leaving 29,660 coins. 2% of 29,660 is 593.2 ADA coins. Pool operator gets 340 + 593.2 ADA coins, which is 933.2. There are 29,066.8 ADA coins left for all stakers, which will be split proportionally.

The Cardano protocol is fully responsible for calculating and distribution rewards for pool operators and stakers. The reward for stakers is distributed after one epoch has elapsed from the end of the epoch in which the ADA coins were used.

The total stake of a pool consists of ADA coins of the pool operator (pledge) and delegated ADA coins. The size of the pool determines the chances of the pool to become a slot leader and create a new block in the assigned slots. However, the chance is not purely proportional to pool size. For the sake of protocol security, an element of chance comes into play.

Let's say that, based on a calculation that takes into account the proportional size of pools, a given pool has 40 slots in an epoch in which it can create a new block. This is the expected number. However, due to randomness, it may happen that a pool is assigned a larger or smaller number of slots. In the end, the pool can create either 45 or 35 blocks. Pool performance is calculated as the number of blocks that a pool has produced in a given epoch, divided by the expected number of blocks.

When the pool has created 45 blocks, its performance is 112.5%. When it has only created 35 blocks, its performance is 87.5%, The pool reward per epoch reflects the performance of the pool, so it can be higher or lower. It is important to know that it does not matter whether a pool is currently above or below 100% of the expected performance. Within a longer period of time the randomness is fair so the performance is expected to be ~100% provided that the pool creates blocks in all assigned slots.

The monetary policy of the Cardano network is built into the protocol source code. It contains, for example, a maximum number of ADA coins that will never be more than 45,000,000,000. Also rules for fee collection, initial distribution of ADA coins, monetary expansion, rewarding pool operators and stakers, use of project treasury, etc.

Monetary policy aims to keep the protocol sustainable in the long term and to ensure its decentralisation and security. Monetary policy must provide sufficient economic incentive to maintain the protocol and develop the ecosystem. More than 75% of ADA coins are already in circulation. The protocol will distribute the remaining coins periodically each epoch in the coming years as rewards for pool operators and stakers. Part of the rewards go to the project treasury. The Cardano protocol has a capped number of coins and will only depend on fees in the future. There is no never-ending inflation of ADA coins.

In the Cardano ecosystem, time is divided into epochs of 5 days. Between epochs, a snapshot occurs in which the ADA coin balance of the accounts is scanned. For example, if you delegate ADA coins to a pool, it will only show up after a new snapshot.

Epochs are used as a specific accounting period for which rewards are paid. It is necessary to measure the performance of pools in terms of block production in order to reward pool operators and stakers.

There are 432,000 seconds in each epoch, which corresponds to the number of slots in which a new block can theoretically be created. The protocol is set up so that a new block is only created in certain slots. Some slots will remain empty. In certain slots, randomly selected pools get a chance to create a block. The assigned pool is called a slot leader. Pools have an economic incentive to create a block in assigned slot, since pool operators get rewarded for doing so, along with all stakers who delegated ADA coins to that pool. However, it may happen that due to technological problems, for example, a new block will not be created.

All epochs have a similar meaning. If you look at the epochs from the perspective of newly delegated coins to the pool, you could distinguish 5 epochs between the delegation process and the first reward: Delegation, Stake registration, Skate usage, Reward calculation, Reward distribution. If you look at it through the eyes of multiple stakers, you will see that our artificially named epochs run parallel. Someone has just delegated their coins for the first time, another user's stake has just been used by the pool in that epoch, older users are getting rewards.

If you delegate ADA coins 1 day before a new snaphost, you must wait one epoch (5 days) before the pool can use your stake in the next epoch (another 5 days). It takes another one epoch to calculate the rewards (5 days). In the next epoch the rewards are distributed. You need to wait 15-20 days (at least 3 epochs) before you get paid your first reward. After that, you can expect to receive a reward every epoch.

In the Cardano ecosystem, time is divided into epochs of 5 days. Epochs are used as a specific accounting period for which rewards are paid. Between epochs, a snapshot occurs in which the ADA coin balance of the accounts is scanned. The protocol knows what coins are staked in a given epoch and can calculate the reward based on this.

The Staker is not entitled to a reward on the first day after delegating coins to the pool. 15-20 days may elapse between the time ADA coins are delegated and the first reward received.

Let's give epochs an artificial name from the point of view of the stacker who wants to delegate ADA coins to the pool. The staker delegates coins in an epoch called DELEGATION. This may be a few hours before the snapshot, or it may be a few days. At the end of the epoch, a snapshot is taken and the coins must wait one epoch before the pool uses them. Let us call this epoch STAKE-REGISTRATION. In the next epoch, the pool can use the coins. We can call this epoch STAKE-USED. The staker is entitled to a reward for this epoch. Suppose the pool has created at least 1 block and is eligible to receive a reward. The next epoch is used to calculate rewards, let us call it REWARD-CALCULATION. Note that the rewards are only calculated but not yet distributed. Finally, in the next epoch, the staker receives the first reward. Let us call this epoch REWARD-DISTRIBUTION.

Let's put the epochs in order: DELEGATION, STAKE-REGISTRATION, STAKE-USED, REWARD-CALCULATION, and REWARD-DISTRIBUTION. Staker has to wait at least 3 middle epochs for the reward. The reward may come at the end of the last epoch.

Once you receive the first reward, you will receive the following one each epoch. Let's add that thanks to snapshots, earned rewards and new ADA coins in the account are automatically counted and used in staking. If you delegate ADA coins to another pool, you will still receive rewards from the old pool.

Cardano pays staking rewards for service for the protocol. Decentralization and security of the protocol is growing along with the distribution of ADA coins. The higher the value of ADA coins, the more expensive a potential 51% attack will be. Demand for coins increases security. The more distributed ADA coins are among users, the more people will decide the fate of the protocol. The protocol must motivate people to hold coins, so it gives them the opportunity to create passive income.

Decentralized networks are like companies that have revenues and expenses. As we described above, the expenses are related to security and decentralization. Furthermore, there are expenses related to protocol maintenance, innovation, and ecosystem development. Revenues are made up of the monetary reserve, i.e., ADA coins that will be released into circulation in the coming years. In addition, fees collected for services. Once the reserve is depleted, the protocol will depend solely on the fees collected.

Services must be created around the Cardano protocol that will be widely used. This is the only way to create a working econonomy that will ensure the long-term sustainability of the key parameters of the protocol.

The total stake of a pool consists of ADA coins of the pool operator (pledge) and delegated ADA coins. Pledge can be considered the oprator's skin in the game. There is a parameter in the protocol that affects the effect of pledge on rewards. If the operator puts his own coins into the pool in the form of pledge, the total stake of the pool increases.

The pledge can be 0 and the pool can only rely on ADA coins delegated by the stakers. Alternatively, the pool operator can delegate coins to itself on its own pool. The pledge is an important signal to the stakers, as they can see that the pool operator has staked his coins on the success of his pool.

The operator receives a reward for the pledge similar to that of staked ADA coins. If the pool receives no reward in the epoch, the operator will not receive a reward for staked ADA coins in the form of pledge. Pools with higher pledge may be considered more attractive by stakers.

It is desirable for the network to be run by people who are willing to invest their own assets to show goodwill in doing quality work for the protocol. On the other hand, a high pledge requirement could discourage less wealthy individuals from starting new pools.

To decentralize the network, it is important that stakers use their own wallets and they do not stake on centralized exchanges. Staking on exchanges is dangerous and in the event of a hack, stakers can lose their coins. There are known cases where the owner has set up an exchange only to rob it himself. Not your keys, not your coins.

The Cardano ecosystem offers many opportunities for coin owners to support the ecosystem and profit at the same time.

By selecting a pool, the staker supports the activity of the pool operator. The positive contribution of pool operators can encourage adoption of the protocol and DeFi services. Centralized exchanges usually run their own pools and do not care about the development of the ecosystem.

Owners of ADA coins can vote in Catalyst and select the project they consider beneficial. There is a small reward for voting. If you leave the coins to the exchanges, they may get the reward instead of you.

If you have coins in your own wallet, you can participate in ISPO, or you may be eligible for some airdrop. Moreover, you can use DeFi services, which offer a higher yield than staking on the Cardano protocol. Over time, services will arise that offer a yield for the service while allowing you not to miss out on staking rewards.

If you leave ADA coins on centralized exchanges, the exchange will lock the coins and not allow you to use them. If it offers a higher yield than the Cardano protocol, it has to take a risk it won't publicly acknowledge. He's probably using some DeFi service or lending the coins to someone for interest. If you leave ADA coins on the exchange, the exchange will profit from them, but you bear the full risk of loss.

Pool gets rewarded for producing blocks. Based on the stake size, the pool is given several opportunities to produce a block in assigned slots. It may happen that for various reasons the pool does not create blocks in all assigned slots. In this case, the reward per epoch is reduced, which will be reflected in the reward for stakers. If the pool does not create any blocks, it will not receive a reward.

Smaller pools get fewer opportunities to become slot leader in a given epoch, so they will create fewer blocks. It may happen that a very small pool will not create any blocks in one epoch because it did not get the opportunity, but will create two blocks in the next one. The performance of a pool must therefore be monitored over a longer period of time.

Pool gets rewarded for producing blocks. If you want to receive rewards in every epoch, you need to find a pool that has a large enough stake. Pools with a low stake will not get a chance to create a block in every epoch, so they will not get a reward.

It is not smart to delegate to a pool that is over-saturated. To prevent existence of big pools, there is a limit to the size of rewards a pool can earn per epoch. If the number of ADA coins in the pool exceeds what is considered the saturation point, the rewards for the pool operator and stakers begin to diminish.

The Cardano network is designed to reward stackers approximately 4.2% of ADA coins per year from staked ADA coins. Large pools will be more consistent in block production, so rewards will be more consistent. Smaller pools may have more variance in the amount of blocks produced, so rewards will also have variance. It may be the case that rewards are higher than average in one epoch but lower in other epochs. If the pool is lucky, the rewards may be higher in more successive epochs. It is important to note that the performance of the pool must be observed over longer time and that the yield over longer time periods will be close to the average, i.e. 4.2%.

The Cardano network is designed to reward stackers approximately 4.2% of ADA coins per year from staked ADA coins. To reach this amount, you need to delegate to a pool that has good performance and fair fees.

For the total yield you have to take into account compound interest. This means that the rewards earned will gradually increase the total amount of staked ADA coins.

If you stake 10,000 ADA coins, you will receive 420 ADA coins per year. If you stake the same number of ADA coins for 5 years, you will receive 2,328 ADA coins.

The process of delegating ADA coins to a pool is a basic functionality of each Cardano wallet. The graphical interface may vary, but the basic principles are still the same. It is important to know that it is not necessary to send ADA coins somewhere during delegation. The coins stay in your wallet for the entire staking period and you can spend them at any time. The coins are not locked. Cardano protocol does not use slashing, so you can never lose coins.

The Cardano wallet can create a staking key that is used to create a delegation certificate. The delegation certificate associates your staking key with a stake pool to which you decided to delegate your ADA coins. You can think of it as a kind of registration. The delegation certificate is submitted to the blockchain as part of a transaction so the usual fee applies.

You can delegate to another pool at any time. The purpose of decentralization is to monitor the performance of pools and change the delegation if there is a reason to do so. In the long run, it is beneficial for the network to have only reliable and honest entities in the ecosystem. Upon re-delegation, the delegation certificate is re-sent to the blockchain.

Choose a wallet that is used by more people and has been around for longer time. You will have more confidence that it is reliable. Always make sure that you download the wallet from the official site. This is very important. If you download a fake wallet, you could lose your ADA coins.

There are basically two types of wallets: full-node and lightweight wallet.

Daedalus wallet is a full-node desktop wallet. It stores the entire history of the Cardano blockchain and validates all blocks and transactions for fully trustless and autonomous operation. Daedalus runs on Windows, Mac, and Linux operating systems. It takes some time to download the blockchain and synchronize with the network.

Yoroi a many others are lightweight wallets. They are usually web wallets, so there is nothing to download and install. These wallets use a third-party server that runs Cardano full-node. As a user, you have to trust the third party software and infrastructure. The blockchain is synchronized on the server side, making the user experience much more comfortable for the user.

In both cases it is very important to keep the passphrase/seed carefully. A passphrase is a cryptographic secret that must never fall into the hands of a third party. The passphrase allows you to recover your wallet at any time. You can even use multiple wallets at the same time.

The best way to protect your coins is to get a HW Wallet Trezor or Ledger, or take a look on list of Cardano wallets with good name.

We can confidently recommend these proven and long-lasting wallets.

  • Yoroi wallet

    Available platforms: android, iOS, chrome, firefox

  • Trezor Suite

    Available platforms: web, mac, windows, linux

  • Flint Wallet

    Available platforms: android, iOS, chrome

  • NuFi

    Available platforms: android, iOS, chrome

  • AdaLite

    Available platforms: browser

  • Nami Wallet

    Available platforms: chrome, firefox