Pledging is an important mechanism that encourages the growth of a healthyecosystem within the Cardano blockchain. When you register a stake pool you canchoose to pledge some, or all, of your ada to the pool, to make it moreattractive to people who want to delegate. Although pledging is not requiredwhen setting up a stake pool, it can make the pool more attractive to delegators, as the higher the amount of ada that is pledged, the higher therewards that will be paid out. The a0 protocol parameter defines the influenceof the pledge on the pool reward.
Distributing rewards
During each epoch, rewards are distributed amongst all stakeholders who have delegated to a stake pool, either to their own stake pool, or another pool. These rewards are auto-generated by the protocol and are not managed by the stake pool operators (SPOs). Rewards come from two sources:
- All transaction fees: collated from the set of transactions included in a block that was minted during that epoch.
- Monetary expansion: involves distinguishing between the total supply of ada and the maximal supply of ada. The total supply consists of all ada currently in circulation, plus the ada in the treasury. The maximal supply is the maximal amount of ada that can ever exist. The difference between these two figures is called the reserve. During each epoch, a fixed but parameterizable percentage of the remaining reserve is taken from the reserve and used for epoch rewards and treasury, where the amount being sent to the treasury is a fixed percentage of the amount taken from the reserve.
Learn more about rewards sharing in the rewards sharing and pledge on Cardano video.
The following formula outlines how the reward mechanism works. The available rewards amount, transaction fees, plus monetary expansion, are denoted by R.First, the share of all available rewards that a specific pool can receive is determined, as follows:
These elements are defined as follows:
- R - total available rewards for this epoch
- a0 - pledge influence factor (can be between 0 and infinity)
- z0 - relative pool saturation size, i.e. 0.5% based on a number ofdesired pools (k=200)
- σ - stake delegated to the pool (including stake pledged by the owners andstake delegated by others)
- σ’ = min(σ, z0) - as σ, but capped at z0
- s - stake pledged by the owners
- s’ = min(s, z0) - as s, but capped at z0
Note that z0, σ and s are all relative, so they are fractions of thetotal supply, as they all lie between zero and one.
Two important considerations are:
- Rewards increase with σ, but stop increasing once σ reaches z0, that is once the pool becomes saturated.
- If a0 (the pledge influence) is zero, this formula simply becomes R·σ’,so it is proportional to the pool's stake, up to the point of saturation. For larger values of a0, the pledge s becomes more important.
Remember that the pledge is declared during pool registration (alongside the cost and margin values),and has to be honored by the pool owners who are delegating to the pool.If they collectively delegate less than the declared pledge, pool rewards for that epoch will be zero. Note that the pool will be public if its operator margin is set to less than 100%.
The rewards that are produced by this formula are now adjusted by pool'sperformance: we multiply by β/σa, where β is the fraction of all blocks producedby the pool during the epoch and σa is the stake delegated to the pool relative tothe active stake (ie, total stake that is correctly delegated to a non-retired pool).
For an optimally performing pool (a pool producing all the blocks that it can produce),this factor will be 1, on average. The actual value will fluctuatedue to the stochastic nature, or random process of the Ouroboros Praos consensusalgorithm.
After pool rewards have been calculated and adjusted for pool performance, theyare distributed amongst the pool operator and the pool members, or people whodelegated part, or all of their stake, to the pool. This happens in severalsteps:
- First, the declared costs are subtracted and given to the pool operator
- Next, the declared margin is subtracted and given to the pool operator
- Finally, the remainder is split fairly (proportional to delegated stake),amongst all stakeholders who delegated to the pool, including the pool owners.
The actual amount of adareceived in rewards may vary, and will depend on a number of factors including;the actual stake pool performance, that is, the number of blocks a stake pool isobserved to produce in a given epoch versus the number it was expected toproduce. Changes to network parameters may also affect rewards.
FAQs
Although pledging is not required when setting up a stake pool, it can make the pool more attractive to delegators, as the higher the amount of ada that is pledged, the higher the rewards that will be paid out. The a0 protocol parameter defines the influence of the pledge on the pool reward.
How much ADA do you need to run a stake pool? ›
Aside from the initial 2 ADA delegation fee, Cardano stake pools have two types of fees which are not taken out from your rewards or wallet, but from the total rewards distributed to a stake pool. There is a fixed fee of 340 ADA set by the protocol and a variable margin fee set by each pool operator.
What is a spo in Cardano? ›
Stake pool operators (SPOs) – There are around 3,000 SPOs across the world who validate transactions on Cardano's blockchain. SPOs run the stake pools that can be selected for delegation by ADA holders. SPOs are full nodes that validate transactions and produce blocks on the blockchain.
What does it mean to pledge crypto? ›
Collateralized crypto loans require you to pledge your cryptocurrency as collateral. Like a mortgage or car loan, your collateral can be seized as payment if you do not pay back your loan.
What are the requirements for Cardano validator? ›
Minimum Requirements (Testnet):
However, for a smoother experience, consider exceeding these minimums: CPU: Dual-core CPU. RAM: 4 GB of RAM. Storage: 30 GB of storage space, preferably SSD.
How profitable is staking ADA? ›
The current estimated reward rate of Cardano is 1.84%. This means that, on average, stakers of Cardano are earning about 1.84% if they hold an asset for 365 days. The reward rate has not changed over the last 24 hours. 30 days ago, the reward rate for Cardano was 1.86%.
What is the minimum pledge for Cardano stake pool? ›
Pledging Mechanism
While there is no required minimum pledge amount, pool operators can optionally pledge some or all of their stake to their pool to make their pool more attractive. The higher the amount of ada pledged, the more rewards the pool will receive, which will attract more delegation.
How to sell ADA for cash? ›
Sell Cardano for Fiat. Cash Out ADA in a Few Clicks
- Enter the amount of ADA that you wish to sell.
- Input the bank or card details where you'd like to receive your funds.
- Confirm the information to create your sell order.
- Send the exact amount of Cardano to the provided wallet address.
Earn rewards
By delegating your ADA to a validator, you will receive rewards for helping to secure the network. The current annual yield on Cardano is around 3%. You can stop delegating your Cardano at any time and you will no need to wait to unlock your ADA tokens.
Is ADA better than BTC? ›
Bitcoin's complex and competitive mining process means participants must spend more on computing power and energy to mine the cryptocurrency. In comparison, Cardano is often more affordable for miners, despite Cardano being worth less money. The massive demand for Bitcoin makes it take longer for transactions to work.
Importance of Pledges
Pledges are important because they demonstrate a commitment to a cause or goal. They can also be used as a tool to secure financing or to establish trust between parties.
Where do Cardano staking rewards come from? ›
Rewards come from two sources: All transaction fees: collated from the set of transactions included in a block that was minted during that epoch. Monetary expansion: involves distinguishing between the total supply of ada and the maximal supply of ada.
Can I borrow money against my crypto? ›
A crypto loan, as the name suggests, is a secured personal loan backed by your crypto assets. If you own cryptocurrencies such as Bitcoin, Ether, Bitcoin Cash, Litecoin, SALT, USDC, TUSD, and/or USDP, you can use them as collateral for the loan.
How much ADA to be a validator? ›
To be a validator on Cardano you have to run a server and register it by depositing 500 Ada.
How much Cardano needed to stake? ›
You can't decide how much ADA you want to delegate—you're staking all the money you currently have on your ADA balance. The minimum staking amount is 4 ADA. If you deposit more ADA to your address, they'll get added to the staking pool automatically. Please note that the staking cycle will start anew in this case.
Does ADA Cardano have potential? ›
In conclusion, while ADA may not have lived up to the hype of the last bull market, Cardano remains a project with significant potential, powered by an innovative and ambitious blockchain that carves out its own niche in the cryptocurrency space.
Does it cost 340 ADA to stake? ›
The "Cost 340 ADA" you're seeing in Ledger Live when selecting a stake pool is actually the minimum fixed cost per epoch (5 days) that the stake pool operator can set. This cost is not charged to you but is deducted from the total rewards of the pool before they are distributed to stakers.
What are the hardware requirements for Cardano stake pool? ›
CPU: An Intel or AMD x86 processor with two or more cores at 2GHz or faster. Memory: 24GB of RAM. Storage: 150GB of free storage (250GB recommended for future growth) Operating system: 64-bit Linux (Ubuntu 18.04+, Mint 19.3+, Debian 10.3+)
Are Cardano stake pools safe? ›
Since the entire staking mechanism is integral to the security of the network, you can rest assured that as long as Cardano exists, there will be a way to stake ADA. And using a non-custodial wallet and a decentralized stake pool is the most secure way to do so.
What is a stake pool ADA? ›
A stake pool is a reliable server node that represents the combined stake of various stakeholders in a single entity. Stake pools use the Cardano node to form the backbone of the Cardano network by processing transactions and validating and producing blocks.
