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The concept of staking is one of the most important and at the same time most confusing to understand for anyone who supports Cardano and invests in ADA, its token. The difference between understanding what it is and what it is not has a very high opportunity cost.
Therefore, in this article you will learn in a short, clear and simple way:
The concepts of Staking, Stake Pool, and delegation.
How to maximize your ADA investments
How to calculate the rewards you will receive for staking.
Please note that in order to keep the content short, clear and simple I will skip some technical or more complex concepts such as Proof-of-Stake (PoS) or how to choose a stake pool, which although they are very important, and we will study them in Cardano Academy, they will not help the objective of this article.
Let's start with a simple review of what the Cardano blockchain is and who its participants are.
Cardano, the blockchain
Cardano is a decentralized blockchain, which can be understood as a decentralized accounting system in which token transactions and information about those transactions are recorded. Unlike a traditional LEDGER with cells and columns, in a blockchain, this information is grouped and stored in blocks that are connected in a chain. Stake Pools are in charge of the accounting in the blockchain.
Stake pools Cardano
Stake pools, also called "stake pool operators" or "SPOs", can be understood as the accountants of the Cardano blockchain. They are the ones who keep track of all Cardano wallets and the amount of ADA tokens each wallet holds. It is the stake pools that verify transactions and record - in the previously mentioned blocks - who owns what. All these blocks created by the operators, which contain information about the last transactions made, are grouped and chained together, forming the Cardano blockchain.
A stake pool is simply a computer (or "node") that is connected to the Cardano network and offers the service of carrying out the previously mentioned work. Anyone with a computer, internet access, and basic computer language skills can become a stake pool operator. But why would you do it... very simple! Because there are good rewards$a$ :money_mouth_face: (there are other incentives, but this is the biggest one).
ADA Delegation
Before learning what staking Cardano is, it is essential to understand the concept of delegation. Delegation is the process by which an ADA holder delegates its tokens to a preferred stake pool (there are thousands to choose from). This allows anyone who does not have the capabilities or desire to run a stake pool to participate in the network and be rewarded in proportion to the amount of ADA delegated.
Staking Cardano
Simply speaking, "staking" is the process by which ADA holders (those who hold ADA in their wallets) grant permission (delegate) to a stake pool to count those ADA as their own votes. The more votes (delegated ADA) a stake pool gets, the more chances it has to participate in block generation, and thus obtain rewards.
Let's go into more detail.
When a transaction is generated on the Cardano blockchain, for example when someone sends ADA to another wallet, that transaction pays a small fee that is collected by the stake pool for doing the work of updating the decentralized accounting record of who owns what. So, the stake pools earn money (in ADA) for keeping the accounting and recording the transactions.
For each epoch (5-day period) a lottery is held in which it is determined which stake pools will be in charge of producing the blocks during that epoch. Approximately every 20 seconds a block is registered, and the winning stake pool of that lottery, called "slot leader", is in charge of registering it, and thus collecting ADA in return.
The chances of a stake pool to be selected during the lottery depends on how many ADAs it has delegated in its stake pool. In other words, the more ADAs a stake pool has delegated to it, the higher its chances of winning the lottery and the more profit it will generate. This can be understood as a voting system where the stake pools that get more votes (delegated ADAs), the higher the chances of winning the lottery.
Rewards for Staking
For each epoch in which blocks are produced, a stake pool generates 340 ADA of fixed profit, and a variable profit depending on how many blocks it has produced and how many transactions have been recorded on those blocks. Of the variable profit, stake pools generally return between 95% to 100% to the people who support the stake pool with their ADA (delegators).
Staking delegators earn approximately 5.5% additional ADA each year. That's about 55 ADA each year for every 1,000 ADAs staked. To get a better idea of how much you would get for staking your ADAs you can use the table below as a model. You can also multiply the amount of ADAs you have by 0.055 to get a better idea.
Amount of ADA delegated Monthly reward Annual reward
10 ADA 0.046 ADA 0.55 ADA
50 ADA 0.23 ADA 2.75 ADA
100 ADA 0.46 ADA 5.5 ADA
500 PA 2.3 PA 27.5 PA
1000 ADA 4.6 ADA 55 ADA
5000 ADA 23 ADA 275 ADA
10,000 ADA 46 ADA 550 ADA
25,000 ADA 114 ADA 1375 ADA
50,000 ADA 229 ADA 2750 ADA
ADA Cardano Staking Rewards Calculator
Before long, when the Cardano blockchain takes the most important step in its evolution, and realizes its vision of being a platform for decentralized applications, all sorts of things like identities, or whether someone owns a college degree or property will be recorded. It will also run applications such as exchanges and hundreds of other applications. This means that the number of transactions and registrations on the network will increase as the use of the Cardano blockchain increases, and with that, stake pool profits and rewards for delegators will grow as well.
How to Staking in Cardano
The process of delegating your ADAs and start staking is quite simple, but it takes several steps that are not worth developing here because there are already hundreds of videos 1 and tutorials explaining how to do it and how to choose a stake pool (among the thousands existing). Just keep in mind that you will need to install a wallet that allows staking. The most popular ones are:
Yoroi 1 (Official Cardano Wallet)
Daedalus 2 (Official Cardano Wallet)
AdaLite 1
Atomic Wallet
Summary
The Cardano blockchain is owned by its users. Just as shareholders receive rewards for the performance of the companies they invest in, Cardano users receive rewards for participating in the blockchain and holding ADA. There are three categories of users:
Stake pools, who are the engine of the blockchain and run the network in exchange for rewards.
Delegators, who delegate their ADA to stake pools in exchange for juicy rewards.
Passive ADA holders, those who invest in ADA but do not delegate or run stake pools. It is best not to be in this group as they miss out on the opportunity to generate passive income.
To maximize your earnings you can take advantage of staking, for which you will get approximately 5.5% annual return on the total ADA you delegate. And it is important to note that the risk is virtually zero, since by delegating your ADAs you are not actually giving them to the stake pool, but simply entitling the stake pool to count them as votes to increase the chances of winning the lottery, generate blocks, get paid for the work, and share the profit with you and the rest of the delegators in the stake pool.
If you want to help Cardano's security, support the ecosystem and the millions of people in it, and at the same time maximize your profits and investments in ADA, start delegating your ADAs today with a trusted stake pool.
