Many crypto enthusiasts are unfamiliar with the concept of a staking pool, which makes them skeptical about investing in one. This guide uncovers the staking pool definition and explains how this tool works to clear all your doubts.
What Is A Staking Pool?
A staking pool is a tool that enables multiple users to unite their computational resources in the process of new block verification and validation as a means of boosting their chances of receiving block rewards.
What You Need To Know About Staking Pools
While the staking pool model is similar to the traditional mining pool concept, the major distinction is that the latter involves the pooling of hash rate on Proof of Work (PoW) networks, while the former is available only on blockchains that use a Proof of Stake (PoS) consensus mechanism.
In PoS networks, the computational power is directly proportional to the number of assets held, while the staking power is linked to the percentage of total assets that were staked. Thus, since most users on the network don’t possess resources to effectively stake individually, many opt for contributing their power to a staking pool.
Each staking pool typically has its administrator or pool operators whose task is to ensure that the nodes/validators are running.
Keep in mind that the participants that lock their assets into the staking pool aren’t able to use them until they are redeemed or the staking term expires. This rule boosts the network’s security and promotes the verification and validation of new blocks.
Most staking pools encourage larger contributions, as well as more frequent and longer staking periods. This means that the longer the participant keeps their assets in the pool, the higher their chances of earning rewards or the greater their share of any eventual rewards. These rewards are typically estimated and expressed in the Annual Percentage Yield (APY).
