How to Choose a Stake Pool?
Staking has emerged as a very energy-efficient way of mining cryptocurrencies for crypto investors. It doesn’t only help the investors to build the successful blocks of the blockchain and feed the transactions, but also allows the participating investors to earn rewards on their pre-existing crypto assets. If you are not already aware of how staking works, let us help you understand the process of staking and how investors earn rewards from this process.
Staking refers to the locking of crypto assets by the investors in a staking pool in order to be chosen by the Proof of Stake protocol for adding new blocks to the blockchain. In return for their willingness to lock money in the staking pool, the protocol rewards the investors with rewards like native governance tokens. However, the quality and quantity of rewards differ from pool to pool. So, how do you ensure that you are locking your money in a stake pool that offers maximum profits? Here is a guide to help you choose a stake pool.
What is a Stake Pool?
A stake pool is a single entity that combines and holds digital currencies of various stakeholders in order to facilitate transactions and mint new blocks on the blockchain. When a number of stakeholders participate in a stake pool, the protocol chooses one with the highest share in the pool to validate the production of a new block on the blockchain. In turn, the validator receives rewards for validating the transactions.
How to Choose a Stake Pool?
There are many factors to consider when you are going to choose a stake pool to delegate your crypto assets. So, here is a list of things you should look at while choosing a staking pool to invest in.
1. Purpose of the Stake Pool
Most of the stake pools use the collected funds to support other operations like charities, donations, and developing decentralized applications. Choose a pool that is involved in the most practical side operation.
2. How to Choose a Stake Pool: Find Out the Operator
When choosing a stake pool, it is very necessary for you to know the person behind the working of the pool. Choose a pool that has one of the following as its operator.
- A person that you trust
- A Non-Governmental Organization
- Company working in sustainability
- Not-for-Profit organization
- More than one stakeholders
3. Track Record
The number of blocks that the stake pool has created and the amount of money that has been staked in the pool, help you in recognizing a stake pool with the best potential. A high number of produced blocks and a flawless track record of incentives given to the participants is a mark of a good stake pool.
4. How to Choose a Stake Pool: See the Number of Relays
Make sure that the pool you are going to choose has more than one relay. Think of relays as entry and exit points. However, relays are designed in such a way that they give access to the pool to the right investors while keeping the bad ones out.
5. Setup of the Stake Pool
When choosing a stake pool, be sure to look at the setup of the stake pool. This means that you should consider the power on which the pool is running, the number of nodes that are there in the stake pool, and the kind of hardware that supports the working of the pool.
6. Saturation Point
Saturation measures the amount of stake in the pool and shows the point at which the number of rewards stops increasing with the increase in the staking money. This mechanism helps in discouraging the investors to invest their money in pools that are already filled. As an investor, you should look for a stake pool that is approaching close to its saturation point because this is where you earn maximum rewards.
7. How to Choose a Stake Pool: Return on Investments
As an investor, you are obviously entering the stake pool with the aim to earn a high amount of rewards. So, when you choose a stake pool, check the ROI that the pool is offering. Different pools offer varying ranges of ROI. For example, staking in a UniFarm pool gives a minimum ROI of 16% APY.
8. Control over Your Own Stake
The money belongs to the person whose hands it is in. The same goes for cryptocurrencies and staking. You should never delegate your assets to a pool that is maintained by an exchange. It is because giving your money to the exchange in order to stake in the pool is like giving the keys to your locker to someone else. You will lose control over your money.
9. Pool Performance
While choosing a stake pool, look at the performance of the pool in the past. In case the pool has failed to mint blocks on the blockchain due to poor management, stay away from such pools. It is because such poorly managed pools offer very little or no chance to the investors for earning rewards.
10. Decentralization Support
Decentralization is one of the most important reasons why investors are feeling so fascinated with the digital currency world. Therefore, when it comes to stake pools and their operators, it is very necessary to keep the integrity and transparency of the pool intact. To do this, you must choose a stake pool operator that doesn’t manage a very large number of pools at a time.
11. Pool Pledge
Pool Pledge is a very important factor to consider when you are to choose a stake pool. Pledge is the amount of money that the pool owners commit to delegating to the pool. In case a pool has a lower balance than the one delegated to it, it may produce new blocks on the blockchain but won’t give any rewards to the stakers. Therefore, you must always look for a pool with a high pool pledge.
Now you must be aware of the various things that you should look for while choosing a stake pool. We hope that you will be able to choose the pool that gives maximum returns on your investments while giving full control of your stake in the pool.
A passionate writer, seasonal poet, and feminist, I am trying to wrap my head around all the topics under the sky. You can often see me talking about crypto, social issues, traveling across the globe, how I am trying to change the world, and how you can be my ally!