What is Staking Pool?

A staking pool permits several stakeholders to mix their computational resources as a method of getting better chances of earning a reward. In regards to the Proof-of-Stake (PoS) consensus algorithm, a staking pool is essentially a mixture of all the assets provided by several stakeholders to consolidate their staking power.

Furthermore, in a PoS network, decision-making or computational capacity is proportional to the number of assets possessed. Stake capacity is equal to the ratio of the total assets staked.

The main concept of the staking pool is rather equivalent to the traditional mining pool, which includes the pooling of hashrate in a Proof-of-Work (PoW) blockchain. Nevertheless, the staking pool setup can be only accessed on blockchains that use the PoS structure.

In essence, the idea is that the more the user stakes, the higher chances he will be rewarded. The majority of staking pools also promote longer and regular staking periods.

This is because the longer the user holds his assets in the pool, the more chances that he will, in fact, earn rewards. These rewards are usually assigned and expressed in APY.

Those that take part in a staking pool lock or, in other words, stake their assets into the pool and cannot use them until they are reclaimed or the staking term ends. This method improves network security by verifying and validating new blocks.

Stakers receive a portion of the revenue from block rewards.

Because the majority of those that participate in the network hardly ever obtain significant resources to stake independently, a lot of participants tend to choose to contribute their capacity to a staking pool.

Moreover, these pools often have their own manager or pool administrators who are in charge of maintaining the nodes as well as validators functional.

Even though some pools need users to sake their coins with a third party involved, there are many other choices that give the opportunity to stakeholders to contribute with their staking power while still keeping coins in their wallets.

Furthermore, staking pools behave identically to decentralized finance (DeFi) protocols, nevertheless, some pools are project-specific and employ native currencies for their protocols.

Another goal of these staking pools is to secure liquidity into the protocols, guaranteeing that there are enough assets to fulfill the DeFi requirements. Moreover, the incentives in these DeFi pools contain a share of the income made by the various protocols.

This is why APY rates in DeFi staking pools may be significantly greater than in ordinary PoS staking pools.