Guide — How to choose a Cardano stake pool and delegate ADA to it?
Lifetime ROA? Pool margins? Fixed Costs? What does it all mean?!
For some of us, staking is as interesting as it is confusing. You want to support Cardano and earn ADA while doing so. Yet, are not quite sure where to start.
Does this sound familiar? No worries! In this beginner guide I will explain all there is to staking ADA and choosing a Cardano stake pool. Have fun!
What are the reasons to stake ADA off-exchange?
Most people get their ADA from big exchanges like Binance and Coinbase. The exchanges are known to have it all: an extensive offering of coins, a trading platform, wallet services, and staking services. This tends to make people new to crypto wonder: “I hold my crypto here, why not stake with them too?”
While convenient, using an exchange does come at a price. Users are required to relinquish full control over their accounts. In other words, the exchange holds the power to block access to wallets, lock funds and reject transactions.
Holding ADA in a non-custodial wallet like Daedalus or Yoroi eliminates the risk of coins getting trapped on an exchange. On top of that, it even comes with unique benefits. You support Cardano’s decentralization, can participate in Project Catalyst and choose a stake pool of your liking.
Step 1 - How to create a non-custodial wallet?
The first thing we need in order to delegate ADA to a staking pool is a non-custodial wallet of our own. In this guide I cover Daedalus and Yoroi since both of them are featured on the official Cardano website.
Important: A non-custodial wallet puts its user in full control. There is no exchange or admin who can access the wallet. Make sure to keep passwords safe. If you lose access to a non-custodial wallet, no one is able to help you recover it.
How to choose between Daedalus and Yoroi?
Daedalus and Yoroi offer the same features. You can send and receive ADA and NFTs, stake with a pool and participate in Project Catalyst. What sets them apart is that Daedalus is a full node wallet and Yoroi is a light wallet.
A full node wallet needs to catch up with the blockchain each time it is used. Yoroi relies on up-to-date servers. It can be used as soon as the wallet is used and is therefore also available as a smartphone app.
In short, mobile and casual users can best make use of Yoroi. Power users are better off with Daedalus.
How to create a wallet in Yoroi?
- Go to yoroi-wallet.com
- Download the version that matches with the browser in use
- Add the Yoroi extension to the browser
- Start the Yoroi extension (top right corner of the browser)
- Select a language and agree with the Terms of Service
- Create a Simple Wallet and skip all options
- Pair with a Hardware Wallet if desired OR skip this step
- Write down the Recovery Phrase (also called Seed Phrase) on multiple pieces of paper. This phrase can be used to access the funds at all times. Whoever has the Recovery Phrase can use it. So, keep it secure!
- Send ADA to one of the addresses listed in the Receive tab
How to create a wallet in Daedalus?
- Go to daedaluswallet.io
- Download the version that matches with the OS (Windows or Mac)
- Install the Daedalus software
- Open Daedalus and let it synchronize (can take a couple of hours)
- Click on “Add wallet” in the bottom left corner of Daedalus
- Pair with a Hardware Wallet if desired OR choose “Create”
- Write down the Recovery Phrase (also called Seed Phrase) on multiple pieces of paper. This phrase can be used to access the funds at all times. Whoever has the Recovery Phrase can use it. So, keep it secure!
- Send ADA to one of the addresses listed in the Receive tab
Now that our wallet is filled with ADA, we are all set to find a stake pool and delegate ADA to it!
Step 2 - How to choose a stake pool?
Cardano features more than 2800 active stake pools to choose from. To save ourselves the trouble of having to examine each one of them, we are going to make use of a tool called adapools.org. This website helps us filter, compare, and monitor stake pools.
How to make a rough selection of pools with adapools.org?
The landing page of adapools.org has a feature called “Advanced Filtering”. You will find the button for this feature on the left side of the page after scrolling down a little bit. Clicking this button will open a set of filters:
Live stake
The current number of ADA delegated to a pool. A pool is saturated when it hits 64m ADA. This ceiling is planned to be lowered to 32m ADA in the near future.
Recommendation: set the filter to a maximum of 30m ADA. Delegating to pools with ~1m live stake helps Cardano’s decentralization.
Fixed cost
The max fixed cost is a set fee that enables a pool operators to cover the operational costs of their staking pools. When a pool makes a block and therefore also staking rewards, this fee is first deducted from the rewards gained. Pools are required to set the fixed cost to a minimum of 340 ADA.
Recommendation: set the max fixed cost to 340 ADA.
ROA
ROA stands for Return of ADA. This percentage represents the amount of rewards a delegator can expect on delegated ADA after 1 year of staking. Almost all operational pools, big or small, will normalize to ~4.7% ROA.
Recommendation: set the filter to 1%.
Pledge
The pledge is the amount of ADA a stake pool operator assigns to the pool. It is intended to remain staked to the pool for as long as it is in operatioin. On paper, the higher the pledge the better. In practice, not all of us pool operators are blessed with limitless resources.
Take the pledge as a sign of good will and trust. You know that someone with a pledge of >10,000 ADA wants his/ her pool to succeed.
Recommendation: >10k ADA.
Pool margin
The pool margin is the percentage a pool operator takes from made rewards (after the fixed cost is deducted from the rewards but before the rewards are distributed pro rate). Differences between 1% and 5% might sound like a lot but in practice translate to insignificant changes for delegators.
Recommendation: set the filter to a maximum of 5%.
Leverage
The leverage shows us the ratio between a pool’s total stake and the operator’s pledge. This metric is not meaningful for the purpose of this guide.
Recommendation: 0.
There are a number of boxes on the bottom side of the “Advanced Filtering” filters. The “Solo OPS” is an important one to consider. It stands for “solo stake pool operator”. Checking this box supports the decentralization of Cardano.
How to choose between stake pools in our selection?
Time to focus on the unique selling points of our candidates. Click on a pool’s name to see the pool’s profile page. This page contains information about a pool’s performance and links to a pool’s social channels or website. These are some of the points to consider:
Purpose
Some pools serve an additional purpose or mission besides block production. There are pools who use funds to develop dApps, donate to charities, support religious causes and some who use funds to create content.
Operator
Who is the operator of the pool? Is he/ she capable? Is he/ she active in online communities? Contacting the pool operator can be a check to see if a pool can be trusted.
Track record
Multiple blocks and a lifetime of multiple epochs are indicators that a pool is doing well and can be trusted. Yet, don’t be too hard on a new pool if it hasn’t made blocks. Making a block is difficult and it can take multiple epochs before a pool makes a block. You can also look at a pool’s Registered date to find out if the pool has been active for a long time or not.
Relays
Click on the About tab and make sure that a pool has more than one relay.
Relays can best be explained at the hand of a castle. You have the keep (the block-producer node) as the heart of the castle. It is the place where all important decisions are made. A pool operator (king) doesn’t want outsiders to have direct access to the keep as this could result in trouble. Hence, the pool operator builds one or more gatehouses (relay nodes) around the keep. Their role is to grant access to the right people and to keep bad actors out.
Setup
A pool’s website often contains information about a pool’s setup. Think of the number of nodes a pool has (the more the merrier), what kind of power the nodes are running on (green or not) and the hardware that is being used.
Step 3 - How to delegate ADA to a pool?
We have our pool of choice in our sights. Now, let’s wrap up the delegation process and delegate some ADA to the pool!
Important: delegating ADA for the first time? Be aware that it comes with a 2 ADA deposit and a 0.17 ADA transaction fee. You don’t have to pay the deposit costs again when switching pools.
Important: there is no risk in delegating ADA to a staking pool. ADA never leaves a delegator’s wallet and is never locked. You can switch pools at all times and will never lose ADA.
How to delegate ADA to a pool with Yoroi?
- Click on the Delegation tab
- Fill in the name or the ticker of the stake pool of choice
- Click on the green Delegate button
- Select and confirm the wallet
How to delegate ADA to a pool with Daedalus?
- Go to the Delegation Center (the dotted icon in the left menu)
- Click on the Stake Pools tab
- Fill in the name or the ticker of the stake pool of choice
- Click on the green Delegate button
- Select and confirm the wallet
Congratulations! You are now staking ADA. The first rewards will pop up in the wallet in 4 epochs (~20 days). Done with staking? No worries. ADA is never locked. Want to switch pools? Just delegate to another pool. You won’t miss out on rewards while switching pools. Have fun staking!
Was this guide helpful? Great! Consider leaving a like or sharing it. Did it leave questions unanswered? Feel free to let me know what is still missing or could be done better.
Cheers,
Olivier Wouters | Operator of the IDEAL staking pool
Ticker: IDEAL | Mission Driven | Running on Green Power
