How to Stake ADA on Cardano Network
What is stake?
Any ADA held by users is considered “stake” in the network. The ability to delegate or pledge one’s ADA (stake) is how Cardano’s Proof of Stake consensus protocol works. The amount of stake delegated to a stake pool determines the likelihood that pool will produce blocks which in turn create rewards for the entire pool.
What is delegation?
Delegation is the process in which a user allocates their ADA to any given stake pool. The funds are always safe and never leave the user’s wallet. Think of it as an endorsement. When you delegate your ADA you are telling the network that you are voting for the particular stake pool. Since the amount of stake determines the likelihood of producing blocks you should look for stake pools that have an adequate amount of stake. You should be careful however, not to delegate to a saturated stake pool. Once a stake pool has become saturated it reaches maximum rewards, which diminishes the returns of the entire stake pool. On adapools.org there is a meter under the column titled stake. If you hover over with your mouse pointer it will tell you the saturation percentage of the stake pool.
How to do I delegate ADA?
To delegate your ADA you need to locate the stake pools stake ID. Do not confuse the stake ID with the pool ID. Trying to use the pool ID will not work. Once you have chosen a stake pool at adapools.org simply click the link for the stake pool to take you to the detail page. You will see two IDs listed under the name of the pool. The first is the Pool ID and the second is the stake ID. Copy the stake ID and paste it into the stake address inside your wallet. Again, your funds will never leave your wallet when staking and your funds can be withdrawn or moved to a new stake pool at any time. Note: you are not sending ADA anywhere so use the staking tab inside your wallet not your send tab. Also, you will never be required to send your ADA to a stake pool. Do not do so if asked.
What is ROA?
ROA stands for return on ADA. On average you should expect to earn close to 5% annually on your stake. This may not sound like much to some, but you need to also consider any price increase in ADA. For example, if ADA doubles in price you are now essentially earning 10% per year on your initial investment.
Adapools.org give you to ROA figures. ROA 1M is the return on the last 30 days and Lifetime represents the ROA of the stake pool since its inception. You should look for a stake pool that has a decent lifetime ROA. Remember, there is an element of randomness and every stake pool has a bad epoch from time to time so the last 30 days can be skewed by just one bad epoch.
What is luck?
Since there is a level of randomness in producing blocks, regardless of the amount of stake, each stake pool has a probability of how many blocks it should produce in any given epoch. The probability of course is based on several factors including the amount of stake. For example, If the probability of the number of blocks a stake pool should produce is 11 and the actual amount of blocks produced is 12 then the luck is 109%. If the probability is 11 and actual is 10 then the luck would be 90% for that epoch. Note: you should see a wide variance in luck no matter which stake pool you choose and should for the most part even out over time.
What are fees?
Fees determine how much a stake pool can make on any given epoch. The percentage is variable and can be set to the discretion of the stake pool. It can be set as low as 0% and as high as 100%. There is a fixed fee that is set at a minimum of 340 ADA per epoch. This is to ensure that the stake pools can profit.
What is pledge?
Pledge is the stake pool’s own investment. The parameter A0 governs this and ensures that stake pool operators are investing their own money into the network as well as prevent bad actors. The higher the pledge the more likely the stake pool will be successful at producing blocks. Make sure to delegate to stake pools with ample pledge.