Staking Pool

What Is a Staking Pool? 

A staking pool allows many stakeholders (also known as bag holders) to join their computing resources to increase their odds of being rewarded. In short, users unite their staking power for verifying and validating new blocks. This gives them a higher chance of earning the block rewards. 

The concept of the staking pool is almost similar to the more traditional mining pool, which requires sharing hash rates in Proof of Work (PoW) blockchains. The staking pool system is only possible on blockchains that use the Proof of Stake (PoS) model or through protocol design options in non-POS systems.

How a Staking Pool Works

A pool manager runs a staking pool, and the stakeholders who want to join the pool must commit their coins to a blockchain address (or wallet). Some pools require that their users stake their coins through a third party. 

In decentralized finance (DeFi) protocols, staking pools ( also known as savings) work similarly.  However, these pools are project-specific and use their native tokens for their protocols. For instance, PancakeSwap (a Binance Smart Chain (BSC) protocol) features CAKE (its native token) staking pools. However, it also supports multiple staking pools for projects on BSC.

A secondary purpose of staking pools is to retain liquidity in the protocols, guaranteeing that there are sufficient resources in terms of assets to support the DeFi needs.

However, there are many alternatives that let stakeholders give their staking power while still retaining control over their coins in a personal wallet. For example, the cold staking pools support a more secure model, as users can join the staking process while storing their funds on a hardware wallet.

However, compared to single person staking, a staking pool will yield smaller rewards because every successful block validation will distribute the rewards among all the pool participants. 

In addition, most pools also charge fees, which end up reducing the final payout. However,  staking pools offer more foreseeable and repeated staking rewards. They also allow stakeholders to earn a passive income without worrying about managing the technical operation and upkeep required in setting up and running a validation node.