How To Choose The Best Stake Pool On Cardano
Last updated
Last updated
Every stake pool operator will try their best to convince you that their stake pool yields the best return on investment. But, honestly, there’s only so much you can make out of a stake pool when you look at the parameters. Of course, it’s tough to judge because there are so many parameters, but as a rule of thumb, if you are looking for reliable returns, your best bet is to target a mid-to-large-sized pool minting multiple blocks per epoch.
What everyone is describing as a good stake pool is just a reliable or well-known stake pool but not really distinguishable from one another. If you’re looking for a good stake pool with decent rewards, you should go beyond inspecting top-level information/numbers in a box. Instead, you need to look at the vision and mission. But all that aside, there are a few basics you need to look at and understand when filtering for a stake pool:
Live Stake
Pledge
Fixed Cost
Margin
ROA
Maximum Leverage
Solo Ops
Mission, Vision & Cause
The live stake is basically the amount of ADA delegated to a stake pool at this point in time. There are a few things to consider when you look at how large or small the current live stake is. The general rule of thumb is you want a stake pool that has north of 1 million ADA staked. That’s because smaller pools tend to have inconsistent timings for rewards, meaning they might miss out on consistently minting a block in each epoch, which means you don’t get rewarded as a delegator. The bigger pools have more consistent rewards. Each staking pool has a saturation level of 64 million ADA.
Pledge is the ADA that a pool operator deposits directly into their block producer node.
The lowest fee a pool operator can set is 340 ADA. This does not mean that delegators are giving a stake pool 340 ADA as an upfront cost. What this does mean is that 340 ADA are taken as a base fee for each five-day epoch as long as one block is produced. This has been set so that all stake pool operators can cover the basic costs of running a stake pool, in theory. If the pool produces multiple blocks in an epoch, the average fixed cost per block reduces as it is spread across more blocks. A Cardano block reward is currently 600 ADA, so if The Art Bank pool produces one block this epoch, the stake pool gets 340 ADA, and the remaining 260 less the margin is automatically dispersed to delegators proportional to the amount of ADA they have staked with a pool.
If a pool mints ten blocks, the reward is 6000 ADA. 340 ADA automatically goes to the pool operator to help cover their fixed costs. The margin is the percentage a stake pool takes from the remaining 5,660. If the margin is 4%, for example, the pool would also take four percent of that remaining 5,660 or 226.4 ADA. That leaves 5,433 to be distributed between delegators. The margin percentage is generally used to fund unique aspects or causes of a pool project outside of the running costs for the stake pool itself.
ROA stands for Return of ADA. ROA is the total return on assets provided to delegators of the pool. If you click into a stake pool, you’ll see the Lifetime ROA. Generally, the ROA averages around 4% but might be significantly lower for small or oversaturated pools.
Max leverage tells you a little bit about the ratio between the total stake of a pool and a pool's pledge. However, it doesn’t help as much in distinguishing a good pool from a bad pool and doesn’t really affect ADA rewards, so it’s not a margin that requires too much attention, and you can leave it as is when filtering stake pools.
Solo Ops is a selection option at the bottom of the sliding filters that stands for Solo Stake Pool Operator. This is completely optional, but as mentioned, single-stake pool operators encourage decentralization. Running multiple stake pools instead of sticking to just one reduces the network's decentralization. And while you might think, oh, that doesn't matter, I just want to make money, it really does matter for the long-term outlook of the blockchain. If you believe in Cardano enough to buy and stake it, then you must realize that keeping the network decentralized and secure will affect your bottom line eventually.
Let’s face it, Cardano is a blockchain like no other, and a lot of what is being built and supported in the ecosystem is for the greater good. Some pools go the extra mile to create content, support artists, donate to charities or make sure they run on green energy. But, this is not included in your search options on any stake pool research page, and you’d need to dig deeper to uncover Missions, Visions, and Causes. To do this, you need to go into the stake pool page and find the stake pools website and click through. Any pool with a mission and vision will make this clear on its website. If a stake pool doesn’t have a website, or a mission and visions, for that matter, it’s a big red flag.
The real outliers are the stake pools that distinguish themselves from the rest by offering value beyond the “base parameters.” Learn more about how you can stake on Cardano using an or .
