Table of Contents
Introduction
Cardano became a top 3 cryptocurrency on Coinmarketcap in February 2021 with the price hitting an all-time high. This came on the back of some very exciting protocol updates (the ‘Allegra’ & ‘Mary’ Hard Forks) , and news of future partnerships. The bull run has naturally brought many new faces to the Cardano ecosystem with lots of questions about staking. We’re going to demystify staking and answer some of the common questions we get.
What is Cardano and Ada in a nutshell?
We’ll do a separate detailed technical review of Cardano, but here’s the helicopter view.
Cardano is built on the Ouroboros proof-of-stake protocol. The complete Ouroboros Praos Paper can be found here if you fancy a deep dive. Cardano is referred to as a third-generation proof-of-stake blockchain platform founded in 2017 by Charles Hoskinson and Jeremy Wood. The cryptocurrency that runs on Cardano is called Ada, after the famous Ada Lovelace. The project was launched by three independent entities: Cardano Foundation, IOG (formerly IOHK) & Emurgo.
There’s a lot of things about Cardano that make it unique. Below are some highlights that set it apart from some of its competitors:
- Cardano is built from the ground up and designed to be a third- generation protocol.
- They have a focus on peer-reviewed research ( IOHK, the development company behind Cardano has over 90 papers published).
- The code was developed using formal methods techniques. This is often expensive and time-intensive but delivers high assurance computer systems.
- The blockchain was built by an exceptional team of PhDs across mathematics, cryptography, and computer science disciplines.
- The system is designed for scalability with 2 layers (Cardano Settlement Layer and Cardano Computational Layer).
- Cardano is designed for speed. It can handle a higher transaction per second (TPS) than Bitcoin and Ethereum and is set to increase TPS further once Hydra off-chain scalability architecture is implemented.
- Cardano is built to allow for interoperability with other blockchains and legacy systems.
- The Cardano code is written using a functional programming language called ‘Haskell’.
The Cardano Roadmap
The Cardano Roadmap has 5 main phases, summarized as:
- Byron — initial launch and foundational architecture
- Shelley — decentralisation of the blockchain network.
- Goguen — smart contract platform including decentralised applications (DApps)
- Basho — all about optimization and scaling
- Voltaire — governance, treasury and voting systems
Is staking Ada safe?
Yes, staking Ada is completely safe. Cardano addresses have separate keys for spending and staking. This means that if you decide to stake your Ada, they never leave your wallet. Cardano also doesn’t require your Ada to be locked in for a period of time. This flexibility sets Cardano apart from some of its competitors.
Key takeaway: you only delegate your rights to participate in the protocol, not your actual tokens.
Below is a look at some of the staking risks and how Cardano measures up.
How does Ada staking work?
Ada held on the Cardano network represents a “stake” in the network. The size of the stake is directly proportional to the amount of Ada held. So, the more Ada you hold, the more stake you have. Proof-of-stake uses this stake to determine who can mine or validate blocks (and receive the corresponding rewards). This is a different approach to Bitcoin and other Proof of Work protocols which involve the use of computational power to mine blocks.
Not all Ada holders have the time, interest or skills required to run a stake pool themselves. This is why an Ada holder has the ability to earn rewards by delegating their stake to a stake pool run by someone else. The concept of delegating stake is fundamental to how Cardano works.
The amount of stake delegated to a stake pool is an important factor for the protocol to determine who adds the next block to the blockchain. The more stake a stake pool has (up to a certain saturation point), the more likely it is to produce blocks.
When blocks are produced, rewards are earned. The rewards are shared between all the delegates that delegated their stake to that stake pool. These incentives and rewards are important for the health and security of the Cardano network and are designed in such a way to encourage decentralization.
Key takeaway: you don’t need to run a stake pool to earn rewards. You can delegate your stake to one of the many public pools and earn passive income.
Cardano time - Epoch and Slots
Time in Cardano is split into Epoch and Slots. A Cardano epoch currently includes 432,000 slots of 1 second, which equates to 5 days
The current “chain density” is 5%. This means that for every 20 slots ( 20 seconds), one slot is awarded a leader ( 1/20 is 5%).
The Cardano delegation cycle explained
As we already said, an Epoch lasts 5 days. The Cardano system takes a stake distribution snapshot at the beginning of every epoch, so every 5 days. This stake snapshot determines the chances of your pool being elected as slot leader during the slot lottery and having the ability to mint a block.
It takes a couple of Epochs for your stake to be active and rewards to be calculated. So, be patient, it can take a while for you to see a return on your staked Ada. If you were to delegate on the first day of an Epoch, it will take 20 days to get rewards.
Let’s give an example:
- We delegated at the start of Epoch 0 to CABU pool
- Stake snapshot happens between Epoch 0 and 1.
- Epoch 1 our stake is live, but not active with CABU
- In Epoch 2, our delegation is now active with CABU
- In Epoch 2, CABU produces blocks.
- In Epoch 3 the rewards are calculated
- In the boundary between epoch 3 and 4, the rewards are delivered
Key takeaway: It can take a while to see rewards. You need to wait a minimum of 15-20 days to see the first rewards, but it could be longer for a smaller pool. Give your pool a chance!
How much Ada is staked?
As of Epoch 251, 74% of Ada is staked, equating to over 23 Billion Ada. This is very impressive when you compare it to other staking coins, such as Ethereum 2.0.
How much can I earn by staking Ada?
The Cardano network has targeted about 4.6% Return on Stake (ROS) for delegates. It’s easy to calculate the rewards you will receive if you delegate or stake yourself.
It’s important to note that pool rewards should be averaged over time. A smaller pool will statistically mint fewer blocks, but pay out higher rewards for the Epoch’s they do produce blocks. This is because the rewards are shared between fewer delegates. A small pool could have no return on staking for a number of Epochs and then have a very high ROS when they get blocks. For example, Cardano Abú had a ROS of 504.19% in Epoch 228. In contrast, a larger pool will produce more blocks on a regular basis, with a consistent ROS. Over the longer-term large and small pool rewards will average out if run by a competent operator.
Key takeaway: Large and small pools will average the same ROS. If a larger pool is saturated, the rewards will be lower. Make sure to check if the pool is saturated (active stake over 64 Million Ada)
Can you stake Cardano on Yoroi?
Yes, you can!
Yoroi is a light wallet for Cardano. It can be run as a Chrome or Firefox extension or downloaded as a mobile app.Check out this short video showing how easy it is to delegate using the Yoroi Chrome extension
Can you stake Cardano on Daedalus?
Yes, you can!
Daedalus is a desktop, full-node wallet for Ada cryptocurrency and has a delegation centre making it easy to delegate your stake to one of the many public stake pools.
Can you stake Cardano from an exchange?
Yes, some exchanges such as Binance run their own stake pools that you can delegate to. Kraken does not currently support Ada Staking. We recommend taking your Ada off exchanges and staking to independent SPOs. Supporting decentralization is key to the long-term success of the Cardano network. Also, be wary of any exchange promising a higher than average return if you lock in your Ada with them for staking.
Key takeaway: Not your keys not your coins. You should never use exchanges to store your cryptocurrency long-term
Cardano Ada Stake Pool Operators (SPO)
As of March 21, there’s over 2000 public stake pools listed. A portion of these are not actively operating so it’s worth doing some research. There’s a few different tools that you can use to review SPOs and check their stats before deciding which one to delegate to. We recommend checking out the following tools:
- Pool tools: https://pooltool.io/
- Ada pools: https://Adapools.org/
- Pool.pm: https://pool.pm/
- Ada stat: https://adastat.net/pools
A lot of operators have websites and are active on social media channels such as Twitter, Youtube and Telegram. It’s always good to connect. Phillerino of QUEEN Pool hosts a Get To Know Your SPO podcast where he talks to various SPOs.
Get To Know Your SPO
Cardano SPO Alliances and Guilds
There are a lot of different SPO alliances and guilds forming. A guild is an association of craftsmen or merchants. A Cardano guild is an association of SPOs with similar shared goals. Currently, there’s a one-to-one relationship between your stake and a pool so it’s an all or nothing delegation. In the future there’s plans to have a one-to-many relationship so you can split up your stake to many different stake pools, creating the idea of portfolios or playlists.
Here’s just a few of the alliance and guilds that have formed:
Cardano Mission Driven Pools (MDP)
Mission Driven Pools [MDP] is a collective of mission-based Cardano stake pool operators. These operators donate to charitable causes. Cardano Abú is a member of this group and we pledge to donate 50% to children’s charities.
SMILE is an African Charitable Stakepool that aims to provide health insurance to children between the ages
of 5-18years.
VOLCY is another charitable stakepool that gives to a great cause. They donate 45% to kids of Haiti. The country was devastated by a powerful earthquake in 2012.
Cardano Single Pool Alliance (CSPA)
The Cardano Single Pool Alliance (CSPA) is a group of stake pool operators that have sworn to only run a single pool. Cardano Abú is also a member of this guild.
Cardano Bare Metal Alliance
Cardano Bare Metal Alliance is an alliance formed amongst Cardano Stake Pool Operators who operate their stake pools using at least one bare metal server.
Conclusion
Earn passive income and help decentralize the network. There’s genuinely no reason not to stake your Ada. Check out some of the very interesting pools out there and what they have to offer.
