A stake pool is a Cardano network node with a public address that other users can delegate to, and receive rewards. The Stake Pools are playing a very important role: they are creating (minting) the blocks which include the blockchain transactions. They are run by a reliable operator: an individual or business with the knowledge and resources to run the node on a consistent basis.
Delegation is the process by which ADA holders delegate the stake associated with their ADA to a stake pool.
There are two ways an ADA holder can earn rewards: by delegating their stake to a stake pool run by someone else, or running their own stake pool. Delegation allows ADA holders that do not have the skills or desire to run a node to be able to participate in the network and be rewarded in proportion to the amount of stake delegated.
The ability to delegate ADA to a stake pool is fundamental to how Cardano works.
The amount of stake delegated to a given stake pool is the primary way the Ouroboros protocol chooses who should add the next block to the blockchain, and receive a monetary reward for doing so. The more stake is delegated to a stake pool (up to a certain point, the saturation point, which right now is 64 Millions ADA, but will probably decrease to 32 Millions ADA in the next months), the more likely it is for the pool to make the next block.
Each time a stake pool is selected and produces a block that is accepted onto the blockchain, it is rewarded, and these rewards are shared between everyone who delegated their stake to that stake pool.
Extensive research and development has gone into ensuring a fair, competitive marketplace that proportionately incentivizes participation, and rewards the investment of time, energy, and resources. The key technical parameters influencing stake pools and the rewards received are:
While there is no required minimum pledge amount, pool operators can optionally pledge some or all of their stake to their pool to make their pool more attractive.
Saturation Parameter (K)
Saturation is a term used to indicate that a particular stake pool has more stake delegated to it than is ideal for the network, while k is the targeted number of desired pools. Once a pool reaches the point of saturation, it will offer diminishing rewards. The saturation mechanism was designed to prevent centralization by encouraging delegators to delegate to different stake pools, and to incentivize operators to set up alternative pools so that they can continue earning maximum rewards. Saturation, therefore, exists to preserve the interests of both ADA holders delegating their stake and stake pool operators, and to prevent any single pool from becoming too large.
The desirability of a pool is calculated by taking the pledged owner’s stake, costs, and margin, and combining them with an influence from saturation and pool performance. This number will be used to rank pools in Daedalus and Yoroi, and indicates how ‘desirable’ or ‘attractive’ the pool is to potential delegators.
This tunable parameter will control the ratio of slots created by the federation of nodes compared to those by stake pool nodes. The decentralization parameter allows the network to stabilize.