What Is A Staking Pool?
A staking pool, in the context of Proof-of-Stake (PoS) consensus networks, refers to the consolidation of assets contributed by multiple stakeholders to combine their staking power.
In PoS networks, the decision-making or computational power is directly proportional to the number of assets held, and staking power corresponds to the percentage of total assets staked.
Since many network participants may not have significant resources to stake individually, they often choose to contribute their staking power to a pool.
These pools are typically managed by administrators or pool operators who oversee the operation of nodes or validators.
Enhancing Network Security
Participants in a staking pool lock or stake their assets within the pool, restricting their usage until they are redeemed or the staking term expires in the case of locked savings.
This process enhances the network’s security and facilitates the verification and validation of new blocks. Stakers are rewarded with a portion of the earnings from block rewards.
Generally, a higher stake increases the chances of earning rewards.
Many staking pools also incentivize longer staking periods, offering higher likelihoods of rewards or larger shares of potential rewards for those who keep their assets staked for extended periods.
These rewards are often estimated and expressed as Annual Percentage Yield (APY).
DeFi Staking Pools
In decentralized finance (DeFi) protocols, staking pools, also known as savings, operate similarly. However, these pools are specific to individual projects and utilize native tokens of their respective protocols.
In DeFi pools, an additional purpose of staking is to lock liquidity within the protocols, ensuring sufficient asset resources to meet the demands of DeFi applications.
Rewards in DeFi staking pools often include a share of the revenue generated from various protocols, such as fees and commissions.
This is one reason APY percentages in DeFi staking pools can be higher than those in regular PoS staking pools.
However, staking pool investors should be aware of certain risks, including adverse price movements of the staked assets that may offset the earned APY.