Staking Pool Explained

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A staking pool allows multiple stakeholders (or bagholders) to combine their computational resources as a way to increase their chances of being rewarded. In other words, they unite their staking power in the process of verifying and validating new blocks, so they have a higher probability of earning the block rewards. 

The overall idea of the staking pool model is quite similar to the traditional mining , which involves the pooling of hash rate in a Proof of Work (PoW) blockchain. However, the staking pool setup is only available on blockchains that employ the Proof of Stake (PoS) model or, in non-POS systems through protocol design features.

Typically, a staking pool is managed by a operator and the stakeholders that decide to join have to lock their coins in a specific blockchain address (or wallet). While some require users to stake their coins with a third party, there are many other alternatives that allow stakeholders to contribute with their staking power while still holding their coins in a personal wallet. For instance, the so-called cold staking pools enable a more secure model, as users can participate in the staking process while keeping their funds on a hardware wallet.

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Compared to solo staking, a staking pool will give smaller rewards because each successful block forging (validation) will split the rewards among the many participants of the pool. In addition, most pools will charge fees, which will reduce even more the final payout. On the other hand, staking pools provide more predictable and frequent staking rewards. Other than that, they allow stakeholders to make a passive income without having to worry about the technical implementation and maintenance of setting up and running a validating node.

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