Staking and Delegation

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This page needs updating according to new information, but is maybe just about good enough to function as an introductory overview. Those seeking more detail and/or up-to-date info should go to the official page.

All About Staking

Staking refers to the process of allowing ADA in your wallet to be part of the system that both manages and secures the Cardano protocol. Staking is an anticipated feature of Shelley, the next major release for Cardano, and is expected sometime in late Q3 of 2018. When staking starts we will have entered the third of three phases of the platforms maturity: The Reward Era.

Why

All blockchains require some method to come to a consensus about which blocks are valid and which ones are not. Bitcoin, for example, uses Proof of Work (PoW). Cardano uses Proof of Stake (PoS) and more specifically a protocol called Ouroboros. In Ouroboros slots (blocks) are generated and signed/approved by what is called a "slot leader" once every 20 seconds. When a slot leader successfully signs a block they get a reward in the form of ADA. Thus staking can be lucrative and a way to generate passive income from ADA you hold.

Two Ways to Stake

There are two ways to participate and earn these rewards.

  • You may solo stake which means you spin up a server running the Cardano SL node and stake your ADA to that node. You will want to ensure your node is online 24 hours a day, 7 days a week, 365 days a year to ensure that if you are selected your server responds and generates the block. Otherwise you will be skipped and will miss out on rewards for that round.
  • You may delegate your stake to a "staking pool". By being part of a larger pool all participants share in the cost of keeping a node up and running all the time and also share chances of being the slot leader. Rewards and running costs are shared with all participants in the pool. Averaged out over the long term, the rewards per ADA before costs and fees should be the same, and the fee charged by the pool administrator will be offset by the more efficient use of resources. This method will be the obvious choice for most ADA holders.

How

  • Daedalus will have a separate area to allow you to delegate your stake to specific staking pools. All staking pools must be approved by Cardano and will be part of an official list in Daedalus.
  • THERE IS NEVER ANY REASON TO SEND YOUR ADA TO A STAKING POOL. If someone asks you to send ADA to them for staking it is a scam.
  • Staking is per epoch: what matters most is the "state of play" at the beginning of each epoch (5 days). ADA registered as staked by an individual or in a pool at the beginning of an epoch can be spent or assigned to a different pool during the epoch and that change then takes effect at the beginning of the next epoch.

Reward Amounts

A new block is generated every 20 seconds and each block needs a slot leader. IOHK has not defined what the staking rewards are yet so nobody knows. Once the rewards are defined this section will be updated with specifics, but until then here are the factors that will go into it:

  • A slot leader will be randomly selected from all stakers. Right now there is about 31,000,000,000 ADA in circulation. Assuming half of that will be staked that means your ADA is competing with about 15,000,000,000 ADA to become a slot leader. Your chances, therefore, increase depending on how much ADA you control and stake. If you have 1 Billion ADA then your chances of being a slot leader are 1/15 every 20 seconds.
  • The reward will likely be some combination of transaction fees, block size fees and block signing rewards. The current fees as defined in the protocol are ~0.15 ADA per transaction (a) and ~0.000044 per byte (b). There is an unsubstantiated rumor of 1500 ADA per slot reward.
  • The more transactions in a slot the higher the reward. Also the more bytes in the slot the higher the reward. Therefore as the network gets more active the higher the rewards based on transactions will be. Its likely that as transaction volume increases the per slot reward will decrease to compensate (pure conjecture).
  • Treasury take. Part of a sustainable organization is the ability for it to self fund ongoing development activity. It's not clear how this will be funded for Cardano, but it's expected to be funded through transaction fees that are split with the staking rewards. Again, there are no specifics provided so far, but other entities take 20% so this is as good of an assumption as any for now.

An example calculation for all this can be found here: Spreadsheet and there is now a Cardano Staking Profits Calculator but please heed disclaimer at top of page.