Polkadot democratizes staking with nomination pools launch

By November 1, 2022Polkadot
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Polkadot democratizes staking with nomination pools launch

Staking on Polkadot has become much more democratic with the launch of its Nomination Pools feature, making it possible for DOT token holders to participate with as little as 1 DOT.

Previously, native staking on Polkadot was a fairly exclusive thing due to the design of its nominated proof-of-stake consensus algorithm. The mechanism was designed with built-in balancing from nominators to validators to prevent any single validator from having an outsized impact on the protocol, ensuring it remains decentralized.

The blockchain relies on a clever and extremely complex algorithm that determines the number of active validators and how the distribution of staking is balanced across the validator set. Without nomination pools, the maximum number of participants is capped at 22,500 to prevent “unbounded processing” in runtime.

Although it’s possible to register as a nominator with only 10 DOT tokens, only the top 256 nominators for each validator, ranked according to how much they’ve staked, are eligible for rewards. As a result, the “true” minimum stake has always been dynamic but usually far higher than the 10 DOT enforced by the protocol. At present, the current active minimum is around 171 DOT to be entitled to a share of the staking rewards.

The advent of nomination pools, therefore, makes staking by nominating validators much more accessible. The nomination pool is treated as a single nominator, with staking rewards calculated according to each individual’s stake and distributed accordingly across the entire pool.

For stakers, what’s important to know is that it’s now possible to join a pool and stake as little as 1 DOT and start earning rewards for securing the network. There’s no need for users to actively manage their stake to ensure they remain within the top 256 nominators backing any validator.

Rewards will be distributed proportionally according to how much each member of a nomination pool has staked. For each block that’s processed, the validator will distribute the rewards to their nomination pool, where users can claim them.

One important thing to note is that pool members do not get to select which validator they wish to nominate directly. Rather, each account within a nomination pool is given a specific role that they must perform, with one of them taking on the Nominator Role. When users join a nomination pool, they, therefore, allow the account that has the Nominator Role to choose validators on their behalf. It’s all about keeping things as simple as possible for users, Polkadot explained in a blog post.

However, a word of warning should be heeded. Each user who joins a nomination pool is subject to potential slashing that’s proportional to the amount of their stake. Slashing is a feature within staking systems that’s intended to incentivize validators not to act in a way that might harm the network.

If a validator node attempts to compromise the running of the network in any way, it can be punished with the removal of between 5% and 20% of its staked DOT, with those tokens redistributed to other nodes on the network. For this reason, those who wish to join a nomination pool should always do their research and make sure they join a trusted pool.

To ensure there are plenty of trusted pools for investors to choose from, the Polkadot council is currently deliberating whether or not to reward creators with DOT.

It must also be pointed out that tokens staked in a nomination pool cannot be used for governance voting, though this could change later.

The value of the staking rewards varies over time, but under current network conditions, it pays out around 18% on all tokens staked to secure the network.

To get started in a Polkadot nomination pool, head on over to Polkadot’s new staking dashboard.

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