One of the most significant changes that the Shelley roll-out brings to the Cardano protocol is the arrival of mainnet staking and delegation.
All ada holders are empowered to take part in the governance of Cardano. However, some users may not have the time, resources, or necessary skills to take an active role in this process. Instead, they may choose to delegate their ada—or their ‘stake’—to a stake pool.
The Incentivized Testnet (ITN), which launched in November 2019, represented the first time that pool operators and ada holders could participate in Cardano’s consensus and earn real rewards paid in ada for their involvement.
There were over 670 active stake pools on the ITN, staking over ₳11.35 billion in total. These existing stake pool operators, and now new participants, can operate stake pools on the mainnet—a major milestone in Cardano’s development.
In our last article, we presented a high-level overview of Shelley. Here, we examine why you may want to run your own pool, and dive deeper into the process of becoming a stake pool operator.
What are the technical requirements for running a stake pool?
Stake pools are nodes on the Cardano blockchain that have a public address, where other holders may send their ada in order to delegate their stake.
Both individuals or businesses alike can choose to run a stake pool, but pool operators must possess the right technical skills and adequate computing infrastructure.
Stake pools are central to the reliability of Cardano. It is crucial that stake pool operators are both reliable and credible. Stake pools that regularly experience downtime are unlikely to be chosen by ada holders looking to delegate their stake. In serious cases, an unreliable pool operator may receive penalties for adversely affecting the network.
On the other hand, stake pool operators who have the expertise and resources to operate their pool continuously and fairly will likely perform better, because they could attract more delegates.
The hardware requirements of running a stake pool include:
- 4 GB of RAM;
- A network connection with 1 GB of bandwidth per hour;
- A public IP4 address.
As you can see, stake pool hardware requirements are fairly minimal. Instead, it is the technical elements of running a stake pool which will determine the suitability of potential pool operators.
These include system operation skills, some experience in DevOps, server operation and maintenance skills, and Prometheus or Grafana knowledge for alerts and monitoring. You can learn more about the technical requirements of running a stake pool by reading the Guide For Stake Pool Operators.
How do I register my stake pool?
To operate a stake pool you must first ‘register’ your pool by generating a pool registration certificate. Registrations for stake pools on the Shelley mainnet can begin immediately after Cardano’s hard fork on Wednesday 29 July 2020 at 21:44:51 UTC.
Anything generated before this will still be part of the Shelley testnet, so make sure you wait for the completion of the Shelley hard fork.
Before generating their pool registration certificate, stake pool operators must install a Cardano node from source, register their stake address on the Cardano blockchain, and generate stake pool keys.
Even if you operated a stake pool on the Shelley incentivized testnet (ITN), you will be required to re-register your pool on the mainnet. However, stake pool registration will not require the registration of pool metadata in the same way the ITN did—instead, this will be self hosted by stake pool operators during mainnet staking.
To generate a stake pool registration certificate, you will need to follow these steps in our Cardano documentation.
How do stake pool operators receive rewards?
The Cardano blockchain reaches consensus through the Ouroboros Praos protocol. Using a probabilistic mechanism, Ouroboros selects a leader for each ‘slot’, who then creates the next block on the chain. These slot leaders are chosen from the available stake pools on the network.
The Ouroboros protocol chooses slot leaders more often from stake pools which have a greater amount of ada delegated to them. The chosen stake pool then adds the next block to the blockchain and receives a reward in ada for doing so.
Stake pool operators then distribute these rewards among their stakeholders at a pre-defined percentage and keep the remainder of the slot leader reward for themselves.
In theory, the amount of rewards a stake pool operator can receive is directly proportional to how much ada is staked to their pool—but there are ways to ensure the long-lasting success and profitability of your stake pool, which we will discover below.
You can estimate your rewards as a stake pool operator using Cardano’s staking calculator.
Can I earn consistent rewards from operating a stake pool?
We have already described how stake pool operators receive rewards. In practice, however, there are many other considerations to maximize your returns when running a pool.
Firstly, as a stake pool operator, you will need to attract delegates to stake their ada to your pool—this is measured through stake pool desirability. The primary method of attracting participants to a stake pool will be to maximize the reliability and uptime of the pool, as well as setting generous staking reward percentages.
You can think of running a stake pool like a business. By providing the best mix of reliability, rewards, performance and desirability, you will attract more ‘customers’—or stake delegators.
As a result, running a stake pool can be as active or as passive as you desire—but be mindful that pools run by more active and committed stake pool operators will generally perform better.
The benefits of running a stake pool
If you have the technical ability and computing resources, then setting up and running a pool can be both an enjoyable and potentially monetarily rewarding experience.
Not only can you earn rewards in ada, but you will also be directly contributing to the stability and decentralization of the Cardano network. We encourage anyone with the know-how and commitment to explore running their own stake pool.
However, if you would rather stake your ada through a pool operator, then the next article in this series will explain how to identify a reliable stake pool, and how to delegate your stake.
If you are interested in becoming a stake pool operator, why not join the conversation on the Cardano Forum? Here, you will find multiple resources to help you with your stake pool journey.
Stake Pool School
The Cardano Foundation will also be running “Stake Pool School”, starting in August, for all prospective and current stake pool operators. We will be discussing key aspects of maintaining a stake pool, attracting ada holders to delegate their stake, and more.
The first course, Stake Pool Onboarding, is designed to (re)introduce you to Cardano, walk you through how to set up a stake pool, and provide guidance on managing and maintaining your stake pool to ensure optimal performance and profitability. You must register to attend. Sign up for Stake Pool School today!