A Simple Guide to Staking ADA on Cardano
Cardano has now fully transitioned to Shelley, which enables a completely decentralized network running and being secured by users’ staked funds. With the Shelley era of Cardano now well into its first epochs, it is time to know everything about staking ADA.
After more than five years of development, Cardano is now a Proof-of-Stake (PoS) blockchain. However, even after much anticipation, the process of staking is still not definite to many casual users. Here is one way to do it using the Shelly version of Daedalus.
Install the Shelley Version of Daedalus
Users who want to put their ADA holdings into a stake pool and participate in the consensus process on the Cardano network, need to have a Daedalus wallet installed.
We should note that Daedalus is, currently, one of the two cryptocurrency wallets that support ADA staking; several other wallets, including Yoroi, will allow staking in the next few weeks. Staking will also be possible on exchanges, but this guide will focus on explaining the delegation process for the Daedalus wallet only.
So, to stake ADA, users need to download the Shelley version of Daedalus. Once the wallet has been downloaded and synced with the blockchain, you might be asked to transfer your funds from your Byron legacy wallets to the Shelley mainnet-enabled wallet, which could require a small fee. The sync process could take a while, so we recommend you to do this early in order to avoid missing the next snapshot for rewards – a snapshot is taken at the beginning of each epoch every five days.
As soon as the funds have been transferred to the Shelley mainnet version of Daedalus, you can begin the delegation process for staking. The delegation center on the wallet will offer a list of their wallets – you can choose the one that holds the funds you want to delegate. The selected wallet has to contain a minimum of 10 ADA in order for delegation to be an option.
We should note that it is possible to create more than one wallet address within Daedalus and delegate ADA to various stake pools at the same time. Daedalus also now supports the redemption of Incentivised Testnet Rewards.
Choose a Stake Pool
After choosing the wallet that has the funds you want to delegate, you need to select a stake pool. A drop-down menu will list about two dozen available stake pools, but you can also search the name of a pool you want to stake into.
Pool operators have no influence regarding who joins their pool and never have access to any of the funds in their pool. All the ADA staked by users remains in their wallet and isn’t locked or controlled in any way. Because the ADA user stakes are not locked, spending the coins from the wallet will remove it from the staking pool is delegated to immediately.
An epoch is a five-day period in which brand new blocks are generated on the Cardano blockchain. New blocks are created via slots, each of them appearing every 20 seconds. While knowing a bit about technicalities such as is not a must for staking, being familiar with epochs can help you better understand how to maximize your staking rewards.
As far as choosing the stake pool goes, users have two options: select a pool with less stake that has higher risks but provides higher rewards, or choose a fuller pool that is more stable but offers lower rewards.
It is important, though, to mention that stake pools with a low amount of ADA staked have a lesser chance of being chosen as a slot leader. Staking ADA is not free, also. As stake pool managers have a long list of operational costs and are usually for-profit businesses, they keep an amount from the staking rewards for themselves when their pool is selected as a slot leader.
These fees can be different, starting with <1 percent to 100 percent, but most of the pools are charging less than 10 percent. Although lower stake pool fees might appear alluring, IOHK said that high fees don’t always mean lower rewards paid out to users.
In addition, every stake pool has the possibility to pledge their own ADA to their pool. Pledged ADA earns an extra 30 percent in rewards, which is then shared with all the delegators. This effect is decreased as more delegators join, and the extra rewards are shared with a larger pool of users.
In terms of rewards users can earn from staking ADA, the Cardano protocol gives a 4.56 percent yearly return. The estimated amount of rewards users can receive from staking can be calculated on Cardano’s staking reward calculator.
After three complete epochs have passed since a user joined a stake pool, the first staking rewards will appear in the Daedalus wallet. Redelegating staked ADA is also a rather simple process as well. You can do this from the delegation center on your Daedalus wallet, where there will be a ‘redelegate’ option. Tapping on the option will start the same process as delegating to a staking pool for the first time.
Still, you have to keep in mind that this process will only be available at the beginning of the next epoch to update staking preferences and another two epochs before rewards start to appear in the wallet.
Taking out your ADA from a stake pool requires you to send the funds from the staking wallet to another wallet address. This process is straightforward and safe as any other regular transaction on the blockchain.
Eduard Watson Author
An experienced finance writer for more than 10 years, active industry watcher, and gadget enthusiast.