The vast amount of Cardano stake pools can be overwhelming and make it hard to choose the best pool to stake your ADA. How do you know how many rewards to expect or if the stake pool is functioning well? In this article, I will try to break down the most important factors to consider when choosing a stake pool: pool parameters, reliability and impact of the stake pool.
One of the first things to check when selecting a stake pool is if the parameters of the pool are within reasonable standards. Most stake pools charge the required minimum fixed fee of 340 ADA and if a stake pool has a higher fixed fee, this means you will receive less rewards when you delegate your ADA to that pool. Likewise, the variable fee should be within reasonable standards. Most pools charge a variable fee of 3% or lower, meaning at least 97% of the rewards will go to its delegators.
Pledge is another important parameter to revise as stake pool operators with a low pledge (for example, less than 1000 ADA) are not very invested in their own stake pool and may not put the same amount of effort to run a successful pool. On the other hand, large stake pools that are saturated – having a stake of at least 63,6 million ADA – are penalized and will also distribute fewer rewards to its delegators.
Finally, past ROA (Return On ADA) may be the most misleading parameter. A stake pool can be very unlucky one month and not distribute many rewards, but can be twice as lucrative as other pools the next month! Stake pools produce blocks and distribute the corresponding rewards based on probability, but luck tends to average out in the long run. On top of that, stake pools with a lower amount of stake delegated to them will not produce blocks every epoch, but when they do, they also provide a lot more rewards to its delegators since rewards are distributed proportional to the amount of stake delegated to that stake pool!
To what extent a stake pool is functioning well and producing the number of blocks it is supposed to (and thus distributing the correct amount of rewards) is hard to verify and there is no way to know this for sure. However, there are some strong indicators of pool performance. First of all, the uptime of stake pools is a necessary precondition for a functioning pool and it is possible to check the uptime of some pools on PoolTool (height should be in green). There, it is also possible to verify if the relays of the pool are online.
Second of all, you can look at the past performance of a stake pool. It is important to check if the pool has produced at least one block in the past (lifetime blocks) and lifetime luck should be close to 100% in the long run. If lifetime luck is considerably lower than 100%, this is an indicator of missed blocks and poor pool performance.
By selecting the right stake pool, you can also have a positive impact in the world. There is an alliance of mission-driven stake pools that donate their profit (or a part of it) to a variety of charities. You can review these stake pools and their selected charitable organizations on https://missiondrivenpools.org/.
Finally, by choosing a stake pool with a low amount of stake (less than one million ADA), you contribute to decentralization and the security of the Cardano network. You can view the alliance of stake pool operators that started as a small pool on AdaPools.
Hopefully, this article gives some valuable insight on why you should consider pool parameters, reliability and impact of stake pools when choosing a Cardano stake pool. For more information, please check out the best Cardano staking pool FAQ