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juni 13, 2023

Nomination pools explained

Learn how Polkadot nomination pools work, and earn staking rewards on your Polkadot tokens. Discover the benefits of pooling resources, overcome minimum thresholds, and enjoy hassle-free staking.

Nomination pools explained

Before diving into nomination pools, let's briefly look at Polkadot's staking process. Staking involves locking up a certain amount of DOT tokens to support the network's operations, enhance security, and participate in consensus. Stakers play a crucial role in validating transactions, producing new blocks, and ensuring the overall integrity of the network.

In Polkadot, token holders have the ability to nominate validators. Validators are responsible for verifying and validating transactions on the network. By nominating validators, token holders contribute to the security and stability of the network. Nominators, therefore, have a direct impact on the selection and performance of validators.

Introducing Nomination Pools

Nomination pools provide a convenient and efficient way for DOT holders to participate in staking and collectively nominate validators. These pools allow individuals with smaller amounts of tokens to pool their resources together, increasing their chances of successfully nominating validators and earning rewards.

How Nomination Pools Work

Here's a step-by-step breakdown of how nomination pools operate:

  1. Pool Creation

    A pool is created by an individual, which is called the pool operator. The pool operator manages nominations and can also contribute any amount of DOT to the pool.

  2. Nominators

    Each nominator (a person who stakes their DOT at the pool) contributes their desired amount of DOT tokens to the pool. The combined total of the pooled tokens determines the collective nominating power of the pool.

  3. Nominating Validators

    The nomination pool operator selects a set of validators to nominate, taking into account their commission fee, reliability and reputation.

  4. Earning Rewards

    As nominated validators get into the active set they produce blocks and secure the network, and generate rewards. These rewards are distributed proportionally among the nominators based on their contribution to the nomination pool.

Benefits of Nomination Pools

Nomination pools offer several benefits to DOT holders:

  1. Increased Chances of Nominating Validators

    By pooling resources together, individuals with smaller amounts of tokens have a greater chance of successfully nominating validators and participating in staking.

  2. Collective Decision-Making

    Pool participants can leverage their combined knowledge and expertise to make informed decisions about which validators to nominate, enhancing the overall performance and security of the network.

  3. Flexibility and Convenience

    Participating in a nomination pool allows DOT holders to engage in staking without the need for extensive technical knowledge or managing their own validators.

If you'd like to learn how to join a nomination pool, check our guide.

Arthur Hoeke
Arthur Hoeke
Co-Founder & CEO
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