Cardano Staking: How To Stake ADA
|— Staking ADA refers to participating in the proof-of-stake consensus mechanism by contributing to the operations and security of the network in exchange for rewards.
— ADA staking does not require you to lock up your tokens, which means they are always accessible and liquid—you can move or swap them anytime.
— You can delegate ADA tokens to a staking pool via wallets such as Ledger.
Known for its strong community, Cardano is a proof-of-stake blockchain with a notable DeFi and NFT ecosystem. Like other proof-of-stake (PoS) chains, Cardano also depends on staking as a core element to sustain its security, integrity, and decentralization. However, Cardano stands out in its staking mechanism: it has more flexibility and liquidity for validators than other proof-of-stake chains as it has a slightly different approach to staking.
So, what is it all about exactly?
What is Cardano Staking All About?
Staking Cardano allows you to participate in the network’s consensus mechanism. By staking your tokens, you help ensure that no fraudulent or invalid transactions become a final block. This consensus mechanism is called Ouroboros, and it’s the same system Polkadot uses.
With this system, there are two ways to stake ADA: becoming a network validator or delegating your tokens to existing validators. Whichever method you choose, staking ADA means earning rewards, which is why it’s such a popular method of securing some passive income.
You need at least 5 ADA tokens to delegate your stake, and for your contribution, you receive a share of the transaction processing fees as a reward. This payout is proportional to the size of your stake: the higher your stake, the more rewards you earn. And of course, you must take the stake pool operator’s fee into account too. These vary from one pool operator to another. However, currently, the annual percentage yield on Cardano is around 2-5%.
So how does that work exactly? Let’s explore how staking on the Cardano network works a little deeper.
How Does Staking on Cardano Network Work?
Often staking means locking your crypto up, with stakers having to endure a “cool-down period” when unstaking. To stake on Cardano, you don’t need to lock up your ADA. Instead, you delegate the entire contents of your account. Any ADA held on the Cardano network represents your share or stake when delegated to a stake pool.
As the name suggests, stake pools group ADA holders together, allowing them to stake their tokens without the hassle of running an entire node. The stake pool operator handles this responsibility instead; ensuring the node is operating effectively, and participating in the operation of the Cardano network.
Although anyone can run a node, it’s not always as easy as it seems. You need server space, a reliable internet connection, and basic technical know-how. Plus, it’s not free either. In return for their work, stake pool operators receive rewards; which they distribute to delegators. This allows them to deduct fees from the delegator’s rewards to cover running costs and make a profit.
One thing to remember is that you only earn rewards when your staking pool successfully adds a block. To select who gets to produce a block, Cardano divides time into fixed periods called Epochs, each of which lasts five days. Now, each Epoch is further divided into around 432,000 time slots, each of which equals one second.
In each time slot, a slot leader is randomly elected to add the next block—a block needs to be successfully added for the validator to earn rewards. The rewards, distributed at the end of each epoch, appear in your wallet. You could choose to withdraw the rewarded ADA or re-stake them, which will proportionally increase your future rewards.
Benefits of Staking Cardano
Now that you know how to stake ADA, let’s discuss why you might consider it. Staking ADA gives you benefits such as earning passive income on your crypto while retaining full ownership and the freedom to move your tokens at all times. Here’s how these benefits work in your favor:
Your ADA tokens might lie dormant in your wallet, but staking them allows you to keep growing your holdings. You can access and withdraw the tokens whenever you want, but it generates passive income. Plus, if you keep re-staking your ADA rewards, your passive income will also increase. Staking is a great way to grow your holdings without making additional investments.
No Lock-up needed
With Cardano staking, you don’t need to lose access to your ADA. You can stake ADA and swap, send, receive, or even sell them, which means your ADA remains accessible and liquid. But, of course, rewards vary depending on how much ADA is in your delegated account at the end of each epoch.
After an epoch ends, the network records a snapshot of the distribution of the staked ADA to calculate the rewards. Therefore, to earn rewards on any ADA tokens you move in the middle of an epoch, you must ensure they are back in your wallet by the end.
Staking ADA does not require you to give up custody of your tokens. Since you delegate your entire wallet, and you can still use your ADA in the meantime, you always remain the sole owner and custodian of the staked tokens.
If you choose to stake your ADA through a crypto exchange instead of a wallet, you may lose custody of your tokens while they are staked.
Risks of Staking Cardano
Cardano staking offers the potential for passive income but comes with risks and uncertainties. This section will break down the two key challenges while staking Cardano — unpredictable earnings and corrupt staking pool operators.
While Cardano staking can be a source of passive income, earnings can often be unpredictable. There are a few factors to consider when calculating rewards. The size of your stake, whether you re-stake rewards or not, the performance of your stake pool, and the fees a pool operator charges can directly affect your earnings.
The most important factor, however, is the price of ADA, which can be volatile and subject to market fluctuations. If the price of ADA suddenly declines, the absolute value of your rewards can sharply decrease and vice versa.
Corrupt Staking Pool Operators
When you delegate your assets to a pool, you trust the operators to act as honest validators. Cardano network’s security and functionality depend on honest participants controlling more than half the nodes.
However, corrupt pool operators exist. These pool operators can not only manipulate the pool for profit and steal your rewards but also compromise the entire network’s security. If you’re not careful, you could lose your assets, so choose your staking pool wisely.
Regulatory challenges are also important to consider. In the U.S., for instance, centralized crypto exchanges were forced to pay fines after offering staking services. Since centralized exchanges use custodial wallets, regulatory bodies ruled that offering a yield in return was the same as selling a financial product, and therefore it should have incurred taxes.
However, it’s important to note that this type of regulatory concern primarily impacts centralized staking. Using a decentralized stake pool and a non-custodial wallet (such as a Ledger device), you can avoid these sorts of regulations—and of course, keep custody of your assets. Since the entire staking mechanism is integral to the security of the network, you can rest assured that as long as Cardano exists, there will be a way to stake ADA. And using a non-custodial wallet and a decentralized stake pool is the most secure way to do so.
How do I stake Cardano (ADA)?
You can use any wallet that supports Cardano staking to stake ADA. But depending on the type of wallet you use, you may face security concerns or have to hand over custody. Using your Ledger device to stake ADA gives you more security, the chance to retain self-custody, and helps you avoid corrupt staking pool operators.
Staking ADA on a Ledger
Step 1: Once your Ledger device is set up, you’ll need to download and install the Yoroi wallet or AdaLite extension. This third-party wallet will help you stake and manage your ADA.
Step 2: Once the extensions are installed, you need to connect the third-party wallet to your Ledger device to stake ADA. For detailed instructions on using Yoroi wallet or AdaLite with your Ledger device, visit the Ledger support section.
Step 3: Before moving forward, check that you have ADA tokens in your Ledger wallet. If not, add some. If you already have some ADA, you’re ready to select your staking pool from the Delegation List. Once selected, click ‘Delegate’ and voila! Your ADA tokens will start earning rewards.
Cardano Staking Market
Cardano staking offers an attractive way to earn passive income while retaining full ownership of your ADA tokens. You only need 5 ADA tokens to start, plus, your staked ADA always remains accessible and liquid.
With Ledger devices, you can rest assured your funds are always under your control. Self-custody with the Ledger ecosystem is easy and accessible. When you sign a transaction, you can do so with confidence. Your Trusted display is connected directly to the secure element chip, meaning you can check the intended recipient of any transaction without the threat of malware. Plus, with the PINcode and physical confirmation, only you can confirm each transaction. So why complicate things? Get staking your ADA securely and with self-custody: choose Ledger.