What is Ethereum Staking Pool and How to Take Part in it?

Ethereum Staking Pool

Ethereum is one of the fastest-growing digital financial ecosystems, and the reason behind this is its versatile product offerings when compared to the traditional market with myriad profit-making options. However, with Staking Pool, stakeholders can profit from any number of ETH tokens by participating in the network.

What is Staking Pool?

Basically, Staking Pool is the collaborative approach of stakers with a small amount of ETH in their hands to fulfill the requirement of 32 ETH to activate the validator key on the Ethereum network as well as earn profits from it.

Keep in mind that Ethereum has no native protocol that supports Staking Pool. However, many third-party solutions have been built around the Ethereum network.

How does Stake Pool work?

Basically, Staking Pool works under the pool operator with the participation of multiple stakers. Stakers who wish to take part in pool staking, hand over their ETH tokens to a third party.

Whatever reward pool operator will generate through validating blocks will be distributed in pro-rate shares in Annual Percentage Rate (APR) with every stakeholder/stakers. Every pool varies in the percentage of rewards that stakers gain on their investments.

In the entire Pooled Staking process, stakers have to issue their ETH tokens to a third party, hence it involves some risk.

Why Pooled Staking?

Unlike solo staking, Pool staking enables any amount of ETH holders to make collaboration with other stakers to combinedly make the 32 ETH required for the active validator key.

Staking Pool also opens a new way of earning for ETH holders.

Apart from this, pool staking doesn’t require any kind of hardware setup or node maintenance to initiate staking with other stakers. Pools allow stakers to directly deposit their ETH which allows node operators to operate validators.

After deducting the node operation fees, the contributor gets their pro-rata amount of rewards.

The third and most crucial perk that Staking Pool delivers is liquidity tokens. Many staking pools issue their native tokens that imply claim over staked ETH as well as reward generated out of it. 

This enables stakers to use their staked ETH in other dApps such as for collateral to borrow loans.

What Are Requirements For Staking Pool?

Before digging deep into the topic, keep in mind that Staking Pool is only available on the PoS (Proof-of-Stake) based blockchains such as Ethereum 2.0. Currently, the Ethereum network that works on PoW (Proof-of-Work) consensus is not compatible with pooled staking owing to the absence of the validation process.

As Staking Pool techniques don’t require any hardware setup, any ETH holder can participate in the process by staking their ETH and earning profit out of it. They just require an uninterrupted internet connection with basic devices to access Ethereum 2.0-supported solutions like Lido Finance, Binance, StakeWise, Rocket Pool, and others.

Apart from this, myriad companies have created their different pools on Ethereum 2.0 with different types of staking mechanisms, attributes as well as percentages of rewards. However, the official Ethereum document outlined some indicators for stakers to measure the strengths or weaknesses of a listed staking pool.

  • Open Source

The code linked to the staking pool must be open source and easily available to the public to fork and use.

  • Audited

The smart contract for the pool must undergo an audit process with reputed auditing firms, and their results should be available in the public domain.

  • Bug Bounty

For the assurance of the staked tokens, an open bug bounty has been performed on essential code.

  • Battle Tested

The pool should be active for more than six months to one year and used by the public.

  • Trustless

The custody of your keys and authority of reward distribution of staked tokens should not be in the hands of humans, which means it should be trustless.

  • Permissionless Nodes

The node should be able to welcome anyone as a node operator for the pool without any permission.

  • Diverse Clients 

Service should not run more than 50% of their aggregate validators with a supermajority validator client.

Also Read: All About Ethereum Staking

How does Staking Pool Distribute Rewards?

While staking in the pool, stakers would get ERC-20 tokens in most cases, which represents the value of their staked ETH as well as rewards. On a specific interval of time (in most cases daily basis), the pool rewards stakers with changing amounts of these ERC-20 tokens with their APR. 

Here note that there will be fees taken from rewards before it goes to stakers.

How to Stake Ethereum(ETH) in a Pool?

Most of the staking pools follow the same methods with a slight difference. Here are the steps for two popular staking pools.

  • Stake ETH In Binance Pool
  1. Login into your Binance account. 
  2. Click on the ‘Earn’ option and search ‘Binance Earn’.
  3. Find ‘ETH 2.0 Staking’ options in the Staking section.
  4. Click on the option and proceed forward with the ‘ Stake Now’ option.
  5. Enter the amount and click on confirm.
  6. In the next moment, one more pop-up will ask you for confirmation. Read terms and conditions and if you agree then hit on ‘Confirm’.

Here note down that, as long as you will have staked ETH in the Binance pool, you will get a pro-rata amount of BETH rewards on a daily basis. These BETH tokens hold a 1:1 ratio with ETH. Binance is currently offering an APR of up to 5.20%.

  • Stake ETH In Lido Pool
  1. Open Lido Finance and connect your digital wallet.
  2. It will reflect your balance present in your wallet.
  3. Enter the ETH amount you wish to stake and click on ‘Stake’.
  4. Provide confirmation of this transaction by signing through the wallet.
  5. A few moments later, your wallet will fill with stETH tokens, whose market value will be equal to ETH.

Lido Finance will update the stETH balance on a daily basis with your staking rewards after deducting 10% fees. Lido Finance is currently offering an APR of 3.9%.

Conclusion

Ethereum Merge is expected to take place by the end of this year. The Merge will completely transit its consensus mechanism into PoS from PoW. With this significant development in the Ethereum ecosystem, crypto maniacs are definitely going to jump into different segments of profit-gaining games. Staking Pools are one of these.

Without any hardware setup or any other kind of stuff, any amount of ETH holders can participate in the network while gaining rewards out of it. Hence, the Staking pool provides fewer rewards compared to crypto exchanges, but it might become a golden opportunity for low-risk appetites.

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