The power of nomination pools on Polkadot
Polkadot is a blockchain running on the Nominated Proof of Stake system (NPoS). Since the launch of Relay Chain in 2020, Polkadot aims to maintain the highest levels of security, decentralization, and energy efficiency, whilst effectively balancing the interests of both smaller and bigger DOT stakeholders.
From day one, it became one of the biggest and most secure Proof of Stake networks — however it always struggled with usability, poor UI for non-tech users and nomination limits. This is why nomination pools and new staking dashboard were created and it’s our pleasure to introduce them to you in this article!
Pre-nomination pools era
Before nomination pools, the only way to participate in the nomination process and receive staking rewards natively was to directly nominate validators, using their DOT tokens to select up to 16 trustworthy validators.
However, not only does direct nomination require users to have a significant stake in DOT tokens to participate, but it also requires playing a more active role in researching, selecting, monitoring, and periodically reevaluating their choice of validators.
In order to safeguard the network’s security, there was introduced a maximum of 22,500 nominators and after a series of referendums, the minimum nomination amount raised to 160 DOT. After some time, this barrier to entry was lowered down to 10 DOT, however, this would only allow you to vote in the validator elections. To be actually able to receive rewards, you currently need at least 190 DOT which is definitely not affordable for many members for Polkadot community.
Now we know that staking on Polkadot have always had its issues so let’s have a closed look how it finally became possible to bring staking to the masses.
Why nomination pools?
One of the key features of Polkadot’s roadmap for staking enhancements are nomination pools. They are made to function as a single nominator account and to permit members to pool their tokens without requesting authorization.
With nomination pools, the time and effort required to participate in the nomination process is reduced, because the pool’s creator controls nominations on the members’ behalf. Nomination pools greatly simplify native staking by removing the need for users to set up both a stash and controller account, in contrast to the direct nomination.
Nomination pools removed the theoretical user cap on the system, enabling to grow number of nominators practically indefinitely. This makes native staking more accessible to individuals with less DOT necessary to stake directly on the relay chain. Actually, users need as low as 1 DOT to join the pool, which is a huge step to wider adoption.
Nomination pools do not currently charge a commission; instead, rewards are automatically divided proportionately among the pool’s participants.
As a result, pool participants can currently anticipate receiving the same rate of rewards for their stake as they would if they took part in the system as a direct nominator.
Slashes are also proportionally applied to pool members who are actively bonded in order to guarantee that economic incentives are balanced and network security is upheld.
Deployed by the on-chain governance
With the release of Polkadot Runtime v0.9.28 in referendum #75 and the initial configuration of nomination pools in referendum #78, the launch of nomination pools was finally enabled. Since then, they were deployed on the relay chain as a scaling solution for Polkadot’s NPoS system.
Similarly to other upgrades of the network, that are evaluated and voted for in on-chain referenda, nomination pools were first deployed and tested on Kusama too. To this moment, they are now live also on Polkadot.
Staking dashboard upgrades user experience to great
The simplest way to engage in nomination pools is through the Polkadot Staking Dashboard, the network’s new, user-friendly web tool for staking. Advanced users can also participate using Polkadot-JS Apps.
Nomination pools lower the entrance barrier for taking part in staking directly on the network and simplify the staking procedure when used in combination with the Polkadot Staking Dashboard.
Now, individuals searching for a more passive staking experience as well as those with fewer DOT tokens can stake directly on the network.
Importantly, these modifications also lessen the motivation to stake through middlemen and third-party services. Holders of DOT can maintain Polkadot’s security and decentralization while earning lucrative rewards of up to ~15% by eliminating the middlemen (like centralized exchanges) and staking natively on the Relay Chain.
Simple tutorial on nominating your DOTs and staking within a few clicks
Connecting your Polkadot account, choosing a pool, and then signing a transaction to contribute your DOT to the nomination pool is a very easy procedure using the Staking Dashboard.
- Go to the Staking dashboard via this link https://staking.polkadot.network/#/pools
- In the right top corner, click on Connect and pick your wallet be it Talisman, Polkadot JS, or any other
3. Click on the Join button and pick from the list of All Pools, wherever the Join button is available
4. Click on the Join button for your favorable nomination pool and then choose the amount of DOT to bond and press Submit. Then you just sign the transaction in your extension wallet and that's it!
You need to wait for the 28-day unbonding period on Polkadot before unstaking or switching from one pool to another. But the next network upgrade should allow nominators with less than 190 DOT to exit current staking system and join nomination pools without the 28-day unbonding period to allow them for receiving rewards as soon as possible.
A few other notes to the nomination pools behavior
- Whenever a total amount of pooled tokens changes, all claimable rewards are paid to everyone — so it should come no surprise that rewards can be issued to you in a more “random” manner
- When you stake with the pool, your funds get actually moved to the pool’s account — don’t be scared if you don’t see your funds anymore as free balance
- You currently cannot use pooled DOTs for governance voting
By enabling users to pool their DOT tokens on-chain to designated validators and get rewards, nomination pools are a new feature for Polkadot’s staking mechanism that dramatically increases system scalability. No more discrimination of stakers with fewer tokens, anyone may now earn staking rewards natively on Polkadot with as low as 1 DOT.
With nomination pools, the time and effort required to participate in the nomination are reduced because the pool’s creator controls nominations on the members’ behalf. Pools significantly simplify native staking by removing the need for users to set up both a stash and controller account, in contrast to the direct nomination used before.
This upgrade makes Polkadot’s NPoS more scalable and offers a more user-friendly and inclusive approach to stake on Polkadot, allowing many more DOT holders to participate in staking. More DOT is likely to enter the staking system, and validators will have additional opportunities thanks to nomination pools in place.
A new era of staking on Polkadot just began. Securing the network directly on the relay chain, without using 3rd party services, wasn't ever easier. From now on, you can get a few DOTs, join a nomination pool and enjoy your rewards!
Polkadotters are active validators in Kusama and Polkadot relay chains. Consider supporting us by nominating your tokens to the Kusama or Polkadot validator going by the POLKADOTTERS name. And of course, you can use both staking dashboard and nomination pools, where you can find us in the DVA pool (DOT Validator Alliance pool)