The concept of staking pools is something we've seen before in other networks, but this time we're pleased to announce that nomination pools are coming to the Polkadot ecosystem as well. These pools allow DOT and KSM stakers to stake even if they can't achieve the staking threshold to nominate, acting as a single nominator account that delegates its funds to one or more validators.
Why are nomination pools important?
One of the goals of the NPoS (Nominated Proof-of-Stake) algorithm is to maximize the overall stake on the network. Currently, there is no equity when it comes to nominations, as the Polkadot staking system has been configured to favour the nominators with the highest stake to enter the set of active nominators.
In other words, if a nominator delegates its tokens to three validators, it generates three different nominations that can have three different states: active, inactive or waiting. If one of your chosen validators has not been elected to propose blocks, then your nomination will appear in a "waiting" state; if your validator has been elected, your nomination could appear as either active or inactive, depending on the stake you have delegated to that nominator. This is because Polkadot can only support up to 22 500 nominators in the set of active nominators, which means that only users with the most DOTs can participate in the network staking, and therefore generate rewards.
Therefore, several options were put forward to reduce this limitation. Among them, the creation of nomination pools was proposed in the Polkadot roadmap, which would allow users with less possibilities to also participate in the network's staking and receive rewards. Nomination pools work as a collective nomination scheme in the NPoS system, so a pool composed of many nominators would be considered as a single nominator, which would help scaling the network staking system.
Without a doubt, it is an effective solution that will allow those small inversors to take part in the consensus, in order to strengthen the network security and decentralization.
Nomination pools are live in Kusama
Kusama is the canary network and testing network of Polkadot, and as such, all innovative developments are tested on its blockchain before being brought to the Polkadot mainnet. Nomination pools could not be an exception.
To this end, Kusama's network has undergone a series of tests and upgrades that resulted in the deploy of nomination pools on its network. After incentivising their use and testing different cases, any user can now create a pool and allow other users to join it on Kusama. Soon, they will be deployed on Polkadot too!
How to create a nomination pool step-by-step
First of all, there must be a depositor to create a nomination pool, i. e. any member or user who has KSM. They are known as the initial member, and they must create the pool through the Polkadot Wep App.
First, you have to switch to Kusama. Next, go to the Staking section and tap on Add pool to create a pool:
Fill in the initial information to create your pool, i. e. the account you will use to create the pool, the initial deposit amount, and the description of the pool. Once created, you can choose the name of the pool, as well as the deposit that will be bonded to it.
Can any user join a nomination pool?
Once the initial funds have been transferred to the pool, it will be active. As long as the "Join" option is available, any user can bond their KSM to the pool and join as a member. The rewards earned by the pool will be distributed in proportion to the amount of tokens each member has linked to the pool.
How to claim your staking rewards?
If you are nominating your funds to a nomination pool as member and you want to claim your staking rewards, connect your wallet to the Polkadot Js App (make sure it is the same account you used to nominate your funds to the pool). Next, go to the staking section, tap on Accounts and finally click on Pooled. Once there, click on the 3 dots on the right and click on "Withdraw claimable".
Can members unbond and withdraw their funds?
Any member in the pool can unbond his tokens at any time to withdraw his funds. Once the unbonding period finished (7 days in Kusama), he will be able to withdraw his funds. By withdrawing these funds, the member will end any association with the pool, and can choose to nominate those tokens to a different pool again if desired.
Can pool members partially unbond their funds?
Yes, members can partially unbond staked funds from the pool. They can make a maximum of 16 partial unbonds.
Is there slashing in the nomination pools?
Yes, and it affects all the members belonging to the pool at the time the slashing occurs. As with rewards, slashing affects propotionally according to the staking amount of each member in the pool.
The different roles and statuses of nomination pools
A pool can go through up to three different states: Open, Destroying and Blocked. If a pool is open, any user can join it; if it is blocked, no more members can join; and finally, if it is destroying, it means that the pool is in the process of being dissolved, an irreversible state. In case your pool is going to disappear, we advise you to unbond your tokens and once the waiting period is over, nominate your tokens in another pool.
Regarding roles, when a pool is created through the Polkadot Js App interface, all pool roles are assigned by default to the account of the depositor (initial creator). However, the different existing roles for administering the pool can be separated into different accounts. These administrative roles have to be assigned by the pool creator. We can distinguish the following roles:
Nominator: whoever has the role of nominator within the pool, can select the validator(s) nominated by the pool.
State-Toggler: this role, which in English means "state changer", can change the state of the pool and eject members from the pool without permission, as long as it is locked first.
Root: The root role has the power to change the nominator, the state-toggler or even itself. In addition, it can perform any of the nominator's or state-toggler's actions.
Conclusion
Nomination pools are a very inclusive solution within the Polkadot ecosystem. With this tool, users can join forces to nominate their trusted validators, and access the benefits of staking even if they don't have enough tokens to exceed the minimum threshold. This option will open the doors to many small investors in the ecosystem, and although it is still deployed only on Kusama, we'll be waiting for it to be deployed on Polkadot as well!