The Pros & Cons of Crypto Staking Pools
What is a crypto staking pool?
A staking pool is a tool that allows multiple crypto token holders to pool in their tokens, thereby granting the staking pool operator a validator status and rewarding all stakeholders with tokens for their contributions.
Why stake your crypto?
Because staking pools offer the promise of earning yields in addition to the capital gains earned through token value appreciation.
Staking pools allow you to earn a passive income while still holding on to the crypto tokens for long-term price appreciation. Moreover, investors do not have to worry about how a staking pool works or the procedures required in setting up and running a validating node, which the staking pool operator instead does on behalf of all the stakeholders.
What’s the catch?
You should always do your due diligence on any staking pool. It is important to choose one wisely, as the staked tokens act as a guarantee for the blockchain and it is important that the pool operator, who is acting as a validator on the blockchain, does their job without any malicious intent, meaning invalid or fraudulent transactions. Moreover, once an investor decides to join a staking pool, their crypto tokens are locked in a specific blockchain address or with a third party and this may result in stakeholders not having direct control over their staked tokens.
Apart from considering the stake pool’s ranking, it is prudent to choose staking pools that provide stakeholders with regular updates about the staking pool’s performance and are transparent in their functioning. It is also advisable to go through performance reviews before narrowing down on a staking pool for investing. Factor in the membership or entry fee to understand the likely real returns that will be generated on the tokens staked and enter a staking pool that doesn’t have too many stakeholders to ensure that rewards aren’t diluted further.