Stake pools are one of the many new business models that cryptocurrency offers. And like in any business, stake pool marketing is an essential part of the project’s success.
As Bitcoin became popular, so did mining. More and more crypto enthusiasts built their own rigs, investing thousands of dollars in obtaining computing power to be the first to solve the proof-of-work puzzles.
Cryptocurrency mining activities grew so much that people started building mining rigs that demanded industrial halls to fit in. And because Bitcoin became so hard to mine, people started exploring other proof-of-work coins that were supposedly easier to mine.
The mining competition has resulted in a more secure blockchain environment. However, the resource consumption and the relatively low output and performance have pushed for alternative securing methods that are more scalable.
Proof-of-stake is just one of the alternatives and is currently the most popular one.
Basically, proof-of-stake cryptocurrencies come with a model where the network securing is performed by users that put their funds at stake to confirm transactions.
As the users stake their cryptocurrency, they will use significantly fewer resources yet fulfill a lot more operations in a shorter time.
But there is a catch. Generally, the higher the stake, the better your chances are of confirming transactions. Additionally, some environments require a minimum stake to open up a node.
And with all this going on, here is where stake pools came into play.
Table of Contents
What is a stake pool?
A stake pool can generally be described as a server aggregating funds from several users in order to run a staking node.
The stake pool maintains the combined funds of the various stakeholders in a single entity and registers a significantly larger total stake. Therefore, it will increase its chances of confirming transactions and claiming the fees.
From the beginning, the proof-of-stake model begged whether it would not put the whales at a clear advantage, therefore creating an environment where only a few wealthy individuals would control the network.
In this regard, the newer proof-of-stake cryptocurrencies employ mechanisms to prevent unruly behavior and encourage decentralization. Usually, the minimum stake required to open up a node is rather significant, and there is a maximum stake on which you can obtain rewards. Also, there are automated rules alternating validators so that the same staker doesn’t get picked several times in a row, and there are penalties for validators acting against the rules.
In this context, stake pools manage to give the means to gather the necessary funds to those who want to become node operators. And to the pool participants, stake pools offer a way to earn fees without committing too much money or minding the up-time or other technical details.
Environments allowing stake pools
Nowadays, more and more cryptocurrencies are being backed or are planning to implement a proof-of-stake algorithm or a deviation of it.
And from a business perspective, it is important to understand the staking implementations and stake pool opportunities in popular cryptocurrencies so that you can decide which suits you best.
Stake pools in Cardano
Cardano is one of the most popular cryptocurrencies and the biggest blockchain to implement proof-of-stake successfully.
Although there have been quite a few delays, since the Shelly update (July 2020), with the kick-off of Cardano staking, ADA has seen a lot of growth.
The update also introduced a delegation and incentives system meant to drive stake pools and community adoption.
The staking process is organized in epochs formed of several 432,000 one-second intervals called slots. The algorithm randomly chooses a slot leader from the stakeholders (the node owners that keep a certain ADA stake) to confirm transactions and earn rewards in ADA. The chance is correlated to the number of coins held by a node.
In order to build a node, run it and connect it to the Cardano main net, you would need a Linux system with at least 2 cores 2GHz processor, 8 GB RAM, 24 GB hard drive space, and a good internet connection and about 1 GB of bandwidth per hour plus a public IP4 address. As you will research it further, these values vary, but one thing is for certain, the more, the better.
However, with Cardano, there is no minimum stake amount needed to start a pool. Yet, when you register your pool, you will need to deposit 500 ADA to the blockchain. That deposit is refundable, tough.
Also, consider that besides the deposit, you should also submit a small amount for fees.
The entry bar is quite low, yet, in order to be successful, you need to attract delegators to your pool and raise your total stake as much as possible. That’s because small pools have minimal odds of minting blocks.
As for the average stake pools, the annual returns have been estimated at around 3 – 5%.
Stake pools in Tezos
Tezos chose to name its delegated proof-of-stake algorithm “baking.”
The creation of a new block requires one baker and over 32 endorsers. The baker is the one that is actually chosen to create the block and receives 40 XTZ as a reward for completing the task. The endorsers are the accounts chosen to verify if the block was baked correctly and will be rewarded 40XTZ each for completing the task.
Whether you want to bake or endorse, you need to set up a baking node holding at least one roll, which consists of an 8,000 XTZ minimum stake. The more XTZ, a baker, is staking, the more chances he has to create and endorse new blocks.
As for minimum hardware requirements, you need at least a 100 GB SSD, 8GB RAM memory, a 2 core CPU, and a good internet connection of around 1 Mbps.
The delegated proof-of-stake algorithm is more focused on connecting casual users to bakers. So, after establishing the bases of a node, a baker can even build up a roll by attracting delegators.
Anyway, just like in Cardano’s case, the larger the stake, the better your chances are of being selected. Also, the efficiency differs from one baker to another, and the annual yield is around 5-7%.
Stake pools in Cosmos
The proof-of-stake variation employed by Cosmos is called Tendermint.
And although it can operate with a third of the validators offline, it limits the number of validators it can employ in a hub. For the Cosmos blockchain, it is 150. However, if you’re not looking to set up a validator node, you can easily select one or more existing validators to start earning rewards.
Because of the reduced number of validators, you can see returns of 9.7% of staked ATOM annually.
The process of opening up a validator node is more complex than in the other cases. In terms of hardware specs, it is recommended that you have a setup with 2GB RAM, 100GB SSD, and x64 2.0 GHz 2v CPU. Besides that, you will need a stake of 10,000 ATOMS.
Although the number of validators is relatively low, it is quite hard to get in, and there is a minimum amount of 1 ATOM to be delegated as an active validator. In order to get and stay in the top 100 validators on any hub or zone, you may need to invest seriously in your hardware and operations.
Some estimate that an average setup fit for a Cosmos validator node can cost around $20,000 and may come with an operating cost of $2,000 monthly.
Stake pools in Ethereum
Ethereum proof-of-stake was launched in its initial form in December 2020. With the start of the Beacon Chain, Ethereum is preparing to handle the blockchain operations through staking nodes that are assigned randomly to shards and transactions.
The proof-of-stake consensus mechanism relies on an economic incentive to keep the validators honest. The validators can open up staking nodes by locking 32 ETH in a staking contract. And as they secure the network, they will receive a certain APR that can vary from 4.3% to 5.4% to upwards of 9%-12% APR.
In terms of hardware specs, it is recommended to build a setup with a minimum 2.80 GHz CPU, 16 GB RAM, and 100 GB available storage space. And starting with February 2021, the setup must include +400 GB for Eth1 main net alone.
Currently, you can establish a staking pool on Beacon Chain by creating a staking pool smart contract.
What are people looking for in a stake pool?
As mentioned before, in order to run a successful stake pool operation, you need to treat it as a business. And knowing what your potential clients want is essential.
Generally, you need to take into consideration two categories of criteria:
- Protocol Criteria
- Off-protocol Criteria
Although it’s possible that you may find other names for them, the principles are mostly the same. Protocol criteria refer to the concrete details about your stake pool and what it is in for the potential stakeholders.
1. Up-time & penalties
Stakeholders taking part in pools usually look to participate in the network’s securing without troubling themselves with the technical side.
And as we all know, in most PoS environments, nodes are needed to secure the network continuously. Failure to do so comes with penalties that lead to stake slashing.
Therefore, it is only natural that investors would look to give their funds to pools that are the least likely to get their stake slashed because of faulty behavior.
2. Stake Pool owner’s pledge
Naturally, when the stake pool’s owner deposits more, the node will have higher chances of getting to confirm transactions and earn fees.
Besides that, the pledge also shows how committed the owner is to keeping the nodes running and avoiding penalties, as his losses can be significant.
Those looking to join a stake pool do so in order to earn a profit. Therefore, it is essential that you are clear-cut about your pool’s margin, operational fees, and saturation.
State clearly how much your stake pool takes from the rewards before distributing them among its delegators, the fixed fee per epoch that the stake pool charges to cover operating costs, and the stake cap on which rewards stop increasing.
With protocol criteria only, you may get to a point where it’s quite difficult to differentiate yourselves from other pools. Yet, when you consider off-protocol criteria, you can get a few more points to make yourself stand out.
By building up a brand and focusing on making a good name, you can attract investors easier.
Focusing on reviews, running as a legitimate business entity or NGO, donating to causes, and running on green energy or in a particular location, are just a few things you can do to make your stake pool stand out in the market.
Furthermore, by offering an application that can easily track rewards, you will offer convenience to your potential stakeholders, ultimately translating into a better experience.
Marketing for stake pools
A stake pool company’s marketing strategy follows the same principles that any internet business would follow to some extent.
Establish an online presence, come up with a good offer, and make sure the world reaches the right audience. And to be clear, you can extend your stake pool marketing activities as much as you want to meet your goals.
Website and apps
Once you open up a stake pool, you need to offer your potential clients a user-friendly interface.
A website will help you state the details of your stake pool operation, such as pool margin, fees, and expected returns. Furthermore, your interface should offer a medium where users can regularly check the evolution of their staked funds.
In this regard, you can even offer a mobile app for easier access and reward tokens so that the stakeholders can have a better feel of ownership.
Social media, specifically Twitter
In an earlier study on 682 crypto companies, we found that 92.8% of the cryptocurrency-related projects are active on Twitter.
By far, Twitter is one of the top choices when it comes to building a social media network. So, put in the effort to build a community and engage with it.
Keep them posted on the state of your operation and upcoming updates, ask questions and give out answers. Furthermore, find a network of cryptocurrency pages and engage with them to build up a dialogue where new people can join.
Set up a Telegram channel
The same study showed us that the most used messaging platform in the cryptocurrency market is Telegram.
Therefore, the best practice is to create your own channel and add in your participants as well as crypto enthusiasts that can be interested in staking with your pool.
Video content is effective for sure. But building up a YouTube channel is most definitely challenging.
If you have the necessary resources, create a YouTube channel to share updates and create educational content for your audience.
You can create educational content on the basics of blockchain and cryptocurrency, information about the cryptocurrency your pool is staking, and even crypto-related news.
But keep in mind that although YouTube can boost your online presence, it is one of the most difficult marketing channels to tackle organically.
To gather more new clients and “strengthen the bond” with your actual stakeholders, you can prepare lotteries and promotions with no margin staking and offer to dedicate NFTs.
These are just a few of the deals you can offer to get people interested in your staking pool. But whether you choose to give freebies or just want to show your base offer, you need to get your message in front of the right audience.
Here is where advertising comes in.
Unfortunately, stake pool advertising is not allowed on mainstream ads platforms, as we can see in Google’s policy.
But you can reach quality cryptocurrency traffic by running ads with Coinzilla.
Donations and CSR
Making donations and Corporate-Social-Responsibility actions will attract sympathy toward your brand.
And when your niche is just so competitive that no promotion can give you a hedge, donating to a cause people care about might be just the right tool.
You can even go so far as creating an NGO that wants to clean the ocean or encourage green energy usage.
However, make sure that your audience is aware of your good deeds. You should not just post it on your website but make sure the press writes about it. And in this regard, you can assure your CSR actions are known to the crypto world by launching PR articles through the Coinzilla Marketplace.
Finally, go to conferences. Cryptocurrency conferences are the best place where you can network with potential investors.
Also, while you are on that, bring some branded stuff with you. Pens, shirts, and notebooks are just a few examples of what you can give people visiting your stand.
- Proof-of-Stake is one of the more scalable consensus algorithms believed to be a suitable alternative to Proof-of-Work.
- A stake pool can generally be described as a server aggregating funds from several users in order to run a staking node. Although it’s not mainstream, a successful stake pool needs to be treated and run like a regular business.
- Some of the most known blockchain environments allowing stake pools are Cardano, Tezos, Cosmos, and Ethereum.
- Potential investors will look into your stake pool’s up-time and penalties, pledge, margin, fees, and returns when it comes to protocol criteria. When it comes to off-protocol criteria, reputation, causes, and usability can give your stake pool a much-needed boost.
- A stake pool company’s marketing strategy follows the same principles that any internet business would follow to some extent. Establish an online presence, come up with a good offer, and make sure the world reaches the right audience.