If you own crypto or are interested in the industry, you've probably heard of the term staking. It's a hugely popular way for people to earn a passive income using their crypto funds. But staking isn't the same across the board.

There are multiple ways to stake cryptocurrency, including utilizing a staking pool. But what exactly is a staking pool, and can it make you a profit? Let's take a look.

What Is a Staking Pool?

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A staking pool involves multiple users combining their individual computing power to increase their overall staking power, which increases their chances of earning rewards. Increased computing power allows for more blocks to be verified and validated via the Proof of Stake (PoS) mechanism, which increases the total sum of rewards a staking pool can earn.

Staking pools can be either public or private, with each pool usually having a pool administrator who keeps the nodes or validators in operation. Digital assets are still staked in pools and often involve a lock-up period.

However, this isn't always the case. Cold staking pools allow users to keep their funds in a hardware wallet, where they can still access them. These pools operate similarly to the Proof of Work (or PoW) protocol but are only available on platforms that use the PoS mechanism instead of the PoW mechanism.

Staking pools are prevalent when staking Ethereum. This is because of the 32 ETH rule, which dictates that a user must have at least 32 ETH to stake and become a validator independently. Currently, 32 ETH is worth almost $100,000, which most people don't have just lying around.

Related: Liquid Staking: A Better Way to Earn With Your Crypto

Alternatively, users can join a staking pool with just a few ETH, or less, opening up staking to crypto beginners and intermediates, not just those with large portfolios, and this has made them incredibly popular.

You can also spread your funds across multiple staking pools, given that the minimum requirements are much lower than that of solo staking. Many staking pools have vast amounts of digital assets, but this overall fund usually depends on the number of users within the pool.

Several platforms offer pool staking nowadays. Lots of big exchanges allow users to stake in a pool, like Binance and PancakeSwap, each with varying coin options. Cardano (or ADA) is a popular option for pool staking, along with Ethereum. Some of the biggest staking pools out there are ADA pools, like Zetetic, Sunshine Stake, and Pilot Pool, all of which have over 50 million staked ADA.

So, now that we know what pool staking is, let's discuss the possible profit you could see by being part of one and determine whether staking pools are really worth it.

How Much Can You Make by Pool Staking?

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In short, this question doesn't have a simple answer. Many factors affect the overall rewards you can earn by joining a staking pool. As you'd expect, staking more funds within a pool increases your chance of being rewarded.

However, the rewards you receive will always be less than what an independent staker can earn, because the overall rewards must be split with the other pool members.

For example, you can usually earn around 6% APY (annual percentage yield) when staking Ethereum as an independent validator, whereas you'll earn 4-5% APY by staking the same kind of crypto in a pool. So the difference is pretty significant, but being a validator simply isn't an option for most, and these pool staking reward rates are by no means poor.

The APY generally increases as a coin's value decreases, so don't let the allure of a huge reward rate trick you into thinking that you'll be earning a lot more than you would by staking a more valuable coin.

When it comes to other pool members, you want to make sure you're not about to join a totally over-saturated pool. Because there are rewards limits set on pool size, you could end up earning only a fraction of what you could make if you join a huge pool.

There is a difficult balance to achieve here because bigger pools stand a bigger chance of getting chosen to validate blocks, but the overall rewards are smaller.

Related: What Is Cold Staking and Is It Better Than Online Staking?

This is where pool statistics can come in handy. Many pools publish data showing how they're performing, which can help users decide whether they want to join it. If a pool doesn't offer this data, it could be because it's performing poorly, so keep this in mind.

Your profit also depends on the popularity of your chosen digital asset and how long you choose to stake your funds for. The pool's performance is also a huge factor. This relates to how well a pool is maintained and run by a pool administrator. It's always a good idea to do a little research around your prospective pool before staking so you know what you're in for.

You may also want to check how much the pool administrator has pledged to the pool, as this can serve as a solid indicator of how dedicated the operator is to keep the pool in check.

When considering your rewards, it's important to remember that it usually isn't free to join a staking pool. Pool fees are typically taken from the rewards you earn, as with any other kind of staking. Each pool will have different fee rates, so make sure you're aware of these before getting started.

However, if you pick a reputable pool with a decent number of members, pool staking is a great way to earn a passive income. Though you won't make as much as you would by staking independently, that doesn't mean the rewards aren't worth it.

So, pool staking sounds easy and profitable, but are there any risks associated with it? Well, this is where impermanent loss comes in.

What Is Impermanent Loss in Crypto Staking?

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By nature, the crypto industry is incredibly volatile. A coin can double or halve in value in a matter of hours, and there's often no knowing where a coin's value will head next. This is a common risk for those staking their crypto.

Related: The Biggest Risks for Crypto Investors (Both Beginners and Veterans)

Say you stake crypto that's worth $5 per token, and you stake 50 of these tokens. This means you've staked $250 worth of crypto within a pool for a set period of time. However, during this time, the token price will certainly fluctuate slightly, and it might even fall significantly.

So, if the token's value drops from $5 to $2.50 while you're staking, you're going to end up earning less of a reward than you had anticipated. It's essentially just the risk you take when staking your assets in this way.

Therefore, it's always important to do some research around your prospective staking asset to see if it regularly suffers from huge hikes and falls in value, or if it's rumored or predicted (widely) to be heading for a drop. No amount of research will ever guarantee that you don't suffer an impermanent loss, but it can reduce the chances considerably.

Pool Staking Is a Great Option for Smaller Crypto Owners

If you've only recently started with crypto investments or want to get started in staking but don't have a huge fund, pool staking is a reliable alternative way to earn money. You don't need to put a lot of effort into the process, and doing your research can ensure that you join a profitable pool that could earn you big bucks over time.