update 19 October 2021

Understanding How ADA Delegation Rewards are Calculated

Founded by Charles Hoskinson, Cardano is a blockchain platform seeking a decentralized application (DApp) development platform. The Cardano platform runs on the Ouroboros consensus protocol. In addition, it leverages the Delegated Proof-of-Stake (DPoS) consensus mechanism meaning that users can delegate their ADA to other pools to be staked and earn rewards. 

The two primary ways ADA coin holders can invest and earn rewards on the Cardano blockchain include; running their own stake and delegating their ADA to a staking pool. The Ouroboros protocol determines the amount of monetary reward based on the amount of stake delegated to a given stake pool. The more significant the stake delegated to a given stake pool, the more likely it is to form the next block and consequently the more the rewards. The rewards are shared among everyone who delegates their stake to that stake pool. Here’s an insight into how the Ouroboros protocol calculates the ADA delegation rewards. 

Delegation Explained

Contrary to the common perception, delegation and staking are two different concepts. Staking means holding your coins in a pool while delegating them involves putting them in a network. In addition, delegation leverages Proof of Stake (DPoS) – An evolution of PoS whereby network users vote and elect delegates, also referred to as block producers or witnesses, to validate the next block.   

On the Cardano platform, ADA holders can run the network by either staking ADA to run live nodes. However, not all ADA holders have the capacity to run a stake pool and participate in the network’s consensus mechanism. In such situations, ADA holders allocate some or all of their ADA holdings to one or more stake pools, who then stake the coins on their behalf. 

In simple terms, delegation is delegating your right to stake ADA to one or more stake pools because you don’t have the capacity to stake. Therefore, delegating ADA comes with rewards, calculated based on several factors, such as the amount of delegated ADA tokens, the staking fees charged by your preferred stake pool, and network parameters. The rewards are obtained from two major sources: transaction fees and monetary reserve.

How Does Delegation Work on Cardano

Delegation on Cardano is pretty simple. You can easily delegate your ADA to a stake pool once you have it. Delegating your ADA to a staking pool gets you a reward of 5% ADA per annum. The reward is paid out every 5 days. Usually, a pool with over 15 million ADA produces a block after every Epoch, i.e., 5 days after a stake pool becomes active and produces blocks in the active state. 

When you first delegate your ADA holdings to a pool, your ADA remains in an active state until the Epoch ends. After the Epoch ends, a snapshot is taken then your stake turns active. It’s only in the active state that the stake pool produces a block, earning you blocks. The rewards from the stake pool are obtained from the transaction feed and minted tokens in the blocks. Below is the order of every Epoch. 

Epoch 1: Delegation is in a live state 

Epoch 2: Delegation turns active, and the pool starts minting blocks earning rewards

Epoch 3: Rewards are calculated 

Epoch 4: Rewards are distributed 

Epoch 5: The cycle starts again from Epoch 2

Considering that each Epoch takes approximately 5 days, the entire process takes around 20-25 days based on the day you started your delegation. So, for example, if you started delegating your ADA to a staking pool right after an Epoch change over and snapshot, it would take some time for the Epoch to go into a live state. 

Another thing to note about Delegation on Cardano is that the network doesn’t impose a lock-in period meaning that you can freely move your ADA in and out of your wallet. Therefore, you are eligible for rewards as long as your ADA is in a pool before the epoch snapshot period. However, locking in your ADA for some period up to 3 months gives you extra rewards for that particular lock-in period. 

How to Delegate Cardano ADA?

Delegating ADA is pretty straightforward and secure. Below are the steps in delegating ADA:

  1. Download and install your preferred Cardano wallet. Ensure the wallet supports delegation, i.e., Daedalus Wallet & Yoroi Wallet 
  2. Transfer ADA to the wallet 
  3. Select the pool you want to delegate to using the delegation tab on the wallet’s app 
  4. Pay the required delegation fee and then wait for 20-25 days to receive the rewards, i.e., Epoch.

How Much of a Reward Do You Get Delegating ADA to a Stake Pool?

The amount of rewards you receive from delegating ADA to a staking pool varies from pool to pool based on the pool’s saturation and performance. The lower the pool saturation, the lower the rewards and less regular it will be. On the other hand, the higher the saturation level, the higher the rate of minting blocks and the more consistent the rewards are.

How are the Rewards Calculated?

The Ouroboros protocol is responsible for calculating the rewards, which are then later automatically distributed amongst all ADA holders who have delegated their coins to a stake pool. To calculate the rewards, the protocol leverages a formula that considers the available rewards amount, monetary expansion, transaction fees, and more. As a result, the rewards are proportional to the pool stake up to the point of saturation. The formula is as below:


  • R – the total amount of existing rewards for this Epoch
  • a0 – pledge influence factor (can be between 0 and infinity)
  • z0 – relative pool saturation size, i.e., 0.5% for several desired pool k=200
  • σ – stake delegated to the pool (including stake pledged by the owners and stake delegated by others)
  • σ’ = min(σ, z0) – as σ, but capped at z0
  • s – stake pledged by the owners
  • s’ = min(s, z0) – as s, but capped at z0

In the formulae, the rewards increase with σ but stop increasing once the pool turns out saturated, i.e., σ reaches z0. After the rewards have been calculated and adjusted based on the performance, they are distributed to the pool member, operators, and ADA holders who delegated part or all of their holding to the pool. 

There are several steps involved in the distribution of the rewards. First, the cost of running a pool is subtracted from the total rewards and offered to the pool operator. Next, the margin is also deducted and offered to the pool operator. Finally, the remaining reward is split based on the proportion of delegated stake to all people who delegated the stake to the pool, including the pool owners. 

To find how many rewards you’ll get after every Epoch, i.e., five days, you don’t need to always use the formulae as staking calculators are used to estimate your rewards.

Closing Words

price change

Running live nodes and staking are two vital concepts to support the Cardano network. However, not all ADA holders have the capacity to stake ADA or run live nodes. As such, Cardano supports delegation where ADA holders can delegate all or some of their coins to one or more stake pools, who stake on their behalf and earn rewards in ADA. The rewards are calculated by the Ouroboros protocol considering several factors such as network parameters, chosen stake pool, amount of delegated ADA, and more. Once the rewards are determined, they are automatically distributed to pool members, operators, and ADA holders who delegated part or all of their holding to the pool. You can use an online calculator by Cardano to determine how much reward you can earn by delegating your coins to a stake pool. 

More posts

Earliest Cryptocurrencies with DeFi-like Characteristics

A recent Chainalysis report shows how Europe accounts for 25% of the world's cryptocurrency transactions. The news came as a surprise to many. However, Decentralized Finance (DeFi) is the center of these crypto transactions. So, it takes about 50% of the total amount from the region's trades. DeFi is an innovative niche that many enthusiasts still have not explored fully. Nevertheless, numerous smaller crypto assets with similar characteristics to DeFi tokens already exist. Binance Chain, PancakeSwap, and Uniswap are examples…

Which Altcoins Made The News in H1 of 2021

Altcoins are constantly jostling to make a mark in the crypto world. After Bitcoin and Ethereum, the race to be the third cryptocurrency force keeps heating up every year. Many strong contenders with different use cases promise more than what the big two currently offer. As a result, many are making their mark in a big way, for good and not so good reasons, as long as they stand out from meme coins that ride the celebrity popularity wave and…

Top Altcoins with the Most Potential For 2022

In 2017, altcoins became a thing when thousands of Bitcoin competitors flooded the market. Today, many altcoins have evolved beyond expectations and are stand-alone products with unique real-world applications. Furthermore, they provide an opportunity for investors to diversify their portfolios. Identifying the best cryptocurrencies to invest in can be overwhelming for most newbies, primarily since thousands of them exist. We bet you're having difficulty finding the most promising altcoins in the crypto space. So, this article should help you get…

Institutional Investors who have Expanded their Portfolio in 2021

Cryptocurrency and blockchain investments from the first 9 months of 2021 have surpassed last year's grand total. In the first half of 2021, the worldwide crypto and blockchain activity was $8.7 million, more than double last year's figures. It is a significant sign that institutional money is streaming into the crypto space. Furthermore, it increases the investor base, and thus the institutional awareness and knowledge of this sector are also surging. The "institutional adoption" of crypto is already underway. Today…

Understanding Cardano, IOHK, and EMURGO

Cardano is the first decentralized public blockchain platform that developed on a research-first driven approach. Charles Hoskinson, the co-founder of Ethereum, created it in 2015 and later launched it in 2017. It comprises a development team of global researchers and engineers. This platform's development continued thanks to academics and computer scientists and their peer-reviewed papers. The Cardano ecosystem involves three founding entities that work together. These partners are EMURGO, IOHK Company, and The Cardano Foundation. Cardano in a Nutshell Cardano…

Billionaires Who Have Publicly Showed Interest in Cryptocurrencies

The cryptocurrency boom of 2017 saw a rise in their acceptance from prominent economic figures. Since then, their volatility hasn't stopped significant investments in them. Today there's a push for their global mass adoption. Industry-leading lights and renowned celebrities have expressed their support for the assets. Nothing best captures this reality than Forbes's recent list of the world's wealthiest people. It indicates a growth in the number of crypto billionaires over time. From an asset that courted controversy and skepticism,…

Which is the Most Crypto-Friendly Country in Europe?

When cryptocurrencies made their first appearance in the financial world, many people were skeptical about them. Governments mainly felt threatened because the digital currencies dispelled the need for central banks. A little over a decade later, cryptocurrency mainstream adoption has made strides. However, many jurisdictions remain hostile toward digital currencies.  There's no denying that cryptocurrencies present several advantages, which is why many enthusiasts and investors are jumping on board. However, for mainstream crypto adoption to go globally, jurisdictions must accept…

Crypto Signals to Stop You from Succumbing to FOMO Woes

In the case of cryptocurrency, FOMO is popular due to enormous and rapid gains. However, as more people realize these great opportunities, they are afraid that they will miss them. When you think that you can win a particular cryptocurrency, you begin to buy it in huge numbers. As numerous investors and traders believe that blockchain and crypto are in the early stages and have excellent development potential, FOMO appears to be more than just a driving force in the…

Understanding Ethereum’s Solidity Programming Language

Ethereum is a cryptocurrency capable of storing value and making payments. However, that's not all. It is also a fully-fledged platform for creating smart contracts, and this is where Solidity comes in. Solidity is a high-level language for implementing smart contracts. It gets its inspiration from C++, Python, and JavaScript and should target the Ethereum Virtual Machine (EVM). This article will uncover all about the Solidity programming language and how it works. But first, we'll look closer at the Ethereum…

Hedera – A Comprehensive Guide to a Revolutionary Consensus System

Blockchain is the digital environment supporting cryptocurrencies and decentralized app (DApps). You may know it as one of the greatest innovations of the 21st century. However, this remarkable invention has its shortcomings. For instance, it is difficult to scale and consumes too much energy, making it bad for the environment. Fortunately, some projects aim to solve these issues. One of them, Hedera, has come up with a potentially better alternative to blockchain: Hashgraph consensus. Consequently, Hedera used it to open…