Nomination Pools · Polkadot Wiki (2024)

Nomination pools are one of the key features from the roadmap of staking improvements onPolkadot. They are designed topermissionlessly allow members to pool their funds together and act as a single nominator account.

Due to the current runtime constraints,Polkadot can only handle22500 nominators comfortably in theelecting set. As one of the objectives of theNPoS algorithm is to maximize the overall stake on the network, it can beinferred that the staking system on Polkadotfavors nominators with a larger stake. Only the nominator accounts which back the validators in theactive set are eligible for receiving staking rewards. This leaves out nomination intents from theaccounts with lower token balance than the min-active nomination and places them in a waiting queueto enter electing set. Nomination pools will be handy for members who want to participate in thestaking system with a stake much lower than the dynamic min-active nomination threshold on thenetwork. All operations are constant space and time complexity relative to the number of members,eliminating any theoretical upper bound on the number of members the system can handle and thusscaling the number of accounts that can participate and earn rewards in the staking system onPolkadot. In summary, each nomination pool isviewed as a single nominator from the NPoS system point of view.

The pool’s earnings are split pro rata to a member's stake in the bonded pool (and thus, the stakingrewards for members will be the same as if they were a nominator). Importantly, slashes are alsoapplied proportionally to members who may have been actively bonded.

Key Components​

• Bonded Pool: Tracks the distribution of actively staked funds.
• Reward Pool: Tracks rewards earned by actively staked funds.
• Unbonding Sub Pools: Collection of pools at different phases (i.e. eras) of the unbondinglifecycle.
• Members: Accounts that nominate to the pools.
• Point: Unit of measure for a member’s portion of a pool's funds. All pools start with a point toPlanck ratio of 1. Over time, if the pool receives rewards, they increase in value, and if thepool is slashed, it decreases in value.

Pool Member Lifecycle​

Join a pool​

A member delegates funds to a pool by transferring some amount to the pool’s bonded account with thejoin extrinsic. The pool then increases its bond with the new funds. A member is afforded theability to bond additional funds or re-stake rewards as long as they are already actively bonded.Note that a member may only belong to one pool at a time.

The current minimum bond to join a pool can be seenhere.

Check the "How to join a pool" section inthis support articlefor guidelines.

Claim rewards​

The member can claim their portion of any rewards that have accumulated since the previous time theyclaimed (or in the case that they have never claimed, any rewards that have accumulated since theera after they joined). Rewards are split pro rata among the actively bonded members. Check the "Howto claim rewards" section inthis support articlefor guidelines.

Claim Permissions​

As a pool member, you can grant permission to any other account to claim and compound rewards onyour behalf. There are four permission options:

• Permissioned (default): you need to claim and compound your rewards.
• PermissionlessCompound: you grant permission to any other account to compound (claim and bond)your rewards on your behalf.
• PermissionlessWithdraw: you grant permission to any other account to withdraw (claim and keep asa free balance) your rewards on your behalf.
• PermissionlessAll: you grant permission to any other account to compound or withdraw yourrewards on your behalf.

See the Staking Dashboard page for more information abouthow to set your claim permissions.

See the advanced guides tolearn how to claim rewards for another pool member.

Unbond and withdraw funds​

At any point in time after joining the pool, a member can start the process of exiting by unbonding.unbond will unbond part or all of the member's funds. After unbond has been called and theunbonding duration has passed a member maywithdraw their funds with withdrawUnbonded. Withdrawing effectively ends a member's relationshipwith their pool, allowing them to join a different pool if desired. Check the "Withdraw unbondedfunds" section inthis support articlefor guidelines.

Limitations of Nomination Pools​

• A member cannot vote (e.g. in Referenda or for Council members) with their nominated funds. Thismay be changed in the future once accounts are afforded the ability to split votes.
• For a member to switch pools, all funds from the account must be unbonded. This process takes 28eras.
• A member can partially unbond the staked funds in the pool (at most 16 partial unbonds).

Pool Administration​

States​

• Open: The pool is open to be joined by anyone.
• Blocked: The pool is blocked; no joiners are permitted.
• Destroying: The pool is in the process of being destroyed. Once in this state, the pool may neverrevert to any other state; it can only proceed to be destroyed. All members can bepermissionlessly unbonded; this allows the pool to be dismantled regardless of any member’sproactivity.

Roles​

• Depositor: Creates the pool and is the initial member. The depositor can only leave the pool onceall other members have left. Once they leave by withdrawing, the pool is fully removed from thesystem.
• Nominator: Can select the validators the pool nominates.
• Bouncer: Can change the pool’s state and kick (permissionlessly unbond/withdraw) members if thepool is blocked.
• Root: Can change the nominator, bouncer, or itself. Further, it can perform any of the actions thenominator or bouncer can.

Pool Commissions​

As the pool root role, you can set pool commissions that will be applied to the staking rewards paidout to the pool's system account before rewards are allocated for the pool members. You can set poolcommissions through the Polkadot Staking Dashboard.

Three methods can be used when setting the pool commission:

• Commission Rate (nominationPools.setCommission extrinsic): the start or new commission rate(newCommission parameter) that can be set between 0% and themax commission parameter(decided through governance referendum) via theglobalMaxCommissionparameter. You will need to specify an Input Payee Account, i.e. the account that will receive thecommission.
• Max Commission (nominationPools.setCommissionMax extrinsic): the maximum commission(maxCommission parameter) the pool will apply to its members (between 0% and Max Commission).Note that once set, the pool admin can only lower it.
• Change Rate (nominationPools.setCommissionChangeRate extrinsic): the maximum rate increase(maxIncrease parameter) allowed for a single commission update. Note that once set, the pooladmin can only lower it. When setting the Change Rate, it will also be possible to set aminDelay quantified as the number of blocks (since last commission update) after which it ispossible to change the commission (i.e. the minimum delay between commission updates). Note thatonce set, the pool admin can only increase it.

Max Commission and Change Rate must not be necessarily set. It is the choice of the pool admin toset those parameters and provide transparency to the pool members about the pool's commissionpolicy.

Let's take, for example, Pool A, which sets the Commission Rate to 10%, the Max Commission to 100%,and the Change Rate to 1% every 300 blocks (which equates to approximately 30 minutes). Thefollowing statements are true:

• The pool commission can be increased by 1% every 30 minutes. Bigger increases are not allowed.Increases of less than or equal to 1% are not allowed sooner than 30 minutes since the lastcommission update.
• The Max Commission can only be decreased from 100%. Once decreased, it can be decreased again butit cannot be increased.
• The Change Rate's maximum increase can only be decreased from 1%. Once decreased, it can bedecreased again but it cannot be increased.
• The Change Rate's minimum delay between updates of 30 min can only be increased. Once increased,it can be increased again but it cannot be decreased.

Pool Lifecycle​

Nomination Pools - Slashing​

Suppose the staking system slashes a pool’s underlying nomination account. Inthat case, the slash is distributed evenly across the bonded pool, and the unbonding pools fromslash era+1 through the slash apply era. Thus, any member who either a) was unbonding or b) wasactively bonded in the aforementioned range of eras will be affected by the slash. In other words, amember who may have been actively bonded during the offence is slashed pro rata based on its stakerelative to the total slash amount.

Unbonding pools need to be slashed to ensure all nominators who were in the bonded pool while it wasbacking a validator that committed an offense are punished. Without these measures a nominator couldunbond right after a validator equivocated with no consequences.

This strategy is unfair to members who joined after the slash because they get slashed as well, butit spares members who unbond. The latter is much more important for security: if a pool's validatorsattack the network, their members need to unbond fast! Avoiding additional slashes gives them anincentive to do that if validators get repeatedly slashed.

Nominating vs Joining a Pool​

Nominating is the action of choosing validators. It does not simply involve bonding tokens.Nominating is an active task, which implies that you regularly monitor that your stake is backing anactive validator in all the eras and check if you are receiving your staking rewards. Moreimportantly, ensure that the validators you chose always act in the best interests of the networkprotocol and have less chance of getting slashed. To nominate you need aminimum bond, while toreceive rewards, you need at least a balance greater than theminimum active bond. If the validatormisbehaves, It is worth noting that your stake is subject to slashing, irrespective of whether youare at the top nominators or not.

As the minimum active bond is a dynamic value, it can make your nomination inactive when thethreshold goes above your bonded balance. Hence, to be eligible to earn rewards while nominating,you would need to stake a much higher balance than the minimum active bond.

Nomination pools are a way to participate in staking with as little as 1 DOT and earn stakingrewards. Nomination pools differ from custodial solutions (like staking through central exchanges)because they are non-custodial, native to Polkadot's protocol, permissionless, transparent, and runin a decentralized way by the community. Before joining a nomination pool, you must ensure that thepool is earning rewards and nominating the validators that match your preferences. Participating inpools is more of a set-and-forget action than nominating by yourself. The pool operator maintainsthe list of validators nominated by the pool, and so, in a way, you are trusting the pool operatorto act in your best interests. However, it is advised to check the validators nominated by the poolfrom time to time and change the pool if necessary.