Nomination pools are going live on the Polkadot blockchain network, enabling anyone in the community to help secure the network and receive rewards for doing so, with as little as 1 DOT.

It's a new feature for Polkadot staking that's designed to scale its unique nominated proof-of-stake algorithm, designed to help users with less tokens participate by staking natively on the Relay chain, as opposed to going through a third-party service on an exchange like Binance or Coinbase.

The best way to think of Polkadot's nomination pools is that it works like a kind of collective nomination scheme. With it, any user can create a nomination pool by making an initial deposit, which acts as the pool's stake. Other users can then join the pool and increase its stake with their own deposits. Each pool represents a single nomination within the staking system. However, the pool creator maintains responsibility for managing the pool and choosing which validator to back. All members of the pool therefore back the same validator.

In future, it's possible that there may be an incentive for pool creators, with the Polkadot council currently discussing whether or not to create a reward mechanism for those who set up trusted nomination pools.

Polkadot explains that the goal of its NPoS mechanism is to maximize the overall number of tokens staked on the network in order to boost its security and decentralization. But without nomination pools it's far from equitable, as the system is configured to favor nominators with the biggest stakes.

The way it works is, when a nominator delegates tokens to three different validators, they can have three different states – namely, active, inactive or waiting.  If the validator is not chosen, its status will be "waiting". Alternatively, if the chosen validator is selected to propose a new block, the stake will either be active or inactive, depending on the size of the stake the user has delegated. This happens because Polkadot is limited to a maximum of 22,500 nominators, determined by the size of their stake. Those who don't stake enough are "inactive", and must either wait until someone above them drops out, or increase their stake to be included in the rewards.

It's a big limitation because it means a lot of DOT tokens that are staked are not actually doing anything to benefit the network, and their owners are not getting rewarded. Nomination pools are meant to change this dynamic by giving more users the chance to participate with much smaller stakes. A pool composed of many nominators acts as a single nominator, allowing smaller investors to take part in the network's consensus and earn rewards for doing so.

Nomination pools have been up and running on Polkadot's canary network Kusama since June and the feature is now ready for primetime.

Statuses & Roles

Nomination pools can exist in one of three states – Open, Destroying and Blocked. An open pool means that any user is free to join and stake their DOT tokens. A blocked pool essentially means that it is full, so no one else can join. Finally, a destroying pool is one that's in the process of being dissolved – anyone who's tokens are staked in such a pool should unbound them and then, once the waiting period is over they can join a new pool or create their own.

Nomination pools can be created through the Polkadot JS application. Each pool has a number of roles performed by users that are assigned by default to the pool creator. The Nominator is responsible for selecting which validator to nominate, while the State-Toggler is the one who can change the state of the pool and eject members without requiring permission. Finally, the Root has the ability to change the nominator, state-toggler or even its own role.

The availability of nomination pools promises to be a game changer for the Polkadot ecosystem, enabling those with much smaller DOT holdings to join forces and participate in the running of the network and obtain the benefits of staking.