What is a Staking Pool?

As the term suggests, a Staking Pool is simply the pooled total of all the staked funds contributed by multiple stakeholders to unify their staking power. This gives the Staking Pool operator a better probability of getting selected by the network in validating transactions and thus, earning the associated rewards.

These pool operators then perform all of the technical work of validating transactions and finding blocks. Once they earn the rewards for doing this, they then distribute the rewards to Pool participants’ crypto wallets, minus a small fee or commission. The distribution here is directly proportional to the share of the Pool.

Example: 
Lee decides to stake 1 ACoin into the ValidatorOne 
ACoin Staking Pool. The total staked funds in the 
ValidatorOne pool is now 10 ACoin. This means that 
Lee’s share of the pool 10% (1/10). Lee should expect 
to get exactly 10% chance of all the rewards earned by 
ValidatorOne, minus fees or commissions.

When you participate in a staking pool, you lock your assets there and can’t use them until you unstake them – much like directly staking into the network. However, because you aren’t directly staking it, you are delegating your stakes to the Validator operating the Staking Pool. You may come across the term “Delegated” staking to reference this activity. In a latter section, we will also briefly discuss how delegation of stakes can also result in the Validator gaining more decision-making power in staking networks that implement governance measures.

Most Pools also incentivize more frequent and longer staking periods, or the possibility to lock stakes (imposing a penalty on unstaking before the lock duration ends). This helps the Validator sustain their probability of earning rewards, or helps them attract more stakers to delegate funds to them.

The basic motivation is simple: the longer you keep your assets staked, the higher your share of earning rewards, or the more your share of any eventual rewards will be.

Staking or Savings on Exchanges

Many popular exchanges also offer a way for their users to directly stake tokens via their platform. These aren’t set up as conventional pools on a particular digital asset network but simply hosted accounts on the exchange as one of their financial products.

You may find that these pools are sometimes called Savings, which more appropriately reflect their purpose as a sort of exchange bank. The APYs offered on these types of Savings do tend to be slightly lower than that of actual staking activities or most staking pools, but they can be slightly more flexible in terms of unstaking during periods of extreme price swings.

DeFi Savings Pools

In decentralized finance (DeFi) protocols and platforms, staking pools (sometimes also called savings) work very much along the same concept, but generally make use of their native token for their protocol. For instance, Binance Smart Chain (BSC) protocols like PancakeSwap would have CAKE (its native token) savings pools, but it also hosts multiple pools for other protocols and projects launched on the same BSC network.

A secondary purpose of these pools is to lock liquidity (assets) into the protocols, ensuring that there are enough resources in terms of assets to meet the trading needs of people interacting with these protocols. 

Rewards in these savings pools also include a share of revenue generated from the different protocol services (like fees and commissions), which is why APY percentages in DeFi savings pools can be higher than regular Proof-of-Stake pools.