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How Cardano Rewards, Parameters & Pledge Work

by | Aug 19, 2025 | Getting Started

New to Cardano staking and wondering how staking rewards are determined? In this beginner-friendly post, we’ll explain how Cardano rewards are calculated and what key factors – like pool parameters and pledge – influence those rewards.

We’ll use our own TerraTrust stake pool (ticker TERRA) as an example to keep things practical and honest. By the end, you’ll understand how rewards work, why early support for small pools (like TERRA) matters, and what to expect when you start staking your ADA.

What Are Cardano Staking Rewards?

Cardano is a proof-of-stake blockchain, which means ADA holders can delegate their ADA to a stake pool and earn rewards for helping secure the network. These staking rewards are distributed regularly (approximately every 5 days, which is one Cardano epoch) to all participants who have delegated. The rewards come from a combination of network fees and new ADA issuance (monetary expansion). In each epoch, the Cardano protocol allocates a certain amount of ADA as the reward pool (around 0.3% of the remaining reserve of ADA per epoch). A portion of this (currently 20%) goes to the treasury, and the rest is distributed as rewards to stakers. In practice, delegating ADA yields an annual return of roughly 2–5% on your ADA holdings on average – much better than letting your ADA sit idle!

Importantly, your ADA never leaves your wallet when you delegate – it remains in your control at all times. Staking is non-custodial and safe: you can unstake or switch pools at any time with no penalties. This makes participating in Cardano’s staking easy and low-risk for beginners. In short, by staking your ADA you help secure the network and get passive rewards in return – a win-win for you and Cardano.

    Key Factors That Influence Rewards (Parameters Explained)

    Not all stake pools are the same. Cardano’s design uses several parameters to determine how rewards are split and to encourage decentralization. The most important factors that affect the rewards you earn from a pool are: stake pool size, pledge, fees, and overall pool performance. Let’s break down each of these:

    Stake Pool Size & Saturation:

    Each pool’s chance to produce blocks (and thus earn rewards) is roughly proportional to the amount of stake delegated to it. Small pools with less stake have a lower probability of making blocks, leading to more variable rewards (some epochs may get no rewards). As a pool grows, its block production becomes more regular up to a limit. Cardano sets a “saturation” point to prevent any single pool from becoming too large. The network parameter k (the desired number of pools) defines this cap. For example, with k=500, the saturation point is about 64 million ADA per pool. Any stake above that doesn’t increase rewards. A pool is most efficient when it’s at or near saturation but not over it. Our TerraTrust pool is far below saturation – now at 42k ADA aktiv stake (about 0.06% of the cap). This means we have plenty of room to grow, and every additional ADA delegated increases our block chances. (In other words, delegating to a small pool like TERRA helps it get closer to optimal performance.)

    Pledge (Pool Operator’s Stake):

    Pledge is the amount of ADA the stake pool operators themselves commit to the pool. It’s basically the pool’s “skin in the game.” In Cardano, a higher pledge slightly boosts a pool’s rewards to incentivize operators to put up their own stake. However, the pledge influence (controlled by parameter a0) is moderate. In fact, if a0 were zero, rewards would purely be proportional to stake (no pledge influence). With the current a0 (~0.3), pledge has some effect, but unless the pledge is very large, the difference in rewards is small. For example, a pool that is otherwise identical but has a much higher pledge might earn only slightly more rewards – the effect is most noticeable when a pool is near saturation with very low pledge. In our case, TERRA has a declared pledge of 5k ADA (we’ve actually put ~7.6k ADA of our own into the pool). This demonstrates our commitment to the pool, though in terms of rewards, a 5k vs a 50k pledge doesn’t drastically change things for delegators at the moment. The bottom line: pledge is a trust signal (and does boost rewards a bit), but small pools with modest pledge can still be competitive in rewards if they produce blocks reliably.

    Fees (Margin & Fixed Cost):

    Every stake pool sets two kinds of fees: a fixed fee (a flat amount in ADA taken from the pool’s rewards each epoch that the pool produces at least one block) and a margin (a percentage cut of the remaining rewards that the operator takes). These fees cover the operator’s costs and profit, and they only apply when the pool has rewards to distribute. In Cardano, the protocol enforces a minimum fixed fee of 170 ADA per epoch (recently lowered from 340 ADA). Our TerraTrust pool charges the minimum fixed fee of 170₳ and a 0% margin fee. This means we do not take any percentage of the rewards – delegators get 100% of the rewards after the 170 ADA fixed cost. (We chose 0% margin to maximize returns for our delegators.) How do fees affect your rewards? The fixed fee is first subtracted from the pool’s total rewards each epoch, and the margin is applied on the remainder, then the rest is shared with delegators. For a large pool that makes many blocks, 170 ADA is usually a tiny portion of the rewards. But for a small pool that produces a block only occasionally, the fixed fee can be significant relative to that epoch’s single-block reward. In such cases, the first block’s rewards might go entirely to cover the fixed cost. However, over the long run, as the pool makes more blocks, the impact of the fixed fee averages out. Margin fee, on the other hand, directly lowers delegators’ share – for example, a 5% margin means the operator takes 5% of the pool’s rewards after fixed cost. Because TERRA’s margin is 0%, our delegators receive the maximum possible share of rewards (nothing is taken off the top aside from the fixed 170₳ which is protocol-mandated). This fee policy reflects our commitment to fair rewards for our supporters.

    Pool Performance (Luck and Blocks Produced):

    Finally, a critical factor is whether the pool is actually producing the blocks it is expected to. Cardano randomly assigns block production slots to pools, weighted by their stake. In theory, if a pool has 0.1% of total stake, it should make about 0.1% of all blocks. In practice, especially for small pools, there is variance (a.k.a. “luck”). One epoch you might get no blocks; another epoch you might get one or more if lucky. Over time, a well-run pool that stays online and doesn’t miss assigned slots will trend toward the average expected performance (its “expected blocks”). But in the short term, there can be dry spells. This is important for delegators to understand: when you join a small pool, you might not see rewards immediately every epoch, but patience can pay off as eventually the pool will mint blocks and distribute rewards. As long as the pool is operated reliably, your long-term average rewards will be similar to any other pool’s, just delivered in less frequent lump sums. (For example, 5% yearly could come as a few bigger payouts instead of many tiny ones.)

    Example: TerraTrust Pool Metrics (Why Your Support Matters)

    Let’s put the above into context with our TerraTrust (TERRA) stake pool’s current metrics (08/2025). As of now, TerraTrust is a new, small pool – we launched in March 2025 and are still growing our delegation. Here are some key figures for TERRA:

    • Aktive Stake: ~42.5k ADA total staked in the pool (this includes all our delegators plus our own pledge). This is a very small stake relative to the Cardano network, equating to only 0.06% saturation. In other words, we currently hold a tiny fraction of total stake – which is why our probability of producing blocks each epoch is low. In the latest epoch, our estimated blocks were essentially 0. It’s normal for a pool of this size to not make a block every epoch (or even for a number of epochs).

    • Pledge: 5,000 ADA pledged (declared) by us, with an active pledge of ~7,640 ADA (we’ve actually over-pledged a bit). This pledge is our own stake locked in the pool, signaling our commitment. While 5k ADA is not a huge pledge in absolute terms, it’s what we can afford and shows we have stake in our pool’s success. As explained, pledge has only a minor effect on reward rates given our pool’s size, but it’s an important trust factor – we’re in this together with our delegators.

    • Fees: 0% margin and 170₳ fixed. We take no extra cut from rewards. The only fee is the mandatory 170 ADA that the protocol subtracts when we produce blocks. We’ve set such low fees to maximize your rewards and to attract supporters while we’re small. In fact, 170 ADA is the lowest allowed fixed fee – many pools charge more or have a margin on top, but we want delegators to keep as much as possible.

    • Current Performance: So far, TerraTrust has produced 0 blocks (lifetime) simply because of our low stake and the statistical luck of the draw. Consequently, our pool’s historical ROA (return on ADA) is 0% at the moment. This might sound discouraging, but it’s important to remember every big pool also started at 0 blocks. We’re just getting started – with only 5 delegators on board so far – and the more ADA joins our pool, the higher the chance we’ll start creating blocks regularly. Once we mint our first block, all delegators at that time will receive their share of the reward for that epoch. As we grow, those rewards will become steady and competitive on an annualized basis.

    Why support a small pool like TerraTrust? Early delegators are crucial to bootstrap new pools. By delegating to TERRA now, you’re helping decentralize the Cardano network (preventing all stake from concentrating in just a few big pools) and giving us the chance to produce blocks. While you might not get rewards immediately, over the long run your earnings should average out similarly to staking with a larger pool – plus you have the satisfaction of supporting a mission-driven, emerging pool. TerraTrust is unique in that we combine staking with environmental impact: every time we do produce a block, we donate 10% of our pool’s fixed fee (17 ADA) to environmental projects. That means by staking with us, not only do you earn ADA rewards, you also help fund green initiatives when our pool succeeds. We operate with transparency and passion – our margins are zero, and we even publish proof of our donations for accountability.

      Ready to Start Earning Rewards?

      If you’re interested in staking your ADA with a pool that puts delegators first and has a mission to give back to the planet, consider TerraTrust (ticker TERRA). You can find us by our ticker in your wallet’s delegation center or use the buitton on th right corner. Even if you’re still learning the ropes of Cardano, feel free to reach out – we’re happy to answer questions. Staking is a journey, and we’re excited to have you with us from the beginning of ours.

      Happy staking! 🌱