COMMON QUESTIONS & ANSWERS
WHAT IS SHELLEY
It is extremely important for the new Cardano code to be tested in the real world with real world users like yourself, using it in all the different and varied ways you are likely to use it. Because this Shelley code is brand new and has never been tested in the real world before, it is expected that several areas for improvement will be discovered and this is why it is important to conduct these tests in this testnet environment to ensure all of your mainnet ADA is kept safe. Through your efforts to take part in this testnet you are helping the Cardano project create strong and robust code which in a few months will be transferred over to the mainnet environment, helping Cardano to become the number one cryptocurrency project in the world.
The Cardano project values the time you spend using the testnet and so it has chosen to pay a total of 3.8 Million ADA into the testnet every day. You can claim your share of these daily rewards by actively taking part in testnet staking. Once the testnet is over a method will be created to allow all users to transfer those rewards out of their Testnet wallet and into their mainnet wallet. Testnet rewards are estimated to be between 7-12% annually.
If you were storing your mainnet ADA in the Daedalus wallet at the time of the snapshot then you should download the Daedalus Testnet Wallet from HERE. You will then need to perform the following steps to claim and begin using your testnet ADA:
Install the Daedalus Testnet Wallet.
Open the Daedalus Testnet Wallet and allow it to sync 100% with the network, (this can take some time).
When prompted enter your 12 word seed phrase for your mainnet wallet to claim your testnet ADA.
Create a new wallet. This will give you a new seed phrase that is 15 words long. Store this seed phrase in a safe place and never reveal it to anyone even if they look official and ask.
Transfer your claimed ADA over to your new wallet. You have to do this before you can begin staking.
You can now stake your testnet ADA in any of the stakepools listed.
Once claimed you can use your 15 word seed phrase to open your testnet walelt in the Yoroi Testnet Wallet too.
If you were storing your mainnet ADA in the Yoroi wallet at the time of the snapshot then you should download the Yoroi Testnet Wallet from HERE. You will then need to perform the following steps to claim and begin using your testnet ADA:
Install the Yoroi Testnet Wallet
Open the Yoroi Testnet Wallet
Enter your 15 word seed phrase for your mainnet wallet to claim your testnet ADA.
You can now stake your testnet ADA in any of the stakepools listed.
Once claimed you can use your 15 word seed phrase to open your wallet in Daedalus Testnet Wallet too.
WHAT IS STAKING
Staking is a process where you select a stakepool to create rewards for you. At all times you remain in complete control of your ADA and stakepools never have any control over what happens to your ADA.
At the beginning of each Cardano day, (epoch) which starts at 7:13pm GMT there are 4320 blocks which need to be assigned to stakepools to try and create during that epoch. To make this process as fair as possible each of these blocks is awarded as a prize in a giant lottery.
At the time of writing this help article there are 9.8 Billion claimed ADA in this testnet environment and each of these claimed testnet ADA becomes a lottery ticket. If a stakepool has 2 million ADA staked then it has 2 million chances to win every block assignment.
Winning block assignments does not guarantee rewards, as rewards are only given to successfully created blocks. To successfully create a block the stakepool assigned with creating that block has to be 100% in sync with the rest of the Cardano network during that block's sheduled creation time which lasts for a total of 2 seconds. If the stakepool successfully creates a block then it will be rewarded with the unique value of that block, (more about that later) and if it fails to create the block then the rewards will be sent to the Cardano Treasury to later be used for things like marketing etc in the coming years.
Because the block assignment is done in a lottery it is impossible to determine how many blocks each stakepool will be assigned in each epoch. It is possible that a pool with 1 ADA could win all 4320 block assignments in all epochs for the rest of time but this is highly unlikely. It is also possible that a pool with 98 million ADA, the current saturation amount, (more about that later) could win all 4320 block assignments in all epochs for the rest of time but this is also highly unlikely. What is much more is that over time a pool with 98 million ADA will be assigned 49x more blocks to create than a pool with 2 million ADA. If both stakepools then successfully create 100% of their blocks and lets assume that each block reward is the same to make the numbers easier, then it is true that the pool with 98 million ADA will receive 49x the rewards, but this stakepool then needs to divide those rewards among all 49x more ADA staked to it's pool, so on average and over an extended period of time the rewards distributed to each ADA in both pools should be identical if we ignore fees.
Stakepools are permitted to charge a % fee and a fixed fee. Both are deducted from the total rewards in each epoch before distributing the remaining balance evenly between each ADA staked to that pool. So for example if a pool generated 1000x ADA in rewards in an epoch as has a % fee of 10% and a fixed fee of 200 ADA then the pool will first deduct 10%, (100 ADA) and then deduct a further 200 ADA from the original 1000 ADA, leaving 700 ADA to be split evenly between all the ADA staked to their pool.
Some pools charge very large fees and some charge very low fees. There are various reasons why a pool might charge different fees, but here are some examples:
Large fees might be charged by stakepools which want to run their own stakepool and so keep 100% of their own rewards.
Large fees might be charged by stakepools in the hope that delegators won't notice their fee structure.
Small fees might be charged by stakepools which for various reasons have very low operating costs.
Small fees might be charged by stakepools that simply want to support the Cardano project in their spare time.
Small fees might be charged by stakepools that are hoping to achieve customer loyalty for when mainnet staking begins.
Whatever a stakepool's fee structure please make sure you are always aware of it before staking as fees can change over time. One safety measure that is included in the code is that when a stakepool changes it's fees all delgates will automatically be undelegated from those pools, so it's always a good idea to check back regularly to make sure you are still delegated to your chosen pool(s).
Saturation is a very important concept for delegators to fully understand because it can hugely impact on their rewards. When a pool becomes saturated it's rewards drop off very quickly. In the testnet environment the saturated point has been manually set to be 1% of the total stake currently active in the testnet environment. At the time of writing this article the total active stake is 9.8 Billion ADA which makes the saturation point 98 Million ADA. The effect of saturation on rewards is linear, so if a pool is 2x saturated then it will only pay 1/2 of the rewards an unsaturated pool would pay, and if a pool is 10x saturated it would only pay 1/10 the rewards that an unsaturated pool would pay.
Pool saturation is an important part of the Cardano network because it incentivizes delegates to spread their ADA evenly among all pools and so create a decentralised and safer network which is great for the project's future. If saturation did not exist then delegates wodl likely all choose to delegate to a small number of pools which would cause network centralisation which would create increased risks of things like Sybil attacks which can only happen when a stakepool operator is in control of over 51% of the total available network ADA.
So please always make sure to only delegate to unsaturated pools and if you see a stakepool operator with more than one pool then please also delegate with more caution to those pools, especially if you can see their total accumulated stake across all pools is very high.
Saturation is a very important concept for delegators to fully understand because it can hugely impact their rewards. When a pool becomes saturated it's block rewards become capped. This means that while a pool that is 2x, 3x, 4x, 5x etc oversaturated will likely win 2x, 3x, 4x, 5x etc blocks to create in the lottery at the beginning of each epoch these saturated pools can only claim rewards for the amount of blocks a 1x saturatin pool would receive. So the relationship between pool saturation and rewards is inversely proportional. This means that a 2x saturated pool pays 1/2 rewards, a 5x saturated pool pays 1/5 rewards and in general an "n" x saturated pool pays rewards of 1/n.