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In this short text I will try to explain in the most summarised and simple way possible which are the reasons that indicate that it is not advisable to staking or "delegate" in any of the existing Exchanges.
Especially if what we want, in addition to growing our ADAs, is to help and promote the development of the Cardano Project.
The following points are the main problems we encounter when staking or delegating to an Exchange:
- Ownership: as it is usually said: "if you don't have the keys, you don't have your money".
This means that if you don't have your ADAs in a wallet secured with your seed words (usually 15 words that are the key to manage a wallet) you are not directly managing your ADAs.
Therefore, the real owner is the one who manages the ADAs in his own wallet (in this case an Exchane) and he can do or undo whatever he wants and at any time. Unfortunately, there have already been many cases of Exchange hacking or worse, Exchange with hundreds of thousands of users who have disappeared from one day to another with all the cryptocurrencies in their pocket (Mt. Gox case and last case: Thodex in Turkey 4).
Security
having your ADAs on an Exchange makes you depend on them to do their job well and take all appropriate security measures so that no one can hack them. Hacking is something that, although difficult, is not impossible to do. Proof of this are the various cases of hacking of Exchanges that have occurred so far. You also have to take into account that a personal wallet with -at best- a few thousand ADA is much less succulent for a Hacker than an Exchange where there are literally millions of ADA and other cryptocurrencies. Your personal wallet gives you more security, especially if you use a cold-wallet, then the security level is almost unbeatable.
Rewards
unfortunately for the "delegators", the Exchange Pools are often very close to saturation, or even saturated. This means that Cardano's rewards algorithm penalises them for exceeding a certain number of ADAs delegated in that Pool. This means that the annual rewards will be lower than 5% per year for all your delegators.
Blocked Funds
when staking in an Exchange you are forced to block your ADA funds for a certain period of time if you want to obtain any reward. This prevents you from freely disposing of your ADA during that time, because if during the duration of the block you want to use all or only part of the fund, you are allowed to do so on the condition that you get absolutely no reward for the time you have blocked them, even if you have blocked them for 99% of the total time. On the contrary, if you delegate directly to a Pool, you can extend, reduce or cancel the amount you have delegated and you will always be given the proportional part according to the time and the amount of ADA you have been delegating.
Voting Rights
if you have your ADAs in an Exchange you do not have the right to Vote in the Cardano Project through its Catalyst platform. At the moment, if you have 500 ADAs you can already vote for the Projects you want Cardano to support and they will gradually introduce more governance cases. So if you want to be an active participant and have direct decision-making capacity in Cardano from an Exchange it is impossible. As if voting wasn't enough, also by participating in voting you get rewards in the form of ADA that go directly to your wallet.
Project support
if you delegate to an Exchange, the rewards from the Pool Operator's work go to a private company. This is certainly nothing to criticise, in fact it is a good thing. But bear in mind that if you delegate to a Pool, you can choose which project is more deserving of that reward. Usually the Pools have a purpose beyond the activity of being an active node in the Cardano network and manage their own projects based on the rewards obtained as Pool Operators. By reading about each Pool you can choose the one with a project you like the most. This allows you to support Pools in your area or community, but you can also support Pools that support technical projects, environmental projects or even charitable projects. It's up to you.
Decentralisation
this is perhaps one of the most important points to bear in mind. If you staking in an Exchange, not only are you not helping Decentralisation, but you are helping to Centralise the Cardano Project, that is to say, that a few people have a lot of power. This fully affects one of the pillars of the Cardano Project, which is to seek a system of balanced participation and governance among all participants. And this balance can only be achieved if many people have similar powers. Cardano's success is closely related to its Decentralisation, so if you want your investment to increase in value over time, it is in your best interest that Cardano is highly Decentralised.
