The rewards you collect are based on two variables which are the amount of ADA you delegate to the pool and the amount of block the pool mints.
Every pool competes with other pools in order to be selected to mint a block. The more ada delegated to the pool, the greater the chances of being selected to mint a block.
Whenever a block is minted by a pool, the rewards are distributed automatically and proportionally to the contribution of each delegators to the pool.
Let’s take an example with the following assumptions
- A pool has 100,000 ADA delegated.
- You personally have 10,000 ADA delegated to that pool.
- The pool mints a block in the epoch, which is worth approximately 1000 ADA
10,000/100,000 => 10%
1000 ADA * 10% => 100 ADA
You would personally get 100 ADA for that epoch.
If the pool is small does that mean my rewards are lower ?
Absolutely not, this is the biggest misconception of the ways the protocol works. Every single pool gets the same rewards overtime. A pool with lots of delegation is selected very often to mint a block. However, it often hosts a lot more delegators which have to distribute themselves the rewards proportionally.
On the other hand a small pool with very few ada delegated might have to wait weeks, sometimes months before it gets selected to mint a block. However when it does, the ADA it collects are very important proportionally to the amounts that are delegated.
Overtime with the current parameters of the protocol, every pool gets a 5-7% reward per year.
What is the reason to delegate to a bigger pool?
Frequency of payment. If you are worried to wait for your pool to be selected, delegating to a bigger pool will increase the frequency of your payments. However, bear in mind it will not increase your overall amount of rewards.