WHAT ARE NOMINATION POOLS?
The Polkadot ecosystem is designed in such a way that there are some challenges when it comes to nominations. Currently nominators with larger DOT holdings have a better chance of receiving staking rewards. Due to current runtime constraints, Polkadot can only have 22500 nominators in the electing set. So if you are a small DOT holder (10–200 DOT ), you are most likely placed in the ‘waiting queue’ and therefore do not get many opportunities to nominate and earn rewards from validators. Then holders smaller than 10 DOT can not even nominate and earn Staking rewards.
Polkadot has come up with an idea to help. Now, small DOT Holders can join a Nomination Pool. All the DOT of the members in the pool will be combined into ONE BIG NOMINATION. This will count as 1 ‘nomination’ for a validator. This way, all members will receive rewards according to their DOT weight.