Cardano Stake Pool VariablesJanuary 14th, 2019
Cardano stake pool operators have variables they control; the goal is to make their stake pool more desirable to the entire ecosystem by getting into k.
A stake pool operator has three primary controls that will impact their pools disability:
All Cardano stake pools have a cost associated with operating a pool, a margin for delegation distribution, and pledged Ada to their stake pool.
Before we break down cost, margin & pledge further let's define what a Cardano stake pool operator, owner, desirability, and k are.
- Stake Pool Operator
- The one who operates, monitors and maintains the pool software and infrastructure owns and or rents servers, and holds the staking key of the pool.
- Stake Pool Owner
- One or more who pledge stake to the pool, which enhances its desirability and provides protection against pool-level Sybil attacks.
Separating operators from possible owners is very forward-thinking on Cardano's part as owners of Ada cryptocurrency may not be qualified or want to deal with operating a pool non-stop but still wants to, or must for legal reasons, own a pool.
- In Cardano's framework, a desirable stake pool is one that makes it into k.
The variable k is currently set to 100 stake pools, and will likely change over time.
For maximal efficiency and security, a solid majority of stake (about 80%) should be delegated to a number of stake pools (about 100 seems to be a reasonable number). ~ staking.cardano.org
Efficiency = k Decentralization = k Desirability = k
k walks the line beween efficiency and decentralization.
As far as Cardano's framework is concerned, the majority of delegated Ada must go to those competitive stake pool owners that make it into k.
Desirable Cardano stake pools will be the only ones displayed to Ada holders in their wallets.
Another k view, You Need to Pledge to a Cardano Pool. Here is Why.
Desirability = Delegation selection by design
Okay, now that we know what Cardano stake pool operators, owners, desirability, and k is let's get back to looking at those controls a pool operator has to adjust their pool desirability level, cost, margin, and pledge.
Costs are straight forward, it is the software, hardware infrastructure and time price, in operating a stake pool.
The cost of running a pool is its total operating expenses per epoch.
An epoch is a slice of time, a fundamental constant in Cardano's protocol, divided into 21,600 slots.
21,600 slots per epoch 20 sec per slot _______ 432,000 sec per epoch 7,200 min per epoch 120 hours per epoch 5 days per epoch _______ 73 epoch per year
It takes 5-days to compleate an epoch, the costs to produce that epoch is calculated over those 5-days.
- The cost of operating a pool is its total operating expenses in USD/ADA per epoch.
Rewards for delegating to or operating a staking pool are per epoch.
Margin, or pool fee, has a value between 0 to 1.
A margin of 0 means that a stake pool is taking nothing for themselves, other than their operating costs, passing all other rewards proportionately to all those that delegate to their pool.
A margin of 1 means that no rewards are passed to anyone other than the pool operator, thus by default a private pool (not a delegation choice in Cardano wallets).
- The margin, or pool fee, set the reward distribution for delegation members, range between 0 to 1.
Look for pools to set their margin from 0.01 to 0.20, 1 to 20%
A pledge helps to make a stake pool competitive and prevents Sybil attacks by an adversary registering a large number of stake pools, with little or no Ada pledge to the stake pool.
The pledge variable is an elegant solution that enables Cardano to reach its k target for public pools, maintaining efficiency, while maximizing pool owner diversification.
The pledge variable makes the separation of operator and owner(s) possible. It's an elegant solution that enables Cardano to reach its k target of 1,000 1 public pools while encouraging those with limited Ada to pool their holdings and pledge to a pool operator, thus maximizing the diversification of pool owners while maintaining network efficiency.
- Added cost in operating a pool, preventing pool level Sybil attacks, and allows for more than one owner of a stake pool.
The required amount of Ada pledge to make a pool competitive is unknown as of now.
Cost, Margin & Pledge
The goal of every Cardano public pool operator should be to get their pool into k, and by doing so gain the majority of delegated Ada, this is by design.
Desirable Cardano stake pools will be shown higher in Cardano delegation center.
The Cardano framework makes the separation of owners from a pool operator possible. While by design balancing efficiency and decentralization giving pool operators controls, cost, margin, & pledge variables to running a competitive Cardano stake pool.