A Sobering Reality for Cardano Stake Pool Operators & Owners

A sobering reality, on the quantity of ADA pledge that Cardano’s protocol dictates to get a stake pool listening displayed to Cardano stakeholders for a potential delegation choice in wallets.

Given:

4.75% - Incentive (inflation) Per Year
0.25  - Sybil Security Level (a0)
1,000 - Number of desired pools (k)

Operator variables, baseline:

0- Pledged to Pool % of Capacity
0 - Pool cost in USD per epoch (5 days)
0 - Pool fee (profit margin) %

15,827.6885372924800 - BASELINE Non-myopic Desirability Number

Operator variables, 1% pool fee:

0 - Pledged to Pool % of Capacity
0 - Pool cost in USD per epoch (5 days)
1 - Pool fee (profit margin) %

-158.276885372924880 Non-myopic Desirability impact

Operator variables, 1% pool fee & 4.05% pledge:

4.05 - Pledged to Pool % of Capacity
0    - Pool cost in USD per epoch (5 days)
1    - Pool fee (profit margin) %

0.375907602759980 Non-myopic Desirability impact

To have any chance of becoming a desirable stake pool operating at 1% fee and 0 costs, given the parameters above, requires a pledge of at least 1,260,056 ADA. One million, two hundred sixty thousand, fifty-six ADA will get you in the lower percentile rank, doubtful that your pool will ever be saturated.

Sobering isn’t.

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Something’s a bit off here, stake pool
owners/operators don’t have to pledge any :ada: or even own any :ada: to operate a stake pool

If 1,260,056 ADA is the quantity of ADA pledge that Cardano’s protocol dictates is needed to get a stake pool listening displayed to Cardano stakeholders for a potential delegation choice in wallets, then that’s what it is. It doesn’t have to come from stake pool owners, that’s absurd.

Link

Did you read the first line?

To get a stake pool displayed to Cardano asset holders one needs to operate a desirable pool. That requires conforming to the protocol, specifically Sybil (a0) prevention.

From Engineering Design Specification for Delegation and Incentives in Cardano–Shelley a PDF file, April 11, 2019

Sybil Attack Protection at Stake Pool Level Stake pool owners are expected to pledge an amount of stake to their pools that has an influence on the rewards for their stake pool, and consequently on the position of the stake pool in the listing displayed to stakeholders. Since this pledge cannot be shared between multiple pools, creating n viable stake pools will require funds linear in n.

You can call it absurd but doing so is calling Cardano’s protocol ludicrous.

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Hello @Adaizen,
I get fatigued from time to time and don’t make the accurate inferences.
Can you clarify your message here

Each stake pool operator/owner has to stake min of 1,260,056 of their own personal :ada:, not someone else’s , their own personal :ada:, to be on the very bottom of the list that gets presented to :ada: holders for potential stake pools to join…so the only very rich can ever hope to be visible enough to make a profit in this ecosystem…it sucks doesn’t it?..is that what your saying, because that’s how I read it

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Hey, Sean.

The basic concepts behind having a pool owner commit his or her own funds is outlined in this blog post:

The pool gets a bonus multiplier based on the amount of ADA the pool operator commits in order to prevent a Sybil attack.

With that said there is nothing stopping people to form partnerships to pool ADA holdings to make their pool competitive.

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That’s my point, if 1,260,056 :ada: is the amount you need to pledge on your own…what’s the size of the actual pool

Right I think the point is that a large amount of personal ADA (from an individual or partnership) will probably be required to make the pool financially attractive to your average person looking to get the best staking returns. This is done primarily to make sure the pools are honest. I remember from one of Charles’ AMAs he mentioned that a social credit score may be introduced as another way to add a multiplier to the pool to make it more “fair” to those without the financial resources to commit a large stake. Whether or not that comes to pass is unknown.

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Well it’ll probably be a bit disheartening for potential stake pool operations if they really do need to stake 1,260,056 of their own personal :ada: to be competitive. Many of them won’t have that kind of :yen:.

In my opinion, the article contains several false assumptions. Simplest example: if we assume that all parameters are correct, you can’t still draw “a static baseline” somewhere, because this always depends on the other pools. If there were 1001 pools in the world and only one above your baseline, there would only one pool in the wallet list, I’m sorry that’s wrong.

So even if your assumption is right, and the calculations as well, the result will be an ordered list up to the max amount of pools. (no matter of the pledged amount)

In my view the next wrong assumption is (and I tried to discuss this in several threads already with @Adaizen), that only the number of desired pools are listed at all in the wallets. There is no indication for that, at least that I’m aware of. If a pool is registered and valid it will show up somewhere on the list, the only way to not show up in the list is if you don’t provide meta data. (which makes the pool private)

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As long as we don’t see operative stake pools, it’s hard to estimate delegation behaviour.

If you are interested, may look at https://cardano.bytemaniac.net/istoria

last year I tried to present the data (extracted by @vantuz-subhuman from cardano-sl) and we update this graph from time to time.

Below the graph you can activate the legend, and then click away all the small categories (lovelaces up to 100k ADA)
Look at the number of addresses (somewhat related to single owners) and draw your own conclusions.

The question imo is how many “whales” care about the network and are interested to run and maintain their own pool. It’s also possible that many of them simply share their stake delegations and let their money work for them, but don’t spend any minute for operational efforts.

This is the chance for all the 99.99% marketers, who try the very best to fulfill their claims and promises. And of course there is also hope for thus pools who do it for free and give all their revenues to charity projects. We will see what stake holders like most, and what type of pools will fill only afterwards.

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I would like to run a private stake pool just to support the network.
But I wonder how effective this would be when there are a number of really big stake pools in the network.

Will my (or any small) stake pool ever be chosen to make a block?

They want 1000+ stake pools to get the desired decentralisation but if there are, lets say, 20 big stake pools with 80% of all the total supply of staked ADA and a lot of little stake pools with the other 20%, whats the use of 1000+ stake pools if the chance for the little stake pools of getting chosen to make a block is really really small? (apart from the decentralisation of course).

I think almost everyone will delegate their stake to the biggest and best stake pool to get the best return.

Any thoughts??

Yes smaller pools will have less chance but more reward when they are eventually selected so it will average out over a long period of time. The advantage of being part of a large pool is more frequent but smaller distributions.

I think it is important to remember that the purpose of all of this is to ensure the health of the network. monetary incentives are put in place to provide optimal outcome of quantity and quality of nodes. There is also the saturation factor for instance. When a pool gets to a certain size there will be a financial disincentive (less reward) if more people join it. The value of that figure will help shape the quantity of large pools. There are lots of variables at play and it will be interesting to see it play out to say the least.

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Do you understand that Cardano MUST prevent Sybil attacks, a baseline MUST be set by the protocol to prevent anyone from gaining majority control?

In your scenario of 1,001 pools and only one makes it above baseline, then ONLY one will be displayed to Cardano asset holders in their wallets.

This is by design, not my opinion.

Please understand Sybil first, once you do, as I have instructed you to do, then you will have the clarity you need.

From "Engineering Design Specification for Delegation and Incentives in Cardano–Shelley
AN IOHK TECHNICAL REPORT April 11, 2019

2.2.1 Sybil Attack Protection at Stake Pool Level

It is conceivable that an adversary might try to take over the network by registering a large number of stake pools, hoping to accumulate enough stake to mount an attack just by people randomly delegating to them.

This Sybil attack on the level of stake pools should be made infeasible, by requiring stake pool operators to allocate a finite resource to each individual pool they register. In particular, this resource cannot be the cost of operating a node, since it is possible to run multiple pools with one node, so that cost would be constant in the number of pools an adversary is registering.

5.10.2 a0

As explained above, parameter a0 determines the influence that the stake pledged by the pool owner(s) has on pool rewards.


And what gives them this capability, pledging.

Ok, nobody should say I haven’t tried it.

I see @Donnybaseball pointed out Lars Brünjes, PhD post on Preventing Sybil attacks which one must understand to comprehend what Cardano is achieving here.

Calling out one paragraph:

In any case, it is important to keep in mind that the introduction of a0 does not prevent ‘small’ stakeholders from running successful pools because somebody with a great idea can always reach out to the community, convince others and invite them to work together and pool resources to pledge to the pool. In the end, running a solid, reliable pool and working closely with the community will be more important than just owning a lot of stake.

Which is why we posted this article:


To everyone who is having trouble accepting this, understand Cardano must be secure, you can run a pool with little to no ADA, Cardano is not stopping you, what they are preventing is small pools from making it into wallets for a delegation choice.

One cannot have it both ways, at least the way it is now if we want Cardano to be secure then only well-funded pools will be the only delegation choice that makes sense.

We are also grappling with this harsh reality, do we have enough ADA to be desirable? It was not by chance that our post was titled: A Sobering Reality for Cardano Stake Pool Operators & Owners

Once we ran the numbers, we realized we don’t, given the current exchange rate of Cardano, at which point we consumed a lot of beer.

Cardano must be secure, which is why if we cannot get enough ADA pledged to make it into the top saturated pools, we will be delegating to the pools displayed in Cardano delegation capable wallets.

I never said that, I asked you to understand Sybil.

I cited your thread as others are having the same difficulties as you are which is great that you posted it because it calls out what others are thinking but don’t post.

Thanks for posting when others won’t.

Of course, they can use their bunch of ADA to register their own pool with a solid pledge.
But this means they have to care about servers, updates, security, …
So maybe we will see some whales, divide their ADAs and delegate it to different stake pools.

  1. Point me to the place in the spec that says users will only see pools over some baseline in their wallets

  2. IOHK does not control all wallet developers in the world

The article is extremely confusing.

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Oh for the love of proof.

What do you think these spec are doing?

(See Engineering Design Specification for Delegation and Incentives in Cardano–Shelley April 11, 2019)

2.2.1 Sybil Attack Protection at Stake Pool Level

It is conceivable that an adversary might try to take over the network by registering a large number of stake pools, hoping to accumulate enough stake to mount an attack just by people randomly delegating to them.
This Sybil attack on the level of stake pools should be made infeasible, by requiring stake pool operators to allocate a finite resource to each individual pool they register. In particular, this resource cannot be the cost of operating a node, since it is possible to run multiple pools with one node, so that cost would be constant in the number of pools an adversary is registering.

5.10.2

Our game theoretic analysis predicts that the k pools with the highest potential, the highest value of (where λ is the stake pledged by the pool owner(s) and c are the pool costs) will create the saturated pools.

They are establishing a base, a floor, it is looking through a non-myopic lens at all pools and setting a bar.

Let’s see what they do.

Aside, the values that follow are estimates, do not get trapped into thinking they have to be absolutes. They are accurate enough to understand how Cardano is going to prevent Sybil attacks and by doing so set a baseline.


Protocol values #01

31,112,484,646 Total Supply of ADA
4.75 Incentive (inflation) Per Year %
0 Sybil Security Level (a0)
1,000 Number of desired pools (k)
31,112,485 = Saturation

Pool operator values #1

0 Pool fee (profit margin) %
0 Pool cost in USD per epoch (5 days)
0 Pledged to Pool % of Capacity

All pools now have the same Non-myopic desirability number.

19,784.6106716156030 Desirability Number

That number is a baseline that the protocol will measure all other pools against. In this example, the protocol cannot, as all pools have the same value so currently ranking is not possible.


Protocol values #02

31,112,484,646 Total Supply of ADA
4.75 Incentive (inflation) Per Year %
0 Sybil Security Level (a0)
1,000 Number of desired pools (k)
31,112,485 = Saturation

Pool operator values #2

1 Pool fee (profit margin) %
0 Pool cost in USD per epoch (5 days)
0 Pledged to Pool % of Capacity

-197.846106716155200 Desirability Number

What just happened here? By only adjusting one value, pool fee to 1% the pool drops below the baseline without changing any of the protocol values.


Protocol values #03

31,112,484,646 Total Supply of ADA
4.75 Incentive (inflation) Per Year %
0.25 Sybil Security Level (a0)
1,000 Number of desired pools (k)
31,112,485 = Saturation

Pool operator values #3

0 Pool fee (profit margin) %
0 Pool cost in USD per epoch (5 days)
0 Pledged to Pool % of Capacity

15,827.6885372924800 Desirability Number

To prevent Sybil attacks, protocol variable, a0 is set to 0.25, which gives us a new baseline for ALL delegation pools, 1,000 or 1,999 pools it does not matter. A new baseline is set when pool operator variables are zeroed out, and a0 is changed, setting a new basecamp where all pools start.

15,827.6885372924800 baseline based on 0.25 a0

BTW:

  19,784.6106716156030 Desirability Number
- 15,827.6885372924800 Desirability Number
______________________
   3,956.922134379135603
   
   
3,956.922134379135603 / 15,827.6885372924800 = 0.25

Protocol values #4

31,112,484,646 Total Supply of ADA
4.75 Incentive (inflation) Per Year %
0.25 Sybil Security Level (a0)
1,000 Number of desired pools (k)
31,112,485 = Saturation

Pool operator values #4

0 Pool fee (profit margin) %
0 Pool cost in USD per epoch (5 days)
0 Pledged to Pool % of Capacity

100 Delegated to Pool % of Capacity

15,827.6885372924800 Desirability Number

To drive home the point that the only value capable of changing a pools desirability is the pledge value, delegating 15,556,242 or 31,112,485 to a pool will not change its desirability number.


Protocol values #5

31,112,484,646 Total Supply of ADA
4.75 Incentive (inflation) Per Year %
0.25 Sybil Security Level (a0)
1,000 Number of desired pools (k)
31,112,485 = Saturation

Pool operator values #5

0 Pool fee (profit margin) %
0 Pool cost in USD per epoch (5 days)
1 Pledged to Pool % of Capacity

0 Delegated to Pool % of Capacity

15,867.2577586357110 Desirability Number

A 1% pledge, 311,125 ADA, has moved the desirability number up from the baseline by 39.569221343230310.

15,827.6885372924800 Baseline
15,867.2577586357110 Desirability Number

Postive difference of 39.569221343230310

In the above examples, a baseline has been set, not by pool operators but by the protocol itself. The value a0 moves the basecamp higher or lower up the Ada desirability hill.

The reason is simple, prevent Sybil attacks by preventing undesirable pools from being a delegation choice in Cardano delegation capable wallets.

Note, nothing is stoping anyone from running a pool and asking others to delegate to them.

To rate one pool from another a baseline to measure all pools against must be set.

If a pool is below that baseline and capable of capturing ADA through delegation, well Lars Brünjes said it best:

This would be disastrous because the security of a proof-of-stake system like Cardano relies on the idea that people with a lot of influence over the system should hold a lot of stake and therefore have every reason to help the system run smoothly. By Lars Brünjes, PhD

If Cardano did not stop Sybil pools, from being a delegation choice, then Cardano would fail. Having a baseline sets the floor.

Nor does it matter, not one little bit thanks to Sybil.

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One of the most fascinating topics in a long time.

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