Are pools going to be allowed to take a fee or will staking be truly expected value neutral?

My understanding is that in an ecosystem of say 1000 coins someone staking 10 coins has a 1% chance at the next block reward. If the same person instead puts their 10 coins into a pool with 90 coins, the pool will have a 10% chance of generating the next block of which that person will get 10% of the block reward. So in essence the EV is neutral but the variance in outcomes is reduced by pooling and nothing more.

Is my understanding accurate or will the slot leader be able to take a fee for running the node (thus changing the structure to an EV loss for variance reduction tradeoff)? I’m a little nervous because I see a lot of advertising already for people trying to build their future pool’s userbase and I am not sure their enthusiasm is solely born from their desire to foster growth within the Cardano community. Slot leaders taking fees is something I am not in favor of (especially if variable across nodes), I think it would make DPOS way worse than a simple POS system and threaten the security of the architecture because of the incentive structure it creates and the potential disequilibrium that could be born out of that structure.

Finally, I have a few million ADA. I want to become one of the initial 25-100 pool leaders. How can I sign up? I am 100% dedicated to a fee free pool to undercut the other pools. If somehow the costs are overwhelming I will run on a donation only model, if that fails I will operate as the lowest fee operator in the entire nodespace, and only if that fails will i join with the pool with the absolute lowest fees (provided solo staking is not yet an option).


Finally, I have a few million ADA

A whale! Did you invest in the pre-sale in Japan? I am not sure that it is a good idea to advertise the size of your gigantic stack on a public forum. Unless of course you want to expose yourself to hackers, and I talk by experience.

I may be wrong, but it is my understanding that you should take in your equation the whole amount of ADA in the Cardano SL, not just in the pool you are staking in, otherwise it would be too easy.

Have a look at Chainomatic’s comment in the below link.

A potential work around that I haven’t seen suggested yet is synthetic delegated proof of stake (SDPOS). Where everyone is solo staking but the “winner” of the block shares the reward with a synthetic pool dynamically and randomly created of X other solo staking wallets (chosen in proportion to their balance of course). Thus you push the frontier of variance-reduction/decentralization trade-off outward. I’m not nearly well versed enough to create the algorithm in its entirety but after having spoken with people with more knowledge than me there seems to be a consensus that it could be done in theory. This is also good because its feeless other than the cost of running the node. So no free riders and no price gougers.

Chainomatic’s comment I had read but it doesn’t seem clear. It seems like it is ev neutral but he says your “opportunity” will be different. I think he or she is getting at variance reduction but the language is not entirely clear. In particular the conclusion seems to contradict the math which I think chromatic may have got wrong…

coins/total_coins = (total_pool/total_coins)(coins/total_pool)
100/100 000 = (30 000/100 000)
(100/30 000)

From what we know - there is no min. treshold to start a pool - So even if you have 100k ada - you still should be able to start your own pool.
If this is somehow near the official ROI - - i dont think the incentives for pool owners will be so big - that it would be worth your time to manage it … Do you have any experience in keeping servers online for years?
Lets say the pool owners will get 1% from the rewards - if you have a few mil of ada - just the rewards will be so nice - i dont see why would you wanna go to trouble to monitor a pool 24/24

Well the point of the thread is the concrete question “Do pool operators collect a fee?” so hypotheticals premised on particular fee percentages are antithetical to answering the question.

I listed the reasons why I wanted to go through the trouble of being a node operator in my initial post.

the hypothethical fee - is just an “effect” from offering small stakeholders the possibility to stake their ada without having to go into the trouble of keeping a server uptime all the time and fracturing the network… I hope you know Cardano plans for ada to be used by 3 bil ppl in 3rd word countries. People who have 10-2000 ada - where should they stake? With a whale? :kissing_heart:

that “effect” may not be priced at marginal cost of production in equilibrium because of power differentials, asymmetry of information, and network effects. This is potentially problematic, potentially very seriously so. Which is why I am asking the questions and why I am trying to throw my hat into the ring to mitigate the effects of fees/variable fees being native to the platform.

the market, for sure, will establish the price - to me it looks like a whale is trying to dump the fees to gain more stake power ? :rofl: Anyway - i am keeping a news site online for the last 8 years, and for the last 2 y a small tv station, its not easy to do this long-term.
I would speculate most of the whales will sell out with the time and with price going up. OR, will not bother - the rewards will be fine enough - and competition strong (lots of pools with low fees and high quality uptime :wink:

the market, for sure, will establish the price

So are you saying fees will for sure be native to the platform then?

No t_mes - like i said - the Market will establish the price - it could be 0.001$ or 2%

but they will for sure be able to charge a fee by virtue of being a slot leader? because i don’t see that answered either way in the documentation.

I think it makes sense to assume you will be able to charge a fee to cover the cost of keeping the pool “online”

Perhaps with their local government or civil infrastructure ?

Hi t_mes,
It’s unknown if pool operators will be able to charge a fee but imo I would expect they will and should. Let me clarify why I believe it is a good thing for Ada as a whole (including your investment).

1 - Charles already noted that trying to run a network based on donations/altruism is what led to many problems in BTC and made a comment that that approach was no way to do it.
What you have in BTC is miners and pool operators for miners are well compensated due to the block rewards, but development/programming, node operators, etc. are all done via donations/altruism…and that conflict has led to many problems for BTC. So just based on that, I think pool operators will be able to get fees of some form to avoid that.
In addition this quote reinforces that line of thought:
“People who run full Cardano nodes spend time, money and effort to run the protocol, for which they should be compensated and rewarded.”

2 - From my experience in mining ETH - you have a number of pools for ETH now and they tend to charge from 1%, .5% or sometimes 0%. But a very curious thing seems to happen with almost all those 0% pools…namely people that were mining and averaging say 10 ETH per month say wow, why should I pay that 1% fee, I’ll go with the 0%!
And yet magically, when they switch…suddenly they are only getting 7 or 8 ETH vs. they were making 10 before…so then to check they go back to the 1% pool and viola, back to 10 ETH.
The point is that these 0% pools were basically not charging a fee, but were skimming rewards instead of being honest with their accounting…so it’s quite hard to get something for nothing in most cases.

3 - You have stated that you want to start a pool, and I think that is great. The whole point of having pools imo is to ensure broad participation in securing the Ada network esp by those that otherwise would just leave their Ada on an exchange which does nothing for helping the network itself.

3A - However, you also feel that no one should charge a fee to offset the work that is done, equipment that is setup, security and monitoring that is implemented, etc. to run a professional quality setup…and in fact you publicly state you want to drive out anyone charging a fee for their expenses by undercutting them.
First, that line of thought goes completely against the reason for having pools which is to bring in high quality and diversified nodes to secure the network and make the slot leaders more random and to get voting participation from a higher % of Ada holders.
If your goal is to undercut everyone by running your pool on a laptop in your spare bedroom for free (or even incentivizing with 0% plus rewards from your own stash), then ultimately high quality nodes go away and everyone converges on your free laptop pool…and you in effect force centralization on a network that is designed and needs to be de-centralized.
And you further place the ecosystem at risk…b/c when your spare laptop crashes and you don’t realize it for a day b/c you have no active monitoring nor backup hardware, and most people are pooling on your laptop to avoid fees…then expect ramifications for the price/perception of Ada b/c people realize it’s not a robust ecosystem at all. In the extreme, it’s a network of IOHK nodes and a spare laptop…and there goes the value of Ada relative to other networks that are robust b/c they compensate those committing resources to secure the network.

3B - In addition, you are saying that pool operators would better help the Ada ecosystem by taking the money spent on high quality servers, security, monitoring, etc. to run a professional pool and covering those expenses via pool fee, and simply buying the same amount more Ada per month for themselves directly. They then put that monthly amount it in your pool, instead of expending that same money running high quality nodes…and there I completely disagree.

Ada doesn’t need more investors at this point unless it just wants to be a pyramid payout plan, it needs more realization of the roadmap to make it a full fledged functioning crypto platform and that involves a robust, diverse high quality network operating 24/7/365…which doesn’t happen that well with people running it for free, just as Charles already commented.

In addition, I don’t personally believe that anyone getting into the pool process currently is not a big believer in Ada and otherwise involved in the long term success for Ada.
It’s a highly speculative venture to start up a pool now when real money and real resources is committed on high quality servers in exchange for an unproven crypto with unknown rewards, and yet it’s a chicken/egg syndrome… you need those high quality nodes to help the project succeed as a whole.

Anyway, no one knows how the pool fees will play out, we don’t even know exactly what the rewards will be but I wanted to post my thoughts as to why I believe pool operators should be compensated b/c it helps secure the network, just like how miners/pool operators secure the network in PoW systems. Doing this at a high level means there are costs involved relative to how strong, robust and diverse you want your network for Ada to be.
Hope you are doing well!


Just to add to this aspect - there are a few other likely benefits to pooling vs. solo.
1 - Currency appreciation - If you add in some level of currency appreciation, then you are better to have smaller, steady payments sooner rather than an equal but lump sum payoff later.
i.e. if Ada is appreciating at an avg of 1% per month, then over time having 1 Ada per month plus compounding due to the appreciation will win out over a solo lump of 12 in terms of ending total wealth.

2 - Missed rewards - By default a pool should have the resources to keep things running 24/7/365 and therefore ensure 0-very minimal ‘missed’ rewards. By contrast a solo staker could be running on their spare computer most of the year and just happens that the one time they get called that year, their computer was down due to a late night ‘windows update’, random crash, etc. That would then put the solo staker massively behind vs being in a well run pool.

We’ll have to see how the rewards/staking are setup in their final form but the above are two theoretical advantages for pooling.

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It will be interesting to compare the actual metrics for say, the cost to rent rackspace or instancing and run a solo node. As a former remote admin, I had 99.999% uptime because I worked with a quality data center. I see really cheap aws out there now a decade later , idk if they have that level of reliability or not, but cost of hosting is going down.

This will help:

Probability is the likelihood of an event happening measured by the ratio of favorable cases to the whole number of possible cases. Your favorable outcome is how many ADA you own and total possible outcomes are how many ADA will be staked.

What a pool gives you is predictable payouts, the law of large numbers guarantees this.

Cardano needs pool operators and node (private pool) operators alike.
Once the fees are set and the number of staking ADA is known then one will be able to calculate their potential reward for work.

Cardano fees are designed to prevent denial-of-service attacks and to reflect actual costs of running a node, free is not an equation option.

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Hi Chainomatic!
If you watch the video that was just posted today, Charles talked about how transaction fees, unless you are running on a massive scale, won’t cover the costs in general.

Thus the block rewards (or ‘inflation’) are really the only reliable way to sustain/grow the network and ecosystem.
In addition, when I looked at the currently posted transaction fee’s via the Cardano site it worked out to be about 12c per transaction. However, Charles has been adamant that Cardano should have the lowest fees as that would encourage growth.
I just transferred two substantial sums via BitCoin Cash to buy more Ada. And was shocked to see that both transactions I was charged… .01c! That beats anything I have used before (LTC, ETH, BTC) and it was faster than all of them - 30 seconds for the initial transaction notification and a few minutes to finalize/confirm.
I’ll post about this in random but honestly as a Cardano enthusiast, that level of fee/performance has some serious threat for Ada.
But back to the main point - I don’t think transaction fees will reliably sustain the necessary infrastructure to be competitive and per the video, neither does Charles. Even if they are designed to be, competition from .01c providers like Bitcoin Cash will knock that down over time if they are able to continue with that level of fee.
I’ll post about it in Random to not distract this discussion, but it does pose a threat to anyone planning to fund the network from transaction fees imo.
Hope you are doing well!

Which is why fees are collected in a virtual pool, Cardano enables slot leaders to be paid out not only for work performed but perhaps factoring in the cost of operation, scale node incentives up and down to fulfill reliability and optimal performance goals while maintaining node diversification.