Cost of staking

Hi. Please could someone clarify the cost of staking. I understand that a fee/tax must be paid per epoch as a percentage however when calculating potential returns on my investment I am confused regarding the 340 ADA standard fee. If I pay 340 per epoch as I have heard, if I only have a modest stake of 5000 ADA then my fees would be greater than the return. Am I misunderstanding something? It’s widely stated that any number of ADA no matter how small can be staked. Any feedback would be very much appreciated.

Thanks.

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That’s not how it works. The smallest amount of ADA you can stake is indeed close to 1 (minus the 2.17 fees for delegating the first time) so technically 3.17 ADA. (These fees/parameters can change in the future but that’s what they are now)

The 340 fees don’t come out of your pocket. The way it works is this:
Let’s say the pool you delegated to produces 4 blocks in that Epoch. Let’s say the pool gets 1340 ADA as reward for those minted blocks.

Let’s also say you and the pool owner are the only 2 that have stake in that pool’s delegation total and that it’s a 50/50 split between you and the pool owner (just for simplicity).

So from the rewards 1,340 the 340 fee is taken, which leaves the remaining rewards 1,000 to be distributed after the pool margin. Notice how the 340 is taken from the rewards, not from your stake. No one ever takes from your stake/ADA.

Then let’s say the pool has a 5% margin, so then the pool takes 5% (50) from that 1,000 leaving 950 to be distributed based on everyone’s stake. In this scenario we assumed you had 50% of the total stake in the pool so that means you get 950/2 = 475 ADA as rewards.

Note: All figures here are for the purpose of making an example simple.

  • CPX
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Thank you Alkilani. This has cleared things up perfectly. I appreciate your time answering my question.

Anytime :slight_smile:

Thank you. My PC just finished updating my wallet … and I just needed to be clear about the cost.
I appreciate that I explain it clearly, for us beginners, it is of great value

Greetings from Venezuela…

Hi, just want to clarify. Is that mean that the fewer the delegator in one pool the better reward for each delegator? And is the reward to produce each block the same for entire network?
For example, if one pool have 3 delegator produce 4 block, and the other have 7 delegator produce 5 block, asuming that each block give reward of 100 ADA. The reward will be better in pool who got only 3 delegator. Am i right?

Not exactly. The rewards per block are the same, yes (or we can chalk it up as being the same) but in reality they vary a little based on transaction fees for whatever transactions were in that block. It averages out though so let’s just say they’re the same per block.

With that said, your theory would hold true if each pool gets assigned the exact number of blocks to mint. This is not the case however. The number of blocks a pool gets to mint is directly proportional to the total amount of stake that pool has delegated to it albeit with some variation. There is also the question of saturation and pledge. I’ll get to those in a second.

So to close on the previous point, a pool gets assigned more blocks to mint the more stake it has delegated to it in total (including its own pledge). This is not a 1-1 match though, it just increases the probability a pool gets to mint more blocks so it will vary per Epoch a little bit which in some cases, might actually favor slightly smaller pools (pool with less delegation) because if they’re lucky, they get a few extra blocks to mint and your return on that is higher. It does average out though with time so take that with a grain of salt. The gist of this, is that over a longer period of time, you’ll see similar rewards regardless as long as the pools operate well. You’ll either see a higher return but less frequently (smaller pools), or a smaller return more frequently (larger pools).

The other thing to consider is that pools can hit a saturation cap with total delegated amount. That cap is fairly high now, but as we have so many pools, the parameter that controls what that cap is will likely change soon and as a result, people delegating to top top pools will saturate faster and rewards will diminish. i.e., the probability of a pool minting a block does not increase after a certain point and so the total number of blocks don’t go up with delegation after the saturation point, and so more delegates at that point = bad i.e., fewer rewards per ADA staked.

Again, the saturation point is still pretty high now (don’t recall what it is off the top of my head) but you can get estimates form the IOHK shelley rewards calculator.

And of course the number of blocks minted and thus rewards depends on the pool’s performance (is it up and healthy when it’s supposed to be) otherwise it will lose on the chance to mint blocks.

As far as pledge is concerned, I’ve explained this in detail in another post so I’ll just summarize here real quick. A pool pledge ensures pools have skin in the game to prevent attacks on the network. But it also helps with rewards. Technically the pool pledge CAN have a significant role on the rewards a pool and its delegators get however this is controlled by a protocol parameter, which is currently set to such a low value that pledge doesn’t really make much of a difference… it’s so insignificant all other factors will be more important right now, unless the pledge is too low (like < 10K maybe, or too high > 10Million) then you can think of the pledge as really not that big of a deal. It still counts, and shows you a pool operator’s intent, and may play a bigger role sometime in the future, just not right now.

Finally, 2 notes on ranking and network. I think it’s a good idea for decentralization and stability of the network to support the smaller pools now. Yes, you may miss on a tiny bit of rewards, but it keeps pool operators engaged and helps the eco-system and you’ll eventually recoup those rewards (I hope) assuming the probabilities pan out slightly to the advantage of smaller pools. Also, you de-risk getting on a pool that will ultimately hit saturation limits and losing on rewards because of that. All in all, it’s your choice. I would certainly appreciate support for CPX :wink:

Ranking in Daedalus right now is “somewhat” random. There is a method to the madness but it’s more or less madness right now, and will be for a few weeks/months, until the networks rewards and pool performance truly show up and dominate the scoring criteria. Right now, it’s just meh… so don’t be concerned by staking to a pool that is “red” in daedalus… if you monitor it long enough you’ll see those “red” pools come up in the top 10 and the top 10 in the low end and so on and so forth. This only holds true now and the near future though until you can see how pools actually are performing and holding up their end of the bargain. It will take a few weeks/month for that to settle down though.

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Thank you so much for such detail answer. To conclude, I assume no matter are you a big pool or small pool at long run (e.g., 1 year) the reward will alomost the same (e.g, 5%) for delegators across all pool (if they all perform well), correct?

Yes, over the long run, that is correct assuming similar performance, stake, and protocol parameters. (and fees and margins) Again, stake does play a role, it’s just not very significant right now. With that said, the a0 protocol parameter could change and make stake slightly more significant. I just don’t see it changing soon and not dramatically anyway.

We are also assuming the pool isn’t saturated otherwise the rewards would be less than what you’d expect.

Remember, different pools also charge different fees and margins so that also comes into play. Assuming these are all the same, the answer is Yes.

Quick edit, obviously the pool has to have enough pledge to eventually mint a block. Don’t know what those numbers are at the top of my head and it’s probably premature to discourage delegating to smaller pools now because quite frankly a lot of ADA is still locked up in exchanges so you can expect to see a boost to everyone’s numbers.

Good luck to you all and thanks for being part of the community!

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@Ahmad_Alkilani Perfectly clear. Thank you so much :smiley: :v:t4:

I really hope so… I believe that too (Still a lot of ADA is locked up in exchange). I also believe that Cardano mission to become decentralized project, not like bitcoin. Well, let’s see.
Once again Thank you very much.

Thanks again, this is a great explanation.

@ADA-INDO I’ve begun learning how to read this for staying updated on stake pools. Very helpful. Hope it serves you well https://adapools.org/
All the best
:smiley: :v:t4:

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Right, adapools.org and pooltool.io are great places to go to.
One thing pooltool.io has (I think adapools also has something similar) is a green checkmark next to pool names (and a filter as well) that let’s you see which pools actually contributed to/and were on the ITN testnet for Cardano. This can be a nice filtering criteria to support pools that have invested a lot in the community and have shown resilience since the ITN days back in November/December of 2019. Those days were indeed brutal.

I am also not recommending here that you discard everyone else and the ITN status in and of itself doesn’t make a pool good or bad, it’s just an indicator that the pool has been around and supported the community possibly a little longer. So take that with a huge bag of salt :slight_smile:

Happy staking.

can I have some clarification regarding the 340 epoch thing is it charged by pool operator or Cardano foundation.

The minimum amount for cost per Epoch was set by IOHK so as to prevent a race to the bottom for pool operators and maintain a healthy ecosystem. The minimum amount was set to 340 which is why you see many pools use that. The 340 goes to pool operators to maintain pool operations and maintain servers etc…

Hope that answers your question. Let me know if you need any more details.

Thanks
CPX

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The fees are always paid from your rewards, never what you delegate.

Correct, however just to clarify, the fees are paid once per reward cycle i.e., Epoch. (Not per delegator) Meaning the fees are taken from total rewards before distribution to all delegators. In other words if a pool mints 10 blocks and receives 10000 in ADA rewards then 340 is taken from that 10000 first and the rest 9660 is distributed between delegators minus pool margin percentage. So if a pool let’s say has 340 fees and 1% margin then 10000 - 340 = 9660, then margin on 1% of the 9660 leaves roughly 9563 to be distributed evenly based on each delegators stake.

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thanks for the info you posted. I’ve been scratching my head on the 340 fee for a bit now. This makes it much clearer.

Anytime :slight_smile: