Being away for a little bit. As I mentioned earlier, I have more time on the weekends. After watching the most recent IOG video in its entirety, I realized that our SPA (Single Pool Alliance) has a bigger fight on its hand. IOG members are thinking pool franchises should be normal operation in the ecosystem. For a moment, it made me feel hopeless. The video link is below. Pay close attention to what they are saying about franchises and businesses running stake pools. If we are going to hold the line, then it’s principles over profit. The temptation to seek more profit (with several pools) at the expense of an unhealthy decentralized network will always be enticing. SPA members should make sure we are not pissing in a wind blowing from the east while we are standing in the west. Basically, we should not be pissing on ourselves. We need a profitable and strategic game plan for each member. Etoro, and Bifinex are staking Cardano. These are Big Boys with massive resources to squash SPA. The 100 pound gorilla (Coinbase) is not even in the game yet but they are coming. The Big Boys are not going to run one stake pool. They are massive entities and they do not ask for permission. So each member (SPO) should do some soul searching before vowing to be an SPA member. Sorry to sound so serious. But, if I am going to forego potential profit in hope of truly decentralizing Cardano, we need to be genuinely committed. And we need to ensure that we will help each SPA member’s stake pool reach Saturation once our respective pool is near Saturation.
I found what IOG was saying at 13:04 to be a great cause for alarm. There is a falsely presented line of reasoning here that the IOG pools keeping 15.6% of the stake (currently)— which we know the delegators will keep in those pools until they are folded up— is part of an ultimate plan for IOG to somehow support the small stake pools.
Here’s the summary of what they’re saying: IOG will take this lion’s share of staking profits now, and then will somehow later apply those funds for the benefit of the small pools after an unspecified period. Let’s temporarily ignore the well known fact that the small pools need delegation now, are starving now, and have needs far outweighing their need to be trained or “incubated” in the future, to consider this:
The speaker’s finance background would make him well aware that ADA is currently a greatly undervalued asset. If Cardano is giving over 2 billion ada this year in rewards (approximately), their average pool fees of 5% over 15% of staked ada are over 15 million ada per year. So first I would like to ask IOG what help they plan to provide with “training” and “incubation” that will make up for this current loss in income to other SPO’s, particularly the small ones.
Then consider where we all expect ADA to go after it finally leaves the 10-cent position where it is now… where we all know it will go after Goguen and the Ethereum token migrations. It’s a separate discussion what that multiplier might be, though many Cardano investors are expecting a multiplication in value to 10 to 100 from the current value.
So the value of earning ada now is vastly greater than the value of earning it later. I’m always surprised the official videos on the subject are not saying this, but since the speaker is fresh from a centralised financial background you can be sure he is thinking it. And therefore we should be very disturbed he is not saying it in the context of how our potential profits will be held “in custody” for us by an already wealthy custodian… while that custodian rides that growth curve instead of us.
The justification of “trickle down economics” (= “let’s support the wealthy, who will in turn give more money back to the poor in the long run”) is based on upon the fact that “a dollar is always a dollar” and the most a smaller entity will lose is interest on those funds. Most of the pools are running at loss paying for computing resources plus the opportunity cost of their time. They’re spending “dollars” in the hope of making Ada, and nearly all of us believe ADA is now in the lowest range it will ever be.
That’s the long game for the (small) stake pool majority: to recoup our initial fixed losses by making income in a speculative asset. Every block a small pool produces might not cover their costs now but its long term value will make it worthwhile. IOG knows this as well, and apparently intends to use the same leverage to produce the world’s most stunning balance sheet someday. It’s a crushing disappointment, to the rest of us with nothing but faith in Cardano, that it’s not part of IOG’s business plan to allow the bulk of the stake pools to do the same.
And for the stakeholders out there who aren’t pool operators, especially those staking with IOG & the other conglomerates… take a look at the younger stake pools which are doing well (on PoolTool.io - check their “Lifetime ROS” on each pool page itself, since it’s not in the table) and you’ll find figures quite a bit better than the middle-of-the-road rewards from IOG & other pre-saturated pools. “Luck” practically translates as picking up blocks the larger pools are missing due to inattention or incompetence… the small pools fighting for survival can’t afford to let that happen. There are lots of good pools in the middle as well with the same high quality and hard-earned results.
If my above reasoning is true, IOG will keep its pools open until ADA passes a dollar and hits a plateau far beyond. In the meantime you can certainly find somewhere more profitable for your stake.
And for IOG: with DeFi bound to be launched on Cardano next year, with an explosion of network utilisation, it’s the currently small pools who will preserve the value of ADA on which IOG’s massive reserves depend… not the other way around. This support will continue from our own pool & many other small pools whether unions & associations are formed or not. We don’t need to be “incubated” - we just need not to be starved.
and p.s. @DAPP360_MIKE it’s nice to see you back on the forum. I haven’t been involved with stake pool associations or unions, just observing their formation and presentation. I’ve been waiting for SPOCRA in particular to do something besides electing and maintaining their own leadership.
I gather from their recent meeting minutes (much appreciated that these are posted online) that having communication with “Cardano entities” is a top priority, but if this is being done to support the stake pools then why do you think has not a single member commented here: an attempt to discuss a proposal already submitted directly to those entities on behalf of small stake pools?
… nor have any of the newly elected SPOCRA officers commented on either of these discussions, both on proposals designed to rationalise the stake distribution between the large / habitually delegated pools and the distinctive / performant small pools?
This week has seen @Cardano-Foundation move 4% of the Ada stake from the largest pools to some of the best performing small pools. This takes care of so much of the stake centralisation problem in one single, noble step… actually putting into practice a lot of the rhetoric from the video above. I do think that IOG needs to be pressured to fold their stake pools up (or stop saying that it’s “supporting” the small pools) but there’s a lot that we ourselves, as well as whatever SPA’s are formed, can do in the meantime
I am honestly struggling to follow your line of reasoning here, but happy to try to have a more in-depth conversation or try to clarify any points for you.
- IOG will be rearranging our pools, taking them mostly private, except for a single public pool
- This should free up some delegation which will go to other pools
- When we rearrange our pools, a portion of our funds will be made available to delegate to smaller pools
- Some of those delegated funds will be ear-marked specifically for pools that support a mission of economic inclusion or geographic diversity
- There are hardware limitations slowing this down (e.g., the number of ledger devices we have and being unable to delegate to multiple pools from an account.)
We think investing some of our personal funds to ensure the ecosystem is diverse is a good thing; we do have to balance that with other things to spend money on: developers, researchers, communications, etc. We are running a business for the long-term and staking is part of how we are funding that business; we aren’t a central bank just printing money.
I am also happy to have a separate discussion on the parameterization of the rewards formula.
I can also comment on how to value crypto assets, financial concepts like time value of money, or whether the best way to grow the platform is to deliver applications with real-world utility. I didn’t really follow where you were going with your points, so if you want to break it down for me, happy to discuss it with you.
@Colin_Edwards Thanks for engaging the conversation. It means a lot to me personally. I know you were responding to @COSDpool comments. However, I feel the need to clarify some of the things I mentioned early. CSPA, Cardano Single Pool Alliance ( a group of single pool members) is slowly taking shape. My issues are not with IOG private funds and how they delegate their stake. CSPA issue is simple. We believe that single pool operators offer a much more resilient and diverse decentralization that can withstand coordinated national attacks, colluding malicious actors, etc. Therefore, we don’t advocate entities (businesses, or individuals) running multiple pools to maximize their profit. CSPA wants each pool to be profitable as a business. However, we don’t want each pool’s profit maximization to come at the expense of an unhealthy decentralization. If IOG can create multiple pools (private or public), then why can’t Coinbase, Bitfinex, Etoro, Kraken, and all other big businesses use the power of their global brand and resources to marginalize the single pools by creating multiple Pool Farms? By the way, this is how Bitcoin went from a decentralized blockchain to a federated system instead of a truly decentralized blockchain. Proof of work (POW) only expedited that process faster. These are the fundamental beliefs that guide CSPA’s goals toward a 51% true decentralization. The implementation of such goals can be further discuss at a later date. I hope that clarifies my position.
dear @Colin_Edwards, thanks for the response & outlining your major points above. Seeing it spelled out like this is much more reassuring than the somewhat vague statements in the video interview. Surely one IOG public pool would not present as much of a challenge for small pool survival as the 20 of them that we have now. All we need are some dates on each item, not too far in the future, and we will have something we can all agree on.
Without knowing how much of the 20-pool IOG delegation actually belongs to IOG, we would have to assume the bulk of it is coming from outside the company. It might well be that “turning this loose” would just reapportion that stake to other stake pool conglomerates, but after the Cardano Foundation’s public statement this week it may be equally likely that major stakeholders would redelegate to smaller pools, or a mixture of sizes, or use factors other than size & brand recognition.
How much that would help the minor entities in the Cardano ecosystem… entities which will be crucial during Cardano’s upcoming expansion period… depends upon the timing. Even without the detailed analysis you offer, many expect ADA to go up in sync with this expansion and we can only hope that the superfluous 19 IOG pools “retire” to private status before this happens. We would also like to see the Daedalus rankings “improved” as per the @shawnim CIP— in support of Cardano decentralisation and stability— long before it happens.
I don’t represent a union, nor do I ever intend to, and when I say “we” I’m only including direct associates, other Cardano devotees, and the supporters so far for the CIPs above in favour of unprejudiced staking. If we could attach some dates to your bullet point list above, it would be a compelling (and media-friendly!) counterpart to the Cardano Foundation press releases and actions this week in support of decentralisation and transparency.
First off, I love the idea of guilds/alliances/unions and I strongly agree with you that a highly decentralized ecosystem is much more resilient.
That’s an important question, and we have spent quite a bit of thought on it. We do expect major exchanges to offer staking options; a lot of Ada is sitting out on exchanges; for example, it looks to me like Binance has several billion Ada. (I could be mis-attributing which exchange, I don’t have all their addresses.)
The Ouroborous mechanism is designed to flatten out after a certain point, making a pool fairly indifferent between holding pledged Ada and competing for delegation. At the short end, you get enhanced return by attracting delegation, but after a certain point, let’s say 20% pledge, it’s just easier not need to deal with delegation at all. In other words, we have tried to structure it such that the easiest thing to do is put it into private pools.
Long answer: we do expect to have major exchanges to create their own pools; I feel like our researchers have done a very solid job structuring a mechanic that allows this to happen in a way that minimizes the impact on everyone else. For example, SPOs are largely indifferent that the Ada on an exchange remains undelegated vs.exists in as private pools, for pools that make at least a block on average.
I had hoped to see all but one of the IOG pools moved private in the middle of August, about a week after it landed with me. I just HATE the current allocation. (Yes, I am a “h8ter”.) At this point, it’s more about operational constraints than lack of a direction - it’s been something I have been pushing internally for a long time now. The incentive mechanisms in Ouroboros really are designed to penalize splitting pledge; so it’s not just altruism diving that either.
There was a very large meeting regarding Daedulus rankings last week; this is one of those things everyone agrees is not good, but there are a ton of ideas about what “the real solution is”. I thought we had a really good outcome, so I really hope we have a response out in front of people soon. I am more of an interested party in that discussion, not driving the project, so this is just all speculation on my part.
Thanks for the reassurance on both counts… this sounds so much better than the video. Even if both timelines are out of your hands, if anyone at IOG can please keep us regularly updated about the progress and dates— with a text posting here on the forum, not just an interview segment in a video we might never see— this will help us schedule our own activities and plan around any difficulties.
It also helps CIP authors to know about the internal and/or subjective IOG response to the proposals we have submitted. It’s hard to guess even whether management is paying attention, let alone how interested they might be, when you only get responses from developers about technical hangups. Even if schedules are yet not known, a higher level response every once in a while to acknowledge these priorities would be very reassuring to the authors as well as the community at large.
Quite. A network is only as strong as the people (stakepools) willing to defend it. And the more we have of those the better…
Great discussion! I don’t want to sound like a here, but I have faith that IOG is interested in the overall health and longevity of Cardano! And as they have stated in the past, decentralization is THE KEY! I doubt they are scheming to maximize their profits at the expense of rapid decentralization… They are going to be rich beyond our imaginations if they stick the landing of Shelley decentralization and Goguen implementation!
That being said, is it far-fetched to think there could be a requirement for large exchanges to delegate exchange Ada to diversified collections of independently ran stake pools? Perhaps the exchanges could collect a fraction of a percent of pool fees, with the remaining fees being divided up by the pools in the ‘collective’. That way, everyone benefits! Is that even possible? Does IOG or the community have the authority to enforce such a requirement?
Anyways, thanks again for the stimulating chat!
Thanks for the provided information. I was not aware of this mechanism even though I still see potential loopholes. I hope this Ouroborous mechanism work as intended and Cardano is not eventually a federated blockchain. It’s an elegant piece of software engineering. I admire the ingenuity of the project. However, humans have the power to corrupt good plans and intentions. Hence, despite being God, He could not stop Adam and Eve from ruining his masterpiece garden of Eden and humanity. Or like I have heard, “the church was perfect until God let people in.” If business profit is place ahead of true decentralization, we are heading down the road of Bitcoin to a federated system. Not even POS can stop us. I’ve seen this movie before. It’s called “Unchecked Capitalism”. I think we all want the best for the ecosystem, but somethings need to be fine tune or we might have an irreversible problem. I hope not. Thanks for your insight.
The problem is not IOG doing the wrong thing. I trust them to do the right thing. However, at the moment they are providing a “Pool Farm” formula for other big business to follow. Their twenty pools go directly against the Blog Preventing Sybil Attacks. Basically, IOG should set an example of what is the right thing to do for the ecosystem. At the moment they are not. I read their blog and setup a single pool because IOG advocated not spreading one’s pledge to create several pools. Yet, the total pledge in 1PCT 10 pools, is equivalent to the pledge in my single pool. Guess what, they are making more profit than me. Yet, I have not created a second pool. It’s principle over profit that holds the line. So my problem with IOG is that they are not practicing what they preached currently. Consequently, some stake pool SPO’s are short changed, while others (including IOG) exploit the loopholes in the name of running a business.
I understand where you are coming from, but Shelley only went live recently. And we are swimming in uncharted waters here!
Let me say, I commend your commitment to the principle of decentralization and I’m proud to be a part of a community with people like you! We are in a phase of great evolution, and there will always be people who seek to manipulate a situation to their benefit. I have no doubt your commitment to the ecosystem and to egalitarian fairness will be rewarded in the end! Operators like yourself are the lifeblood of Cardano, and I believe IOG knows that and will relatively quickly alter their approach to staking.
Thanks for the feedback. We fully recognize the need to establish better processes to keep our stake pool operator community better informed and to develop an effective feedback loop. We’re in the process of putting this into place so expect more on this soon
Thanks for your comments - we’re committed to developing and improving our feedback processes with all SPOs and guilds, and are busy putting the foundations in place. We look forward to working with the CSPA (I believe we are already in touch) and others more closely in the future.
SPOCRA 2nd round election wrapped up after you wrote this post (board still hasn’t been finalized at this point).
Armchair quarterbacking from the sidelines with limited perspective isn’t that way to get things done, my friend. We hold open meetings every Saturday.
thanks @ADAfrog, I’ll make it there as soon as I can
Anyway if this discussion itself was being called “armchair quarterbacking” then here’s the result of all that work “from the sidelines” (though it’s @Colin_Edwards who deserves all the credit):
- Confirming the goal of IOG going from 20 public pools down to 1… along with the revelation that this was hoped for in August, meaning that restructuring might now be considered overdue
- Confirming portions of that freed delegation from IOG will go to small & community pools
- Determination of personal contacts in both the marketing & the finance sides of IOG, who have offered to communicate with SPOs personally (rather than through any union “liaison”)
An indirect outcome of this discussion has been @IOHK_Tim’s reminder of a message I myself missed the significance of on Twitter… from @benohanlon, whom he characterises as the “concierge to small pools”:
I think this information & these contacts have been a useful, promising, and unique result of this whole discussion… and worth every bit of determined effort to open these lines of communication, as we each go about things in our own way.