Current Operators....Actual Cost to Operate vs Actual Returns thoughts?

Staking & Delegation Operate a Stake Pool
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I posed this question over on CardanoStaking at Reddit today in a little less detail.

I have 50k ADA to use to create a staking pool. I am looking for insight into exactly how much I could earn operating my own pool vs just delegating my ADA.

I am a smart contract/block chain developer that has been programming dapps and blockchain code since the days before Cardano. I am not concerned about the cost I will incur learning to set up the pool or equipment.

I am going to assume that it will cost anywhere from $150-200USD per month to operate.

In terms of rewards. Is the stake pool operator awarded any more than the 4 to 5% return that anyone else in the pool is receiving? Do you recover the operating costs by setting a specific amount when setting up the pool to be awarded to the pool operator before reward distribution?

Basically for those of you out there currently operating a successful pool, how much (percentage is fine) do you actually make on your delegated ADA or from your pool monthly/annually?

I understand the reason to make a pool is to help solidify and strengthen the health of the Cardano network and the future of the Cardano project. I get that and this is why I have supported Cardano and bought in almost from day 1. But, I want to be realistic in terms of wether or not creating a staking pool would be cost effective vs directing my efforts to support Cardano in a different direction.

Thanks everybody!

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I will use SPAAS as an example, we have 0% Margin with 1.0M â‚ł Pledge. The Pledge is not provided by SPAAS, but by a separate Owner as we are a Service. Our Infrastructure is run on Google Cloud, which is an Enterprise Cloud.

Each epoch, provided we mint a block - We receive 340 â‚ł in Epoch Fees which is the minimum the Cardano Network allows. This fee is then shared between the Owner, SPAAS, Infrastructure, and Delegators. I mention Delegators because even after Owner/SPAAS/Infrastucture costs, we still have more than enough ADA left over, and it makes sense to offer a bonus to Delegators, especially if they do not have much stake.

With 50k ₳ you will find it difficult to be elected to mint blocks, but I would not let that deter you. If you can attract more stake, this will increase your chance and it’s a very enjoyable experience becoming a Stake Pool Operator.

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Thank you for this reply. I will look into your pool! I am obviously still learning everything I can about staking. Just want to educate myself on all aspects before jumping in.

Thanks again!

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Hi Chrisomi,

The hardest part is to promote your pool and get delegators. You can run the strongest and the most secure pool in the world, if you don’t have at least 700-800k pledge or active stake you will probably never make a single block and by the way…no money.

You can look at my financial statement. I am running 2 VM on AWS EC2 and it’s about 100 $ USD per month.

I am lucky, i have a whale on board, it make make all diference.

It’s way easier to buy ADA each month and stake on a pool.

But…you are blockchain developer, you have an amazing promotion tool!

Go for it! If you need help, you are at the right place!
Use CNTOOLS!

Luc

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You’re welcome, and we appreciate you having a look at SPAAS :slight_smile:

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Hi Chrisomi, I run a small pool with similar pledge to what you have in mind even though it isn’t a “successful” pool. :stuck_out_tongue:

Not successful since in a month of operating, the pool has received only 2 delegators and of course there have been no blocks or any income.

The most difficult part in running a new pool is attracting delegators. Even with promoting it actively as much as you can. There have been a survey run from @Spork that revealed delegators mainly care about the ROS and rewards.
Results: https://www.reddit.com/r/CardanoStakePools/comments/myyrts/cardano_delegator_survey_results_are_in/

Monthly cost using a mix of onsite and cloud services for my setup are a bit south of $100 USD monthly.

Even though it is unsuccessful so far, I will run the pool as far as I can keep up with the monthly costs.

It is fun and I got the chance to play with a few things such as minting some NFTs :smiley:

“LGBTQ” follow the rainbow :rainbow: :shamrock:

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Hi @Chrisomi,

Welcome to the club!

A few facts first:

  • you can’t start a pool with 50ada, since you need 500ada to even register your pool. you will get it back when you retire your pool
  • a registered pool with 50ada stake will have a statistical chance to find a block every 270 years. check this to roughly calculate your chances: Mnemonic device to help estimate the odds of your stake pool finding blocks (ada4good.com)
  • you need at least 2 servers, 3 i recommended. Quality cloud servers that meet the resouce requirements will costs about 150 dollars a month to rent.
  • finally, a small pool (under 1m stake) will give their delegators about 1,5% less annual returns than a big pool (5%).
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@Chrisomi sorry I misread your message. you said 50k not 50 :slight_smile:

the chances of finding a block with 50k are every 100 days on average.

This calculator will tell you exactly:
Cardano Reward Calculator - Dynamic Strategies

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I’m also running a pool primarily for research/learning. The operational cost is minimal, because I run on hosted RaspberryPi4 which is also CO2 neutral. The 1% pool margin goes to charity, which is then used to plant trees. The pool rewards go to loyal delegators on top of what they get anyway (i.e. 850 ADA to 14 delegators) - we started to do this 3 months ago (i.e. since it became apparent that 360 p.e. is much more than actually needed) and here is how it works.

If you own the pool, the math is simple …

73 * YourStake / TotalStake * SlotsPerEpoch => AnualBlocks
AnualBlocks * BlockReward / YourStake => ROA

73 * 50k / 22.75bn * 21600 => 3.62
3.62 * 750 / 50k => 5.4%

From this you subtract your actual running cost to get your profit. For example …

3.62 * 750 - 1200 => 1515 ADA p.a.
1200 / (3.62 * 750) = 44.2% cost

Now, lets compare this to simply delegating your 50k …

The cost for delegating to a pool depends on pool size of the pool more than anything else, so you would want to delegate to an almost saturated pool. We can also ignore pools that have a > 0% margin and here is why.

With a saturated pool you would have a cost of 0.7% …

3.62 * 750 * 0.07 => 19 ADA

which is considerable less than the 1200 ADA we assumed above. Attracting delegators would work in your favor, but who would want to delegate to a your pool and have a cost of > 35% ? The story of your pool would have to be convincing enough to compensate for that.

There is a point of break even, which for this example sits at …

1200 / 0.7% / 750 / 73 => 3.13 b.e.
3.13 * 22.75bn / 21600 => 3.3m

So if you have > 3.3m, it will be more profitable running your own pool. It also doesn’t matter whether that pool attracts delegators or not, your ROA will be the same.

Bottom line, the cost of running a pool is considerable both in terms of ADA and effort. It may still be worth it, depending on your long term objectives. When delegating, choose a pool with 0% margin - otherwise the rich will simply get richer. Also, a good pool would not simply pocket all of its pool reward - i.e. surely not all of the (6 x 340 => 2040 p.m.) are needed to run a pool.

Still, there often is good reason to charge > 0% margin for example to use some/all of that to do some good in the world. When deciding which pool to delegate to, this can be a decisive factor in line with - “Making the world work better for all”.

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I am sorry but are you saying here that it is ok to not pay people who put considerable time and effort on the table ?!

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What will happen with your fees when you are done researching and learning? And the operational costs are little compared to the actual time operators spend to operate their pool, add value to the community and to attract and keep delegators.

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I’m saying the math works like this when you apply it. There used to be a time when it was perfectly ok to say “The operator needs those 340 p.e. and a little extra to run a pool”. Economic realities have changed since and now 340 are worth a lot more, which of course we are all very happy about. It also means, that no one can honestly still claim to “need” those 340 p.e. to run a pool.

Aside from (subjective) fairness, the math also says that eventually all stake will cluster around k saturated pools. The 340 is the deciding factor in that - it essentially makes large pools more attractive than small ones to achieve that convergence toward k saturated pools.

What I do with the payback scheme is essentially working for the benefit of the delegator. It essentially makes a small pool as attractive as a much larger pool because the effective cost is similar. For me its currently not a problem that I do this non-profit.

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When I’m done researching/learning the running cost will drop to what is actually needed to run two simple servers. The payback mechanism will then be implemented by a Plutus smart contract, which is also the beneficiary of all pool rewards. Because I then don’t receive any pool rewards anymore, I won’t have to hold back the tax escrow anymore. The payback will converge towards a theoretical maximum of …

6 x 340 - running cost => 2040 ADA - 60 USD (or so)

In case the pool should attract more delegators, the 1% charity margin might become unreasonably high for planting trees. Which would then be a good time to review the charity model and either support a wider range of good causes, add some to the payback pool or do something else with it completely. In any case, we can cross that bridge when we come to it.

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OK, but you didn’t address my main point.
You assume that the costs of running a pool are only in the out of the pocket costs of the the servers. I assume you expect all pools operators to invest their time and expertise for free. Lucky for the network, most pool operators are incentivized in a more economically sane way so we can be sure they are professional and will continue taking care of the network, knowing their expertise and time is paid for accordingly.

An as you mentioned above, the minimum fees where set when ADA was a few cents and that is why this is being lowered soon. But still, this is a minimum not covering what I am pointing out above.

So to summarize, sure it’s great that lots of people are willing to start a small pool and want to be competitive and therefore it would be nice if the fixed fees would be lower, which they will be soon, but in the long run, we should expect to pay our operators also for their time, if we want a resilient and flourishing network.

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I guess, we’ll see what actually happens with the fix, a0, k and other changes to the reward formula and how that effects how SPOs want to run their pools.

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I am afraid your calculations are way too optimistic.

  • Pools (serious that is) will not get away with 60$/month of infrastructure.
  • Long term commitment also involve way more than just server rental. This means taxes for professional revenue, legal framework and accounting.
  • Time invested by one or more (preferable) people.

Nonetheless, I understand what a free market is and best of luck to anyone out there !

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No problem, you can plugin the numbers that work for you. I’m not claiming that running a pool should cost this or that and because I haven’t yet seen convincing evidence that $2040 are actually needed to run two simple servers (especially not on RaspbarryPi4) we decided to give our excess back to loyal delegators.

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Raspberry won’t cut it if you plan on staying around for the long run. My 2 ada.

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Agreed. “staying around” is the main point. To stay around for the long run almost always means, good and consistent investment of time and material. The rest is marketing in my opinion to attract delegators so that pools can stay around. And when they get the delegators, they need to increase fees and stop giving back, since that is needed to stay around while providing good quality service.

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For the time that ASTOR has been around, RaspbarryPi4 did cut it, then it didn’t for a while, then it did again and I’m quite happy to adjust the setup to wherever the mood of the network takes it. In all case, we can adjust the payback amount accordingly. Currently, it’s quite a bit, with Alonzo it’ll likely be lots more and perhaps some day the scheme may become obsolete. In any case, we are committed to only charge what we actually need. Again, I have not yet seen convincing evidence that $2040 are needed.