IOHK and @Cardano-Foundation regularly delegate millions of ADA to small pools. A high stake allows them to mint blocks more regularly and also generates income for the pool owners.
I totally support that intent because a healthy number of community-run pools is one of many factors that set Cardano apart from other projects in the space.
That having said, I’m probably not the only one to observe a growing number of unsustainable pools, misleading promotions and outright bad actors among pool operators. For regular delegators it becomes more and more difficult to choose a suitable pool. Choose the wrong one and there are no regular rewards or way less than expected. People are confused for a reason.
We have more than 2’600 pools, about 1’000 of which never minted a block. Over 2’000 operate with less than 100k pledge. Most of them are not attractive to delegators, so their owners “compete” against each other with “marketing”, often misleading delegators by advertising with “luck” or with how many blocks their pool is predicted to mint in the next epoch.
For an example of outright fraudulent behaviour, look at this pool and follow the majority of delegators. A group of about 60 delegators jumps from pool to pool every 1-2 epochs. All delegators jump at the same time and most of the 10 pools involved minted zero blocks. I’m just mentioning it because one of those pools recently won a IOHK delegation lottery and, of course, advertised with it.
Delegation lotteries did not create this situation, but they exacerbate the problem. The root cause is the high ADA price which makes running a pool attractive even with modest amounts of pledge. Lotteries add to that attractiveness because they offer a risk-free chance to make even more profit. I ran the numbers in another post.
My point is that we should not allow this to go on. The SPO community contributes to the public image of Cardano. If a pool chosen at random is likely useless or even fraudulent, that image is a bad one.
What can be done? Well, the entities running delegation lotteries (IOHK, CF, others?) could change incentives. It could cost something to participate in a lottery or to win one. The amount of existing pledge could play a role in order to encourage co-operation.
A discussion about this needs to take place.
(full disclosure: I’m running the pools WMOPS, LUKE and LEAKS, none of which ever won a delegation lottery.)