Diminishing returns with increased pool size

staking

#1

So let’s say that Cardano incentivizes us to have 100 staking pools. Effectively, there is no economic incentive to have a pool that amasses more than 1% of the total amount of ADA. Got a pool with 10% of total ADA? You still get 1% of reward coins.

But what if me and Bob have a pool and we have 0.98% of total ADA, let’s say. And thanks to rewards we increase our stake to beyond the mentioned 1%. What then? Do we have to break up the pool, or does anyone see a more elegant/optimal solution to this issue? Maybe it’s not even an issue at all – if that’s so, do talk me through it.

Many thanks!


#2

I think your delegates may solve this issue for you, since if your pool grows beyond 1/k - they start losing their profits :slight_smile: See this comment for reference:

And also this video:

The whole 1/k thing makes pool-system “liquid”. Pools will constantly see some stake fluctuations, not like it’s only gonna go up. At first those fluctuations will be really big, while people are figuring the whole thing out, and eventually it will converge to an equilibrium with constant slight fluctuations. So I don’t think pool owners have to worry about it this much - maybe just tone down marketing when your stake goes close to 1/k :slight_smile:

Btw, receiving the staking reward will hardly change your share in the total stake significantly. Because everyone receives them, and not only you and your delegates, so the overall share will remain fairly the same. Only stake shifting (between pools, or in and out of the system) changes share more or less significantly.


#3

Hey Ruslan, thanks for your answer. So will rewards be automatically used for staking as one accrues more ADA, much like a dividend reinvestment program when you own stock?


#4

It is not yet known for sure, but is considered to be an obligatory feature to have along with the cold-staking by me and other community members. We are waiting for technical details to be released yet, but it would make me really sad if this feature is not supported. Tho, I might at this point thing of some complications that would make implementing such a feature if not impossible - then at least extremely hard and unnecessary complicating.


#5

Depends on how the stake in your pool grew in absolute terms. If you are counting staking rewards only then although the amount of ADA will increase the ratio of ADA in your pool compared to the new total circulation will remain approximately the same. Remember, in this scenario 99.2% of total staking reward in each epoch is going to other pools.

If you purchased additional ADA then you may have to think about how to delegate the additional stake.


#6

Ok, my reply wasn’t really necessary. I see now that Ruslan already covered it.


#7

Ruslan covers more ground than the Siberian taiga.


#8

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