I loved the Incentivized testnet. It was great because anyone could run a pool and validate some blocks, with chances proportional to their stakes,even with as few as 100kAda you’d get a block per month. I ran a pool, and I loved that, honestly it did not get me that much of earnings so far,
but I was very happy with the idea to participate directly to the security of the network. I was looking forward to mainet and a PoS crypto that we truly control.
But this may be coming to an end because I just discovered that in the mainet, big pools will apparently be artificially advantaged over small ones giving them higher RoS and ability to validate blocks. (Note that they were already because a big pool had more rewards for the similar operating costs, but I’m talking about something else). This means that we will artificially give more (power and money) to those who already have much, and less to those who already have little. This can only lead to centralization in the long run. Decentralized is not only about how many pools there are, it is also about the fact that anyone should have the potentiality to participate directly to the network in proportion to their means, no more, no less.
(See the more technical post about this: Understanding shelley reward formula (and k, a0 parameters) )
But why change the way itn worked, when switching to mainet? Because it was susceptible to Sybill attacks. Because if people delegate randomly their stake to pools, then someone could create lots of different pools and pretend to be different people. And then either hope that people will delegate randomly to their pools on their own (just because there are so many), or make little advertisement to attract people to their pools. If the attackant could then cheaply control 51% of stakes he would then control the whole network.
There are 2 possible strategies to avoid such sybill attacks (both can be applied at the same time):
1- Incentivize people not to delegate randomly:
a-Have them stake to a pool that they directly operate themselves
b-Have them stake to a pool operated by a friend or someone they know directly
c-Have them stake to a pool of someone they know indirectly but hard to fake : youtuber, university, association, well-established provider of service, well-know member of community, ect…
Of course for this first strategy to work you want to allow small pools to be at leat as competitive as big ones so that many people operate small pools on their own, and subsequently many people have friends who do so. But you want also to have an expected RoS which is pretty much the same for every correctly operated pool, so that the sole criteria for a user to choose a pool is what pool he trusts the most. If you introduce variable RoS then you steer people to delegate randomly to the one with higher RoS even if they have no idea about who operates it. So overall the chosen formula worsen things in that side.
2- Limit the ability of one actor to create many pools that can potentially become big, by limiting the amount of delegated stake you can get proportionally to the pledge/stake you directly own.
It would be very easy to enforce that for every ADA I pledge directly in my pool, I can have at most 2,4,5, 10 or 20 ADAs delegated. (It would not advantage big pools over small ones.)
What has been chosen instead may seem similar but it’s not: the amount of pledge would influence RoS of the stakepool, to give and Incentivize to have a large enough pledge, but not enforcing anything. This implies quite complex and unpredictable consequences, not very well know impact of a0 and k, and need to try and estimate all that with complicated models. The formula chosen also have the very nasty side effect to advantage big pools over small ones as I said before.
Also if you find problematic to enforce a limitation, note that k is already enforcing maximum stake the exact same way.
I may be wrong or miss something, if so please correct me. If this is truly indispensable that big pools be advantaged over small ones, to prevent sybill attacks, at least we should have good public proofs or evidence of that. Please show me that simply limiting the ability to receive delegated staked ADA proportionally to pledged ADA, is not a good idea.
If I’m right, I hope the reward formula will be changed, for the best.