IOG Pools & The Appearance Of Unfairness

I hope that I can clearly articulate my displeasure with the many IOG pools that scream UNFAIRNESS. What gives me the right to speak out? I have been a loyal Cardano enthusiast since 2017. Unofficially, I have been running a Cardano meetup using my financial resources, time, and expertise. I have participated in the Network Testnet. I was a stake pool operator in the Incentivized Testnet (ITN), Haskell Testnet (HTN), and Mainnet Testnet. I have attended all the Cardano summits. I believe in the vision and aspirations of the Cardano project. Cardano has a beautiful vision and an elegantly constructed technology. I admire the peer review process, as well as the scientific rigor applied in the development of Cardano. I respect the team and their hard work. So I do feel the need to speak against what I think is an appearance of unfairness.
One of the fundamental tenants of the Cardano vision is providing a somewhat level playing field for the little guy to have a FAIR fighting chance. However, the appearance of unfairness is just as damaging as the actual act of unfairness. It creates a conflict of interest or gives rise to questions ethics. I’m not here to prove beyond a reasonable doubt that IOG intentionally tried to be unfair, but here is my case.
If you visit PoolTool.io and sort pools by the Live Stake in descending order, you will notice that there are 18 IOG stake pools out of the first 30 stake pools. There may be nothing wrong with this snapshot. However, from the perspective of fairness, this appears unfair in a lot of ways. Here are some of the ways:

  1. At the onset of stake pools writing blocks in the Shelley era, eighteen of the first top 30 stake pools likely to write blocks are all IOG pools. Eighteen pools from the same entity with a high likelihood to write the most blocks seem to violate the protocol pledge rule. The underlying reasoning of the pledge factor is to deter anyone (entity/individual) from dividing their pledge into several smaller pledges to create many pools regardless of intent (malicious or good). Having 18 stake pools with 18 smaller pledges seems to violate this deterrence. Whatever happened to IOG adhering to this pledge factor that should discourage Sybil attack. IOG seems to be violating the rules that they want others to obey or at least consider. IOG could have created five pools and delegated their remaining stakes to other stake pools. Such action by IOG would have set a precedent of adherence to the protocol rules. I can’t answer why IOG created so many pools. However, it appears as “Do as I say but not as I do.” Hypocritical and misleading. My pool (D360) has two owners, and we decided to adhere to the pledge rule by putting our pledge in one pool instead of creating two pools. Meanwhile, big brother is doing the opposite.

  2. If IOG is going to create 18 pools, why keep the K factor low? A low K factor restricts the number of optimal stake pools out the gate. Daedalus shows 831 stake pools as of my writing (8/9/2020). If the K factor is between 150 – 250 pools for the first epoch, why couldn’t IOG register a few (2 - 5) of their 18 stake pools for the start of the stake pool epoch? Then in each subsequent epochs, they could incrementally add additional stake pools. With five stake pools from IOG in the first epoch, IOG would cede the remaining 13 spots to other non IOG pools, which creates more stake pool diversity for Cardano decentralization. Instead, it appears to be the same old Byron Federated nodes (now Shelley) trying to control the Shelly network out the gate. Being first to market means a lot more because the first pools to start writing blocks in the Shelley network will have historical data for Daedalus ranking. These first pools (18 of which is IOG) will rank higher after the first stake pool block producing epoch. Their ranks will have a permanent lasting effect if not mitigated. It seems like the old guards are trying to stay ahead while asking newcomers to join at the rear. Where’s the fairness in this?

  3. IOG (IOHK) brand recognition against a smaller no-name pool appears to be unfair. It’s like a bully pounding a defenseless kid. IOG is a global company. Almost everyone in the Cardano ecosystem knows who IOG (IOHK) is. They created the Cardano software. They are at the full front of everything that is Cardano. They have vastly more resources than my small two-person D360 stake pool. So, where do you think the delegates will flow if my pool was to go against an IOG pool? There should be absolutely no surprise as to why the IOG stake pools have the most delegated live stake in the 18 out of the first 30 pools. Again, where is the fairness for the little guy? Their brand recognition far outpaces any other stake pool brand in the Cardano ecosystem. The small guy, like my pool (D360), will lose whenever we are up against a global resource-rich company. They could have at least changed the name of their pools from IOG to something else to level the playing field a little bit.

I could go on substantiating my grievances and displeasure. The appearance of unfairness is written all over the 18 IOG pools, even if it was not the intention of pool creators. Yes, other operators are operating a stake pool farm (3, 4, 5, etc. stake pools), but I hold IOG to a higher standard. I’m using this article to start a healthy conversation about our ecosystem and not to tear it down. I’m a Cardano enthusiast, believer, and evangelist. I’m not leaving because of this issue; I’m voicing my opinion in the hopes that IOG (IOHK ) and the Cardano Foundation will be more careful in avoiding situations or opportunities that create conflicts of interest or give rise to unethical questions. This article should not be construed as disunity in the Cardano community because it is not. We are in this project together.

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From my point of view, the biggest issue here was the communication. I don’t know about you, but I never really thought about the massive amount of ada IOG has or wondered what they’d be doing with it once Shelley was live. Then I suddenly see 20 IOG pools in pooltool and my gut reaction is just oof. Then the epoch that the decentralization constant was supposed to go to .9 gets delayed and 2b worth of ada flow into those IOG pools, suddenly my small pool goes from about a 70% chance of making a block the first epoch down to a bit under 50% due to the increase of total staked ada, oof.

It has since been communicated that these IOG pools are temporary and that after some technical issues are sorted out the ada in these pools will be delegated to stake pools run by the community. This represents a short term loss for IOG, since they could undoubtedly take advantage of their ada, brand, and technical ability to attract plenty of delegation for increased profit. I do think that in the long run it though it will be better for the cardano ecosystem (and therefore the value of ada) not to have 20 IOG pools.

I think communication will continue to be an extremely important issue, at least until the community begins to have more of a say via Voltaire. Should k be higher? It seems like it should, since the value of ada has increased since the value of 150 was chosen. However it is difficult to see what channel we as a community should use to be heard, especially when trying to communicate complex issues like the trade offs of changing protocol parameters.

Things have felt like they are moving very quickly since the last few weeks of the Byron era, and there are a lot of stake pool operators trying to figure out their place in the ecosystem. Sharing our opinions in posts like yours here seems extremely important, but I can’t help but feel that there should be a better way for the stake pool operator community and IOG to communicate, perhaps a stake pool liaison from IOG could help.

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@prometheus-pool, I agree with you that sensitive SPO issues should be communicated privately between CF, IOHK, and SPOs. This way, we air our grievances privately without the public media manipulation. At the moment, there’s no SPO liason that I am aware of.

Hey Mike,

We are working to establish a unified means to engage IOG and CF regarding such issues:

Here is the discord group where Cardano Stake Pool Operators are organizing:

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Charles Hoskinson addressed this in a video which he published August 9th:

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I think there’s a guy as iohk community manager who came talked in the cardano effect, is the person still in iohk? An explanation/perspective from them would be nice.

I know Charles spoke about this in one of his video, but given this topic appear in forum, put in writing from the community mgr would be great.

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@maki.mukai people are asking for comment from IOG in this thread.

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Hey @RobJF

There should be a blog post in the coming days that better explains, but for now… can say that IO will be following strategy similar to the one it followed for the ITN; a mix of private, public pools and delegation to community pools. As the largest ada stakeholder and the creators of the platform, the current 20 pool set up is for operational and network security purposes only and this will reduce in due course.

Charles also talked a bit about this topic here:

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@maki.mukai Thanks for the update Maki. I have absolutely no doubt that IOG means well and will do what is right. Sometimes appearance without explanation can leave he wrong impression. It’s your buddy Mike from South Florida. I changed my handle name.

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Here’s the blog post I was referring to: https://iohk.io/en/blog/posts/2020/08/14/the-decline-and-fall-of-centralization/ :slight_smile:

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Thanks, I am reading it now.