Is $10m Ada the magic number?

There was an interesting discussion on Reddit recently where it seemed $10m Ada was the point at which a pool would have the same ROI as larger pools (all else being equal).

It therefore seems to me that small pools just have to appeal to the goodness of someone’s heart to get the. To delegate with them rather than an economic incentive to delegate to small pools.

Wouldn’t it be better if ROI was somehow was higher for lower saturation pools?

Not sure how I can convince people to join our pool other than appealing to their better nature.

The main problem is that the Fixed cost is eating in the rewards.
This can only be solved by reducing the minimum fixed cost which should happen some time in the future.

Until then i decided to just give back the over-priced fixed cost to my delegators.
So I’m kind of working around the issue, but in a way which allows me to laterwards simple change my pool params.

I know that this is seen critical by some SPOs because I’m kind of undergoing the limits. But in my opinion the limits are just not fair any more.

If you are interested in how i exaclty reach competive (comparable to the top saturated pools) rates, i summarized it in my latest delegators update here: Pool Updates | VITAL Stakepool - Responsible Staking

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From the delegators perspective, there is one single metric that makes one pool more profitable than another, which is “cost per block” - with luck and runtime stability being all equal. Cost per block is the share of block rewards that goes to the pool rather than to the delegators - this is explored here.

When we talk about cost to the operator vs. cost to the delegator (i.e. is it more profitable to run my own pool). There is a break even point, which can be well below 10m depending on cost for the infrastructure and how you value your skill/time - this is explored here.

Recently another metric came into the game, which is “effective cost per block”. This is when an operator realizes that the pool reward (and hence the cost to the delegator) is much higher than is actually needed to run the pool. In that case an operator may do extra payouts to delegators to lower the cost per block, so that even a small pool can stay competitive. Various such schemes exist, which to the extreme would put a delegator on exact equal ROA to the operator. Running a pool is of course not free and that would need to be covered in any case.

Lastly, we are talking about differences between 4-6% ROA. Yes, a 30% cut on reward is significant, but in the overall scheme of things even 6% ROA will be totally dwarfed by price movements of the underlying asset.

You may need to shop around a little. There is often good reason to choose a pool not just on ROA. For example, whether it does other good things in the world - does it “Make the world work better for all”? Some good options are here.

I read Chance of Zero Blocks Per Epoch - thanks for that.

It is true that smaller pools have a higher chance of not winning a block in any given epoch. Even worse, every time they don’t win a block their chance to win a block in the next epoch is slightly less because the total stake is increased by the reward from the previous epoch (i.e. 15m). If I’m not mistaken it is a Bernoulli distribution.

We have 23.06b lots in the jar. A pool with 10m active stake has 10m lots that win. For every block per epoch (i.e. 21600) we reach into the jar and draw a lot. The chance of not winning a block is, according to Bernoulli, the probability that none of those 21600 draws is one of our 10m lots.

However, let’s assume Bob owns a pool and his dad is paying/running it for him - the cost for Bob is zero. No one is delegating to Bob’s pool and he is putting 100k into the pool. He can reasonably expect to win 7 blocks per year. Because he gets all of the rewards (“cost per block” is zero) every time he wins a block, his ROA would be exactly the same as if he delegated to a large pool that also had zero cost.

Bob rarely gets rewards, but he does not need to share them. By delegating to a large pool, he would get rewards more regular, but they would only be a fraction of epoch reward.

The total reward per epoch is proportionally distributed to all participating pools. Each participating pool distributes rewards proportionally to its delegators, but only after the pool reward is subtracted (i.e. cost to the delegator)

I’d say effective cost per block matters, not how often a pool wins a block.