Is saturation helping decentralization? Yes, but not on ITN

Isn’t saturation just causing stake pool operators create multiple pools and delegators bother about another metric when choosing a stake pool? I wasn’t sure about the answer when I looked at the many pool from one group/person on ITN, so I want to share my findings and thoughts and am interested to hear yours.

Operators Brand

In order for the stake pool operator get any delegation, he needs to prove himself somehow. Have YouTube channel, present his knowledge on the forum and so on. He basically needs to build a brand. So if he makes additional stake pool in case previous one gets saturated he wants it to be associated with that brand. Adversary interested in creating pools looking like they don’t belong to one entity would need to spend time and resources to build and maintain multiple brands. If the brand get’s bad reputation or it becomes known he is adversary, he can lose stake pretty quickly on ITN as people involved are technically skilled, following official information channels and want the best for the network. I don’t know how quick that would be on mainnet with less technical regular users who are just after biggest profit and are not following “side channels” like forums, twitter and so on.

Effect of saturation on Operators

So saturation forces operators to create multiple pools, which are all connected to the same brand. To create a stake pool however, operator a) might need to invest to additional infrastructure, b) there might be a non-zero pledge required (not active on ITN). Pledge is the amount operator must stake in order for the pool to be active. This makes him incentivized to keep the pool up and running and also prevents him to create unlimited stake pools.

Effect of saturation on Delegators

Let’s assume (and is also my observation on ITN), that all stake pools from one brand have same or very similar reliability, fees structure, pledge and mission. This means delegator delegates to the pool of selected brand, which is not saturated. They also redelegate to another pool of the same brand, if it becomes saturated to maximize his profit. I don’t think that penalizing delegators who delegated to unsaturated pool is a good aspect. Reason 1) users don’t want to spend time periodically checking for saturation, 2) this incentivize bad actors to saturate the pool they want to harm, wait until people change delegation (possibly to another brand) and then remove his stake to make the pool less attractive. This undesirable behavior gets more attractive the lower is the saturation point. On ITN target number of pools (“k” parameter) is 100 pools. On mainnet this number might be higher, which means this attack on the pool would be less expensive. Hopefuly IOHK will give this some thougts.

Conclusion

To prevent centralization, creating new stake pool must be expensive. This isn’t true on the ITN, which is why we see so many pools from same entity. The pledge is the key and I’m interested to see when it becomes activated. If pledge will be optional, big responsibility will be on the side of delegators. Wise delegators wanting to avoid centralization and also be sure operators has their skin in running the pool well would look for pools with high pledge and also outside of the brand with many pools.

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In Charles Update 01/12/2020 he pointed out, that ITN configuration was set to observe certain behavior and that they can steer it one way or the other through all kinds of measures (e.g. pledging mechanism).

I have also found, that my description of

one entity creating multiple pools looking like they don’t belong to one entity

is called Sybil attack and that the pledge (parameter a0) is a way to fight it. The higher the pledge of the pool the higher is the reward per block, so the pool with higher pledge is more attractive to delegators.

Yes, I’m just learning what everyone knows :slight_smile:

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