As announced about 5 days ago K is increasing on the network from 150 to 500 and then 1000. This is a massive change to the network parameters and will impact all delegators and pool operators. I was curious what rewards would look like for oversaturated pools and how quickly rewards would fall of, so, as usual, I coded it up to satisfy my curiosity and wanted to share.
The Green line represents the ROI (annualized) for a pool across a wide simulated range of stake (I assume optimal performance). The RED vertical bar shows you the live stake in the LOVE pool as of today. As you can see, the LOVE pool is well under the saturation point of around 212M and also notice there is a fairly linear drop off in ROI over 212M.
The blue line represents K=500 which is where we will be starting December 6th. If you are delegating you will want to make sure you are in a pool that has less than 64M ADA staked. As you can see from the plot, the drop off is exponential so you’ll want to keep a very close eye on your pools to make sure they don’t accidentally get saturated after you delegate and before the end of the epoch. And finally, the Orange line represents what the curve will look like next March when saturation moves down to around 33M.
It is going to be an interesting social experiment to see how many pools stay saturated or become saturated by confused or uneducated delegators thus pushing the entire pool into sub-par returns. I know many delegators are HODLers and probably setup their delegation and won’t notice until their rewards seem far lower than they expect.
Just as a side note, the other end of the curve is also interesting. Starting at 0 stake (obviously 0 rewards) we can see the effect of the fixed fee on smaller pools. When a pool only has 1M on it these fixed fees become a larger percentage taken from the delegators, and thus limiting the maximum return of the pool regardless of how low their variable fees are. Once pools get over about 10M that effect is very small.
You can find these charts for pools you delegate to on PoolTool.io. As we get closer to the transition we will start painting live stake red at these lower saturation points and will adjust our mobile app alerts so that you will be warned if your pool becomes saturated. If you don’t have the mobile app already I highly recommend you get it, and subscribe to alerts for your pools, as you don’t want to get caught on the back side of that exponential curve!
Let us know if you have any questions.