PCP_K-Parameter_EarnCoinPool

Position to resubmit K parameter PCP:

The K parameter is ID’d as the parameter central to decentralization and as such is used to tune decentralization.

Cardano experts are generally understood to believe that the design premise of K is sound and the research that justifies it is well-understood and correct.

  • Evidence from Cardano Foundation - “The k-parameter plays an important factor in keeping the Cardano blockchain adequately decentralized and encourages ada holders to delegate to a wider number of pools.”

  • Evidence from IOG - “The system… [through increases in K] incentivizes delegators to move their stake to a pool containing less ada, in order to maintain their yield and thus encourages the decentralization of the network.”

Why K must be addressed now:

The mainnet poll took place in epochs 412 - 415 starting on May 15, 2023. This poll was conducted 12 months ago, which is more than enough time to respond.

There are no intervening steps in the way:

  • It was argued that the minPoolCost change decided upon ought to be executed before the PC addressed K. This occurred about 7 months ago now.

  • Some further justification would be needed for any further delay.

  • Entering self-governance phase puts added pressure on sufficient decentralization to prevent a dictatorship or an oligarchy from emerging.

    • Evidence - Cardano Foundation: A significant concern that relates to proof-of-stake systems is that Proof-of-stake systems can lead to a plutocratic aspect where the rich get richer, as block production rights are proportional to the stake owned.

Years of deliberation without meaningful progress:

  • SPOs have pursued actionable deliberation about Cardano’s decentralization parameters (primarily K, minPoolCost, a0) for ~3 years now– with inconclusive participation by experts and core developers– and the problem implicated in K hasn’t been agreed on yet or resolved.

  • If SPOs are to view this kind of conversation as tractable, the latest iteration of these discussions must produce agreement and resolution, or reasonable steps for achieving them.

If Not, Then:

  • If K is not the parameter used to fine tune decentralization, then what parameter is?

  • If K is not central to decentralization, then why does the K parameter exist?

Arguments for and against increasing K should be addressed as valid or not:

Many reasons have been given to raise K and not to raise K. The parameter committee should layout which arguments that they find to be valid and which are not, as well as why. The committee should also describe the evidence it used to come to their conclusions on the arguments.

The committee should also explain which of these reasons it used to come to its recommendation.

Original PCP arguments for raising K:

Please refer to the original PCP for Community Support, what is the K-parameter, Why is it important to move K up and Is it safe to move K to 1,000 and why moving in one big move is recommended by IOG

Summary of Arguments against raising K and why we don’t think they are a valid reason to not increase K:

  • Argument: Doubling K will double the necessary infrastructure costs of the network.

    • Counterargument: Only pools who are subverting the K parameter and running multiple pools would need to increase infrastructure costs. These costs would not double as we have seen the sharing of resources like relays by those that run multiple pools. Maybe these increases in costs are a good thing to deter pool splitting.
  • Argument: Increasing K will do more damage to SSPOs near saturation than to MPOs

    • Counterargument: According to the analysis that the Cardano Foundation referenced here by Community Member https://twitter.com/Ada4goodP in their “The Cardano Foundation’s Response to the Parameter Committee Recommendation in PCP-001”; shows by its own numbers that the oversaturated stake would be about 2 billion ADA staked in MPOs that would need to be redelegated. While only 542 million ADA would be oversaturated in Single Pools, that would need to be redelegated. To summarize, about 2 billion ADA in MPOs will need to be redelegated while about 542 million in Single Pools will need to be redelegated.

      Analysis by Homer_J and others show last time K was adjusted, while MPOs spun up more pools their overall stake did decrease. Source: https://forum.cardano.org/t/pcp-k-parameter-earncoinpool/122701/61?u=earncoinpool

  • Argument: Existing SSPOs near saturation may choose to become MPOs

    • Counterargument: Pools choosing to become an MPO is a separate problem that should be addressed through the Cardano Problem Statements process. The problem is the enforcement or deterrent for subverting the K parameter. Maybe the Cardano Constitution could address what IOG called a Sybil attack: “…stakeholders creating multiple pools, either openly or covertly (what is known as a Sybil attack)…” - Evidence from IOG

      Additional Evidence from IOG: “Be wary of ‘pool splitters’ - Pool operators that run multiple pools with small pledge hurt delegators and smaller operators. They hurt their delegators because they could have provided a higher amount of rewards by concentrating their pledge into a single pool; by not doing that, there are rewards that remain unclaimed. They hurt smaller and new operators, because they are forcing them to remain without delegates and hence making their operation unviable – without delegates a pool may be forced to close. So avoid pool operators that run multiple pools with pledge below saturation level.”

      Additional Evidence from IOG: “Another danger is of stakeholders creating many pools, which can also lead to increased leverage – and even a Sybil attack.”

  • Argument: The smaller SSPOs who are the only SPO group to benefit from the increase are, on average, less likely to be successful long term than the SSPOs currently near saturation.

    • Counterargument: Have not seen the evidence for this. We have seen small, medium and large pools close. This seem like the problem maybe be the same as referenced above about enforcement/deterrence of subverting K. “…[Pool splitters] hurt smaller and new operators, because they are forcing them to remain without delegates and hence making their operation unviable – without delegates a pool may be forced to close.” - Evidence from IOG

      If we are worried about the long term success of small pools, would increasing K and pushing over 2.5 billion ADA to be redelegated help their long term success?

  • Argument: Disrupting delegation needs a stronger justification

    • Counterargument: Staking is what secures the Cardano network. Actively staking and re-staking is paramount to that security. Cardano has liquid staking to make the process easy and not disruptive. If this argument is considered valid it’s hard to see how K could ever be increased if redelegating is considered disruptive. - Evidence

      Only about 11% of active stake would need to be re-delegated due to being in over saturated pools - (2.5 billion in oversaturation / 22.6 billion actively staked = 11% of active stake.) Sources: Cardano Blockchain Explorer & https://lookerstudio.google.com/u/0/reporting/639b7209-36db-4aea-956e-6d220412ba9c/page/p_gti726jc6c
      I would also note that as part of the Cardano Foundation Poll on K and minPoolCost there was a re-delegation phase so re-delegation was not seen as disruptive.

source: https://cardanofoundation.org/blog/entering-voltaire-poll-experiment-live-on-mainnet

Footnote: Thank you to Chris from Pond Pool and Ryan (Cerkoryn) for reviewing this supplement and providing feedback.

A special thank you to Matthew Capps. Matthew was a helpful sounding board in refining the conversation to key points to get this PCP resubmitted.

Thank you!

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