PCP_K-Parameter_EarnCoinPool

Removing dormant/sticky stake won’t result in less assigned blocks. Slot leadership is calculated by active stake.

Dormant/sticky stake is “active” as far as the slot leadership calculation is concerned. If you remove dormant stake from a pool that is actively minting blocks it will affect the number of assigned slots.

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Exactly. And therefore more will be available to be paid out to active stakers in the future.

The early larger pools will simply split and encourage all their active stakers to move to the new pool. The “sticky stake” will remain in their old pool. Then they can wind up the fees in the old pool and that “sticky stake” won’t care because it represents Ada held by lost keys, people who have forgotten, or people who just don’t care. Now this early pool operator has an even more significant competitive advantage over other small pools. He can lower the fees for his new pool to lower than his costs because he is profiting more from his old pool due to it’s sticky stake.

This is the kind of business model you are competing with as a small new entrant, and it is unfair. We need to think about how we can level the playing field. Removing the structural benefit of “sticky stake” would help level the playing field a lot. If you are a small pool operator struggling to run a profitable pool then you will have more chance of success if competition is fair.

The docs were not written by the design architects and explanations are simplified. The Ouroboros papers make clear that staking is supposed to be an active role. One key assumption is that stakers will move if a pool starts behaving maliciously. We don’t have slashing in Cardano exactly because of this assumption and the “sticky stake” problem undermines that assumption somewhat.

Well, you should seek to level the playing field. Plus, you have the higher ground because the design architects agree with you.

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Yes. Yes. Yes.

Now the newer entrants with smaller pools and no “sticky stake” might get more of a shot.

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Then we can agree to disagree :slight_smile: and I’m sure opinion will be divided on this one. Either way I don’t think this has anything to do with changing k.

How would you define “more passive”? I think you could easily define it as choosing a pool and actively committing your stake key to it. It’s not like people swore an oath to look after their keys, continually monitor their delegation and ensure it upheld their principals and the principals of the network (nor were they required to).

We could argue about intent, what “makes sense”, our interpretation of the docs or any other subjective opinions/topics, but the rules and behaviour are clear and encoded in the protocol that delegates signed up to. Changing this behaviour is almost certainly a governance issue and not going to be altered by changing k or by raising with the PC.

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That is correct. This discussion diverted to alternatives to reach the goals that we were thinking could not be reached by raising k.

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It will for that affected pool, but not for the total number of blocks for all pools together, because slot assignment is based on your stake relative to the total amount staked. If you get less slots, other pools will get more. I think that was the confusion.

That’s correct, I thought you meant in the same epoch, another confusion… :sweat_smile: :sweat_smile:

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Like I said before, that’s a false statement. There’s ni evidence for this. The data provided by @Homer_J shows that after last k raise, stake got more distributed and not all stake stayed with the same SPO as before because of pool splits, only part of it will. A lot of delegators probably just picked a pool because it was ranked high in a wallet and the SPO has no way to encourage them to stay with the pool group because the user doesn’t follow the SPO anywhere…

Thinking about it more, I agree that the docs are not a great reference point due to simplification/subjective interpretation.

Fair enough the intent may have been for delegates to be more active, but that was never enforced at a protocol level and I still think it’s unfair to impose it retrospectively. That being said, maybe it’s worth a CIP to suggest the idea outright and get further comment?

I agree that the dormant stake undermines the “protection” assumed by delegates moving away from bad actors. Obviously, the impact of that depends on how much dead stake there is - I’m again thinking that if the amount of dead stake is that significant then there are bigger problems :sweat_smile:

I would love a more level playing field! That’s why I was very pro lowering the min pool fee. I just want to do this in a way that doesn’t negatively affect delegates and I feel changing k or periodically kicking out inactive delegates will make a worse experience for minimal (or no) gain. Again, I think the latter suggestion would benefit from a CIP to create further discussion around it.

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The suggestion to recognise stake as inactive after a period of time wouldn’t involve kicking anyone out of anything. I think what needs to happen is users simply need to be re-educated about what staking means. Staking is active participation in securing the network, by actively choosing a pool to stake with (partner with), and that you need to be prepared to change your stake should conditions change.

We simply need to re-educate users that their stake won’t be recognised after say 12 months, unless they confirm that their chosen pool partner is still behaving in line with their expectations and values.

Then the protocol could be modified to reflect this timeout on stake recognition.

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Automatically not recognising a delegate’s stake if they don’t reaffirm their choice within some period of time is kicking them out of consensus if they don’t perform a manual task. IMO that’s a worse experience for delegates than it is today, particularly for delegates that don’t care about being active in decentralisation and just want the rewards.

You could argue that we don’t want those kinds of users etc, but as I said previously I think adoption and utility are key and I feel the passive rewards are a big selling point for Cardano. Personally I’d rather have more users of a passive nature than potentially dissuading users because they don’t want to have to get more involved with a philosophy they may not care about.

Maybe I’m wrong though. Maybe if this were raised as an independent idea and voted on there would be overwhelming support for it including from end users.

FWIW though I don’t think you can “simply” re-educate users. IOG and the community could try and socialise the intended changes as much as possible, but I still doubt you would reach everyone. Even the ones you did reach I’m sure not all of them would understand the changes or what is being asked of them (more due to a lack of interest on their part than a lack of clarity in the communications).

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OK, I see your point. In that case it would be better to just pay everyone a yield of 3% from the rewards pot irrespective of whether they are staked or not.

Sticky stake that is inactive and won’t move no matter what happens is not contributing to the security of Cardano’s consensus mechanism, in fact it is a negative. So yes, there is no point having it recognised as active stake because it actually makes Cardano more fragile.

Of course if we simply paid all wallets (unstaked and staked) 3% yield with active stakers paid nothing extra, then there would be no financial incentive to actively participate in staking as a partner with a pool. Though, there would be still an incentive to stake because those that actually care about security would presumably still choose to stake anyway, so perhaps the protocol might be more secure with only their stake impacting consensus? Similarly, I guess there would be some stake pool operators that would still run pools simply for security reasons, without expecting any pay?

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And just like the staking rewards, this will probably go down rather quickly with the reserve being emptied.

It is maybe not that good of a idea to advertise “passive income” as an argument for Cardano, for staking. There already are lots of stake pools who advertise with phantasmal APYs of a year or two ago which gets closer and closer to what one could see as false advertising.

Stake pools could still get rewards for their pledge. Why not?

Perhaps, it’s just the delegation part that was not such a brilliant idea in hindsight?

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  1. Network block latency vs. number of pools (both BPs and/or relays)?

In the numbers we are talking about - marginal effects either way.
The diffusion time is linked to the ‘valency’ (fanout factor) - current suggestions are reasonable for the range of 1,000 to 20,000 block producing and relay nodes in the system

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Dear @earncoinpool ,

I am writing to you on behalf of the Parameters Committee to inform you about the status of your recent Parameter Change Proposal (PCP).

As you can read in the last update from the committee, the upcoming PCP-003 has been selected and so other extant PCP applications will be deferred as per the PCP process. This decision does not reflect a lack of merit in your proposal, but is rather the result of current prioritization and our limited capacity to process all the proposals.

The deferral of extant PCPs after a given triage and selection period provides a period for the authors to continue to refine their message, to accentuate the importance of the PCP for the next period, and to assess its ongoing relevance given developments (including the results of active PCPs) in the interim. When the Committee opens the next submission period, you can notify us that you wish to renew the PCP.

We encourage you, if you wish, to use this time to revisit and strengthen your proposal, incorporate any feedback you have received, and account for any relevant developments in the ecosystem. The Parameters Committee values your contribution to the Cardano community.

Should you have any questions or require further clarification, please do not hesitate to reach out to us.

Thank you for your understanding and for your dedication to improving the Cardano ecosystem.

Best regards,

Joaquín López
Secretary of the Parameters Committee

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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Thank you this very impressive compilation. As a small pool operator, I need every help to keep going on. The current situation makes it very hard to get delegation or even to keep it. And, IMO I am not alone with that problem. I also don’t fear multi pools because the only real problem IMO are exchange pools. The only solution to get delegation away from exchange pools is IMO education about the advantages of liquid staking. Forcing re-delegation should help understanding the process.

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