Possible Sybil attack: multiple *big* Stake Pools run by the same person

Not sure what threat to the system you are referring to.

If some entity has a large investment in ADA, isn’t it automatically discouraged from attacking the system? Then why should that entity be prevented from setting up optimal number of pools so as to allow for the best returns on investment the protocol allows.

This is not the same as Sybil attack in which someone who has little investment (stake) in the system sets up pools with the intention of taking control of large stake by registering a large number of pools.

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