Rewarding Staking with Small/Single Pool Operators

Hello Cardano Community,

As you have probably noticed, there is a lot heated discussion regarding the current incentive structure for pool operators and the unfair advantages that large pool operators have. While there are some rumors that this could be fixed in the future, we didn’t want to wait. We’re giving it a go right now with a novel incentive to promote SPOs.

Why

For small pools it is very important to mint their first block on the network for a multitude of reasons. However, the minting of the blocks is directly impacted by the amount of stake in the pool. While it costs (almost) nothing for large stakeholders to support smaller pools, there seems to be a reluctance to do so as there are no good incentives to jump into a different pool. An additional challenge for SPOs is the fact that it is quite difficult to stand out in the sea of available pools and to demonstrate that they operate a professionally managed and reliable setup. While some of this can be done via aggregator websites, we feel that we can also provide a special reward for stakeholders to “try out” a pool while helping them produce their first block.

How

To that effect, we have minted a token aptly named 1STBLOCK. All wallets actively staking with the pool when it mints its first block will receive 15 of these tokens after the epoch during which the first block was minted. The incentive that this token provides is that any owner of 10 of the 1STBLOCK tokens staking with our pool will pay zero percent pool fees for the first three years, regardless of the actual pool fees that the pool sets up. This will be enforced by smart contracts starting in the Goguen era and we’re keeping our pool fees at 0% deliberately until that time.
You will notice that we are giving away 15 tokens while only 10 are necessary to receive the incentive. This is on purpose, as the other 5 1STBLOCK tokens can be sold on the market for additional profit (once we have smart contracts and markets on Cardano). Thus we are providing additional incentives to early stakeholders who are willing to help young SPOs.

Limits

Certain limits have to be set up to make this reward work as intended.

  1. The reward is only given out for the 1st ever minted block of the pool. It may make sense in the future to provide similar incentives for other milestones but we need to make sure we help pools get recognized for this milestone in particular. Additionally, we want to make sure that the stakeholders have only a limited window to receive the reward.
  2. Due to the fees associated with distributing tokens, we can only provide this reward to stakeholders who commit 3000 Ada or more to the pool. Additionally, we want to discourage stakeholders from splitting their stake into smaller wallets to receive the reward more than once. We also reserve the right to investigate any suspicious activity where larger stakeholders might attempt to game our setup. Our purpose is to help the community, not to unfairly enrich the stakeholders.
  3. The tokens have a lifetime of three years.

Participating SPOs

Even though our pool is the first one to offer this reward, we welcome other SPOs to join up with us in distributing this token during their 1st block production and honoring any wallet that contains these tokens going forward. We are happy to give away these tokens for free (minus the network fee) to SPOs who would like to participate, so that they can reward their stakeholders appropriately. Feel free to reach out to us via any of the methods linked on our website.

Final thoughts

We welcome all input regarding our approach. Please don’t hesitate to post questions here and in our Discord / Telegram channels. Oh and if you would like to provide criticism, please make it constructive :slight_smile: It’s easy to shoot down other people’s ideas. Help us make it better, instead!

3 Likes

If a delegator with let’s say 1M ADA decides to delegate to a pool with a current stake of say 100k, that delegator is going to lose quite a lot of ADA Return on his Stake. As I have shown in my post, What I learned after 1 month as a small stake pool operator, in such a case this delegator will get just about 65% of the rewards he/she would get when staking at a 50m (large) pool. This has mostly to do with the fact that the minimum (340 ADA) fees will weight down significantly on smaller pools, where with larger pools these costs are spread amongst many more delegator’s stake.
So to say it costs almost nothing is not really accurate. Or maybe you mean something else?

1 Like

You are correct, but your calculations are for a yearly estimate. We’re proposing the incentive just for the first block to begin with, to kickstart the pool. We don’t have to attract big 1M+ stakers right away, however, by participating in at least the 1st block, they would gain the right to 0% fees in the future.
Also, as you can see, we are offering multiple incentives. I doubt that wherever the 1M+ stakers are staking they will get 0% pool fees. In addition, they will be able to sell 5 of their tokens for profit in the future.