I’m a pool owner and I would like to share this proposal with the community, to start a discussion before the review that IOHK will do in Q3 of the rewards formula.
The goal of this proposal is to incentive the decentralization, resilience and independence of the Cardano network. To do this we need stake pools with a good pledge, good size and solid ownership. Also there should be a way for new pools to be able to compete with the existing, on fair playing field.
The reward distribution is a good way to drive people in choosing the right pools, but now we see basically all pools give the same rewards regardless of the committed pledge. The only parameter driving the returns is the size of the pool, the bigger, the better.
So how can we modify the existing formula to achieve the above stated goal?
- Consider a minimum pledge factor
- Consider a maximum leverage factor
- Keep the current saturation limit
So how does it look like?
How does the proposed formula compare with the current one?
I ran run some simulations considering 0% margin fee and 340ADA fixed. Other protocol parameters like they are now (expansion factor, treasury, etc…). 32B circulating, 23B in stake, 13B in reserve.
Pmin = 25000ADA
Pminexp = 0.5
Levmax = 20
Levexp = 0.15
Basically every pool has an optimal rewards based on the leverage, the ratio between stake and pledge. Big pools with no pledge will need to put some real money into the pledge or they will stop getting rewards (i.e. Binance & C.). This ensures that sybil attacks are minimized by the high pledge that every pool will need to maintain in relation to the stake. Also for small pools there is a path to growth, if they commit to increase the pledge along the way. Even a 25k pledge pool has decent APY up to 5-10M in stake.
For fun I did some sims on real pool data, to compare how the proposal would affect them.
I took the first 5 ranked pools from adapools, plus 1PCT, Binance and my own pool, just to show that I did not draft the formula to suit my personal interests.
|Ticker||Stake (M)||Pledge||APY new||APY old|
Now the fun part: what do you think?