Running an ADA Staking Pool operation - Is it actually profitable?

I posted this thread on 4chan to no avail, so I’m re-posting it here.

I’ve been stocking up on as much ADA as my pockets will allow over the past year and change, and since last December, have also been looking into the possibility of creating and operating an ADA staking pool operation of my own. For those of you who run pools or have run them on the testnet, how have the returns been? Have they been as amazing as the ADA staking calculator makes them out to be? The reason I ask is because I’m having a very hard time believing that if I operate a pool, that I will make returns anywhere near close to what pic related says I will gain. According to their calculator, if I start my own staking pool and put up at least 150,000 ADA (the plan is to put up at least 250,000 by the time of operation), I will see an 837% ROI (equivalent of $120,340 USD at current prices). That’s assuming the pool controls at least 1% of the total stake (the total stake of what, the calculator doesn’t specify, but I’m assuming the total available supply of ADA currently on the network/in circulation). I don’t think my pool will even reach anywhere near 1% of the total supply, but it would be nice. The ROI calculated also assumes that the pool operator (me) takes in 10% of the annual rewards as my cut for operating the pool for everyone staking in it. Chances are I will take less of a cut than that to incentivize others to throw in with me (assuming I can do that).
Running costs will be upwards of around $8400 USD (at current prices, also assuming the pool controls 1% of total stake). I’m not worried about upkeep because this is a business enterprise being split 50/50 by me and a friend.

Would creating and operating an ADA staking pool be profitable in the long run? Is competing with the bigger pools and conglomerates possible on the ADA network? I really want to participate, not even for the money but moreso to be a part of keeping the ecosystem safe from centralization. Seeing Bitcoin get ransacked by China and several central powers bothered me a lot these past few years. An actually fully decentralized network like Cardano is something I’ve been patiently waiting to participate in.

Looking forward to hearing back from the community. Thanks everyone.

1 Like

Great questions @a_dyin_hobo. At first, for me, the impulse is to participate in spite of the costs, learn the node syncing process and register the pool to make blocks. Once the technical challenge of making blocks is overcome, then reality sets in. How much am I paying for the virtual machines I’m using to host the nodes? What are my electricity costs, my overhead for running the pool. Will 100K ADA or even 250K ADA on the mainnet be enough of a pledge to get the wheel turning and claim a percentage of the total stake that qualifies me for slot leader elections and block creation.I think the biggest question here is really about how to market the Cardano brand. Holders of ADA that see your pool as a real world solution, where your money is not governed or controlled by anything other than your effort and participation in the common good, will make the stake. Since the consensus validation protocol is a PoS mechanism, how much stake we have in the pool will determine profitability which when it comes to the bigger visions is about actually solving the problems. This ecosystem has a chance to be truly sustainable. There’s no question that stake delegation will have a higher ROI than investing in other traditional markets. The delegator will see the rewards if the pools they are delegated to perform well and have enough of the total circulating stake to be considered for block creation. The real question for me is can I beat the costs of running the pool and really make this effort a sustainable one. Stake Pool Operators who see this as business will need to work diligently at marketing their pool to ADA holders wanting to make an investment in the project. The project needs at least 1000 pools to arrive at stable network infrastructure. After that it’s all in the application and governance layers as to whether or not the project survives.
Quote Tweet

1 Like

Exactly. This is the million dollar question (literally).

I’m most worried about this. It seems like there will be a few big operators that will draw all the decelerators, leaving the little ones to fend for themselves. Is there any way to prevent that from happening?

Just curious how you get to this amount?

This might help…

https://staking.cardano.org/en/calculator/

1 Like

There’s the issue of a few big operators and then there’s also pool saturation, they can only have so much of the total circulating supply staked to their pool. It was 1% on ITN, seems to have change on HTN-2

Heard somewhere k=100 for ITN, 100% / 100 saturated pools = 1%.
Using the recently released value of k=150, we get
100% / 150 sat. pools = 0.66% total circulating ada per saturated pool

1 Like

Good info @xxrsee Where are you getting the recent values for this?

I remember using that site before but I still don’t see where the 8400 comes from. Are you estimating server costs, man hours, etc?

@Ian_Noble Yes, that value, while not fixed or standard, is probably a calculation of the cost of the infrastructure itself (virtual servers with AWS/GCP/AZURE), man hours in maintenance of nodes and other costs like marketing campaigns for driving ADA holders to your pool, etc.

Cool, thanks for the info! It’s hard to estimate but I’ll use your number as a rough estimate.

If you wan to see this as a real business, open up a spreadsheet. Calculate your monthly costs for electricity/internet access if your hosting the servers yourself or for virtual machines. Give yourself a raise, calculate what you think your time is worth and give that a value in hours per month. Website hosting costs, marketing costs, etc. That’s your overhead. From there use the staking caluculator see what kind of delegation your gonna need to have and how saturated your gonna need to be to be profitable.

2 Likes

k=150 from iohk blog revealing mainnet initial value of k and a0
ITN’s k=100 kinda makes sense but still needs to be verified

1 Like

I’ve been a stake pool operator since the early days. There’s no simple answer to your question. It’s difficult to estimate how profitable a pool will be because of various parameters affecting the outcome. While the estimations of ROS are useful to some extent, they are worthless if the pool fails to attract delegates. Let me explain:
You can estimate the costs of servers quite precisely but it’s a more difficult task to estimate costs for marketing and administration. With fast development you can expect more upgrades and more administration effort. While you can’t estimate everything precisely you still get an estimation of costs to work with.
Now to ROI. The ROI you get depends on how many blocks your pool mints. For well known pools that’s not a problem. They will reach saturation point easily and probably even start a second pool. People tend to delegate to well known pools of pool operators who are visible in the community (Youtube). The low price does not always ensure the success of the pool. There will be many with low prices and many will fail to attract enough stake.

By not knowing how much stake you will get and how many blocks you will produce and what will the block price be and what will the price of ada be you cannot really calculate your ROI precisely. So what you can get is an estimation with quite a big delta between min and max.

This is however the same problem every business has. Price too high, you don’t sell enough. Price too low, you don’t earn anything on margin. While the price won’t be the only factor for delegates choosing a pool it will still be quite important. Happy ‘hunting’ for the sweet spot! :slight_smile:

I invite you to read my blogpost - while it’s not about price, it’s about things you need to consider for Starting your own stake pool

3 Likes

Sure. I got this amount using the staking pool calculator IOHK put out for general use when they launched the testnet.

It is a general estimate of day to day costs across an entire year. I think the general daily upkeep was estimated at about $25ish dollars a day?

Thank you to everyone else who has replied to this thread so far. These are all things I will do my best to keep in mind. I want my partner and I to run a successful staking pool operation if we can manage it.

2 Likes

That was suck a great article! really clarifies a LOT. Thank you!