Simplified Stake Pool selection

After considering the following documents:


and the design of its implementation in Cardano https://hydra.iohk.io/build/3156413/download/1/delegation_design_spec.pdf I conclude that:

The system will lead to k pools that is optimized by their willingness and ability to operate well-performing pools against low cost, low margin and high pledge. The relationship between pledge and margin, or in other words: how much margin is a pool able to get per pledged ADA, is a function of a0 and k

There is a formula, implemented in Daedalus that includes apparent performance, which is completely based on public, on-chain data to come at a non-myopic ranking.

So my question is: if we believe that we arrive at the best system by allocating stake to the top k pools ranked by aforementioned formula, why don’t we automate or at least simplify that process?

In other words: what value can a stakepool add apart from running well against low cost, low margin and bringing high pledge. I believe there may be none. Or at least none that should be paid for through a higher margin (there can ofcourse be services by a pool that can be paid for otherwise).

There are benefits to automating stake pool selection: the end-user is not bothered by having to select a pool. There is simply a button: ‘stake now’ that will delegate (or re-delegate) your ADA. As soon as there is support for delegating to multiple pools from a single wallet, there can even be a spread among multiple pools to mitigate risk of single pool retirement/catastrophe.

We could start by implementing this in the wallet layer (and keep an ‘advanced’ section to select a pool if you have to), but I also see no reason not to move logic like this to a lower layer… e.g. for a delegation certificate that does not specify a poolId, the network resolves the pool (or pools) as part of the transaction

I would argue that this also increases stake mobility ultimately leading to a more cost-effective network sooner.

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An automated pool selector that benefits everything? sounds great in my ears

I think stakeholders making their own decisions is fairly fundamental to POS.

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Thanks for your reply! Can you share why you believe that?

And more specifically, do you believe it’s an option stakeholders should always have to select their pool, or that it’s a responsibility that stakeholders should not be able to withdraw from.

Yes I agree. Hence my post. I am curious if I am missing parts of the dynamics such that this idea will have adverse effects we should want to avoid.

I’m far from being an expert, and looking forward to seeing other opinions, but I will say this: automation is centralization. Now I’ll step back. Hope you get plenty of reaction, pro/anti/whatever! :grinning:

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Thanks for hoping that. I will be very happy with a good discussion on this.

I would argue that the incentives model should be able to withstand strategies to centralise regardless of how they are executed (manually or automated) and I think it does. What I’m suggesting is really mostly an improvement for the user (stakeholder) as well as putting additional pressure on pools to be cost-effective

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Hey @rene_securestaking!
I think I get your idea and I’d be into it if I thought it was simple, and thus could be simplified.
Firstly, I’m pretty sure such tools will come along, out of the box with redelegation mechanisms when pools lose their “top k” position, in what I would nickname “greedy wallets”.

But I agree with @RobJF that something like that becoming widespread would equal centralization.

I guess it boils down to - “There are other factors that matter”.

  • The simplest example I can think of is a single entity controlling top k pools. Many people would not want that for “intangible reasons”.

  • Myself, wanting to support decentralization and worthwhile initiatives would look for that, beyond the basics, in my pool operator. That’s real value for me.

  • In the end, with the pools representing financial aggregation, and voting power, I can imagine pools becoming like political parties, representing certain values or an agenda that may correlate to the delegators’ inclinations (and hence how they vote when proposals are presented to the network, which is somewhat similar to pools representing those “constituents”).

I think the bottom line is delegators will be able to give and take real financial power from pool ops. And since meeting the base criteria you mention is quite easy, I believe delegators will have the privilege and duty to see that pools spend their surplus profits in a way that would delight its delegators.

You can see on my post here, several pools with various obligations and missions, unrelated to enriching their delegators, that have already popped up.
Hope this offers another perspective!

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Hi Rin9s! Thanks for your response. It does offer me another perspective and it’s the perspective that I have felt being part of this community so far. It comes across as a position of reasoning from core values and in some cases even idealism. I share those values and idealism as you can also read on our site https://cardano.securestaking.io We are not running a stake pool with the hopes to get rich, but because we believe in Cardano and want to strengthen it.

Having said that, I do believe that perspective is that of a core group. Exactly the subset that participated in the ITN and it’s a minority. As Cardano grows, it will attract more and more rational actors looking for economic optimization, read: optimize RoS. It is to that group that my suggestion is aimed.

First a response to ‘greedy wallets’. Yes, they will come because there will be a demand for them. And that is exactly why those features should be added to well-trusted wallets such as Deadalus or Yoroi. Otherwise, people will use less-trusted wallets that do offer that feature and might get scammed.

Secondly, I wonder how simplified (or automated) stake pool selection will lead to centralization. If I read correctly you believe that it will come, but more as a fringe phenomenon and that it will only lead to centralization if it becomes widespread. From my understanding of the incentives paper and design document, the most real threat to decentralization is a whale setting up k pools (or even k/2 + 1) all with high pledge and low cost. Can you explain how you believe widespread simplified stake selection as I propose leads to centralization?

And finally, some arguments against using ‘other factors’ to select a stakepool. I might make myself unpopular with statements like these, but I truly believe a discussion like this might benefit Cardano in the long run.

  • If we depend on stakeholders selecting a pool manually for the security of the network, we are in pretty bad shape. And I believe we are not, I believe anyone can simply select the pool that offers the highest RoS at that time and still arrive at a secure network.
  • I haven’t looked at voting yet, but I expect that you would have the option to vote with your own stake if you want and you would not necessarily be delegating your voting rights by definition
  • Valuing things like ITN participation and existing brand to select pools will reduce stake mobility. In other words, it’s more difficult for new pools to enter the system. ITN is over and no new pool can participate again. So if you use ITN participation and some of those parties start a second, third or tenth pool you would more likely select those pools because you ‘trust’ them more. This will make us arrive at an oligopoly
  • If I were an attacker of the system, I would also have participated in the ITN. And I would definitely make a beautiful site that repeats all the well-known core values of Cardano. It’s intentions are hard to ‘prove’ that they are not part of the desirability formula.

Thanks for reading!

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I think the official wallets shouldn’t make such decisions for the network, and I think the folks working on them know that.

Unofficial wallets can take care of this and be scrutinized by the community for security/safety. Putting it in the official wallets will constitute making it the default, which goes against the idea of decentralization. Those who get scammed usually do because they fail to educate themselves, and this is not something we can protect against so bluntly.

You seem to presume that optimizing ROS is the only way, or best way, or worse than that, that it’s the way the “network” should encourage ignorant agents on how to stake their ADA.

I agree with you that in the medium term, most delegators will focus mainly on maximizing ROS, but that doesn’t mean they don’t have to do the work for themselves. Optimizing ROS is not the agenda of the network, it should be whatever people decide it is.

On your comments -

  • We don’t need to depend on manual selection, we just need to let the community prosper and build its own tools. Those that will organically show what “demand” really exists.

  • What I meant about voting is the reverse - since people will vote with their ADA with some agenda, they will also choose to delegate to a pool with a similar agenda, but this is probably more long term.

  • I’m not advocating for an oligopoly, and intentions are easier to prove when backed by substantial time and effort invested. Right now I rely on ITN because that’s the history we have. When we move forward I will prefer looking at MN performance of course.

  • I’m saying pools should invest in the community and build trust over time imho - that’s not elitism or easy to fake. And a pretty website is not the bar to clear I assure you.

The bottom line for me is -
Optimizing ROS shouldn’t be that hard to do.
I expect and hope we’ll see many pools on top with small variations in ROS. Some delegators will based on ROS, but I believe many will take other factors into consideration (not necessarily idealistic or having anything to do with the “core group” you hypothesize), and still achieve high ROS, comparable to that of “top earning pools” (similar to investment shops today - no huge diffs on returns for similar assets).

We are obligated to let the people decide for themselves here imo. But perhaps an optional wallet add-on from an “app marketplace” somewhere down the line. Would that work for you @rene_securestaking?

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Thanks again for your response @rin9s. You put forward some excellent arguments. I’ll first respond to a few of them and then elaborate a bit more on my viewpoint.

  • Relying on ITN statistics because it is what we have, but looking at mainnet performance afterwards, I think is a very healthy way to use the information we have. I hope that most delegators use the data like that

  • I’ll rephrase what I meant with ‘core group’. I don’t believe there is such a well defined group. I do believe that people are staking for various reasons and I expect there to be a spectrum between ‘doing what’s best for the network’ and ‘doing what’s best for myself’. The ‘doing what’s best for the network’ stake will be attracted to pools run by people they trust, or share values with or simply like. Doing what’s best for myself stake will be attracted to pools with the highest RoS, either long term or short term. Objectively, I think the truth is in the middle, because stake which is blindly and always attracted to RoS will never prevent a sybil attack and such an attack will hurt them too ofcourse.

My expectation then is that the majority of the stake will be self-serving, maybe even on the extreme end. And those people are helped by simplified stake selection, because they don’t care about who the stake pool operators are or what they believe in. The start screen with 500+ pools can be confusing and/or daunting. I believe we should not force them to do their due diligence as that can push investment away. Greedy money provides incentive to be cost-effective in the form of stake mobility which I think is a good thing to have.

Having said this, I absolutely agree with the statement ‘Optimizing ROS shouldn’t be that hard to do’, so let’s try to make it as simple as possible!

Then to my original proposal, there are two aspects to it:

1: Simplified pool selection optional or mandatory
I wasn’t sure about this in the first place, but now see that this should not be mandatory. However, I think the most important reason is that it will greatly reduce resillience to sybil attacks. An attacker that starts k/2 pools with minimum margin and cost will automatically attract all new stake and that is ofcourse very bad. The only way left then to respond as a community is to also create new pools with minimum margin and cost with higher pledge while in the current situation those delegators that do their due diligence will simply select another pool.

So on the level of ‘should we want it’, I see the value of diversity in stake pools given that the incentives model partly relies on it for security. Now if we can either change that or accept the increased risk mentioned above, then I don’t fully see the value of this diversity. It’s an economic game, the incentives are economic. You compared stake pools to political parties and investment shops earlier, but those two groups have a lot more relevant dimensions to differentiate themselves. I would compare stake pools much more to utility companies like telco’s or power suppliers. So if we could, I would prefer to push those groups to be part of the ‘plumbing’ of the network. This will also open up time and resources for those that want to bring Cardano further to spend on things like dApps, pushing for adoption and working on CIPs where I believe those resources and efforts a much better spent.

2: Simplified pool selection in the wallet or the protocol
Ok, so with simplified pool selection not being mandatory, it becomes a convenience feature. And I would argue that the convenience features should not be implemented in the protocol layer, contrary to what I said earlier:

Such a convenience feature constitutes complexity and therefore risk and the direct users of the protocol are arguably adept parties that can absorb that complexity (e.g. wallet developers, exchanges).

So all said and done, I think it should be a convenience feature in the wallet(s). Whether that be an extension as you mention or native I don’t have a strong opinion about that currently.


*As an aside, because I think it no longer is central to this discussion: I am still very interested how automated stake selection will lead to centralization. It’s been mentioned twice and I still not understand it.

Very true.

I tend to disagree with this metaphor. Utility companies are very different, usually monopolies, high fixed costs, and a high regulatory burden (on pricing in particular), to name a few differences. Client/supplier power dynamics are also reversed in our case (really hard to switch usually).

I’m not talking about idealism driving pool selection so much. But I would like to see the network supporting and encourage diversity as much as possible.

Already some pools have various promotions. I’m just saying such extra services could attract stakers with very narrow interests, that are not purely ROS.

Glad to see the discussion evolving, and trying to identify needs and solutions.
Good fun! @rene_securestaking :rainbow:

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