Some thoughts on network centralization

I’ve seen some discussion on reddit and telegram about operators like 1PCT controlling a large percentage of staked ada and what that means for the network. I wanted to share some of my thoughts about that in this blog post

For those who want the TLDR:

I believe that multi-pool setups (such as 1PCT) can use economies of scale to significantly reduce their cost per stake pool while retaining equal or better performance, incentivizing network centralization. One option for re-aligning incentives is to increase the influence of pledge to help level the playing field between single-pool and multi-pool setups, another consideration may be a minimum variable fee to help prevent some of the worst effects of multi-pool setups pushing margins down using their cheaper costs.

If you agree or disagree, I’d love to hear some of your thoughts!

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I agree with you. Someone said that we need to invest in other services to offer to delegators. True, but do we really believe it could be a definitive solution? Is it seriously credible that all 150 active pools (until k will be raised) can offer diversified services to attract stakes? I hope that in the coming epochs IOHK will make a parameter adjustment in the direction you said.

I 100% agree that pledge should play a significant factor (along with pool uptime/performance) in the way that rankings appear in Daedalus. We’ll see how it all plays out after the first few epochs. It will be sad to see the top 20 pools overloaded by pools all belonging to the same operator group.

As you say, it is difficult to figure out if there is a niche that stake pools should fill or if it will mostly come down to whether a stake pool can offer the best possible return on stake or not. We’ll all be watching closely as things get real and we start minting blocks and see what happens.

I also realized, that setting up the “first” pool has the steepest learning curve, finding reliable proper (non-AWS etc.) hosting services consumes considerable amounts of time. Multiplying this setup is quite easy and would be a logic conclusion I did not draw by now - it would be the opposite of what we’re trying to achieve.

Still, there’s no easy metric trying to achieve “decentrilazation”. Be assured that there is enough money seeking returns desperately to easily meet any minimum pledge you would call for… The only difference being “small fish” would not be able to run an pool anymore…