SPO Poll - Q3 2023 Setup Preferences: Answer 3 (Increase k to 1000 and keep minPoolCost at 340 ada)

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Greetings Stake Pool Operators,

This thread is part of a series of polls aimed at understanding your preferences for the potential parameter changes coming in Q3 2023. The question we’re addressing is:

Which setup would you prefer to be put in place from Q3 2023 onwards?

In this thread, we’re focusing on Answer 3: Increase k to 1000 and keep minPoolCost at 340 ada.

Please share your thoughts, considerations, and perspective on this specific option. Your insights are valuable for your delegators and will help others understand why you might favor this choice.

Consider addressing the following points in your response:

  • Why you prefer this option: What about this option aligns with your operational approach, growth plans, or other aspects of your stake pool operation?
  • Potential impact on your stake pool: How would this scenario affect your operations, your capacity, your competitiveness, and your ability to attract and retain delegators?
  • Potential impact on the broader Cardano network: How do you see this scenario affecting the overall health, decentralization, and performance of the Cardano network?
  • Additional comments: Any other thoughts or comments you’d like to share about this option or the current state of stake pool operations on Cardano.

Looking forward to a rich and productive discussion!

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@Nicolas First of all, thank you soo much for asking us SPOs on a change that will directly effect us. I am the founder of VoltPool, with over 4500 blocks underneath our belt and have been producing blocks since Cardano went live. I have am considered a Single Pool Operator with over 1800 delegates and 14 million ada staked to my pool at this time. Please see my responses to your points below:

Why you prefer this option:
Increasing K to 1000 Increasing the K parameter to 1000 brings several benefits that both I and many stake pool operators (SPOs) appreciate. Primarily, it enhances Cardano’s decentralization by increasing the number of SPOs and their participation. While some people may argue that this change will allow big players to establish more nodes and generate even more profit, addressing that issue should not impede the increase of K to 1000. Instead, the focus should be on promoting decentralization among smaller SPOs and providing them with opportunities to attract delegators and participate more actively.

One challenge in increasing K to 1000 is that smaller delegators would need to redelegate their ADA, which can be cumbersome for those who don’t run a Cardano node 24/7. They would need to update their Daedalus wallet, wait for it to sync, and then redelegate their ADA. There is a risk that many delegators may not complete this process within the given timeframe, leading to over-saturated SPOs experiencing decreased returns, adversely affecting their pool statistics, and reducing their block production.

Keeping MinPoolCost at 340 Ada Maintaining the MinPoolCost at 340 ADA is essential for SPOs to cover their infrastructure expenses. While this topic has sparked considerable debate within the community, reducing the MinPoolCost from 340 to 170 could create several issues. Most notably, SPOs running professional and secure node infrastructure with two relays and a block producer may struggle to cover their costs, especially as operating expenses for cloud infrastructure continue to rise.

Lowering the MinPoolCost may lead to several consequences:

  1. SPOs might cut costs by reducing the number of relays or even eliminating them, connecting the block producer directly to the Cardano network. This could compromise the overall security and stability of the network.
  2. A decreased MinPoolCost could raise the entry barrier for hobbyists, centralizing the network around companies and individuals with the financial means to cover monthly cloud infrastructure costs.
    SPOs might increase their pool fees above 0% to offset losses, making the overall network more expensive for users.
  3. Some SPOs could retire their pools, as the average person may not be able to afford the monthly cloud infrastructure costs required to operate a reliable and secure pool.

While increasing K and maintaining the MinPoolCost at 340 ADA may raise costs for the Treasury, reducing it to 170 ADA is not a viable solution. Doing so could result in a less secure network, operated on suboptimal hardware and cloud infrastructure.

Potential impact on your stake pool:
If the MinPoolCost were to be reduced to 170 ADA, I would consider decreasing the relay count and/or increasing the pool fee. However, these measures could result in a less favorable ranking within Daedalus, leading to fewer delegators and decreased block production. Additionally, I might explore other options, such as cutting developmental costs and eliminating certain extra security features that, while not essential, are beneficial to have.
Potential impact on the broader Cardano network:
Decreasing the MinPoolCost could negatively impact the health of the Cardano network, as SPOs may resort to cost-cutting measures. For example, SPOs might raise pool fees for their delegators, which could lead to a loss of delegators. Furthermore, many SPOs may reduce the number of relays they operate, which could compromise the network’s overall health and stability. A decrease in the number of relays would likely be the first repercussion of a reduced MinPoolCost.

Lowering the MinPoolCost could also create a higher entry barrier for hobbyists, making it more difficult for them to run a pool and attract delegators. This change would potentially centralize pools around individuals and companies that can afford to cover upfront costs, leading to a less decentralized network.
Additional comments:
Not at this time.

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First of thank you Cardano Foundation for organising a vote about this matter!
I would indeed vote for option number three, but moreover I would like to see an addition being made to the minPoolCost. More on that in the additional comments.

  • Why you prefer this option:
    Running a stake pool costs money and an SPO should be rewarded for his or her efforts. Lowering the minPoolCost to 170 would probably mean that a lot of small pools need to cease operation, or that the quality of the pool goes down / the pool becomes unreliable. Increasing k to a 1000 means the MPO’s and exchanges need to split their pools. This will cost them money and maybe delegators. If those delegators move to small pools remains to be seen.

  • Potential impact on your stake pool:
    It would not affect my operation much at this moment.

  • Potential impact on the broader Cardano network:
    I do not think it would increase decentralisation by much since I don’t think that maye delegators will move to smaller pools. There needs to be an additional parameter that makes larger pools unattractive.

  • Additional comments:
    My proposal for improvement would be making the minPoolCost a function of pool size and pledge. The minPoolCost would stay a fixed amount, but when the pool grows, a percentage is added to it. When the pool shrinks the added percentage shrinks as well. Today I wrote something about this topic on Medium, I hope it will add some value to the discussion.

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Why do you prefer this option:

Lowering the minPoolCost in the current ecosystem TODAY is not feasible. Many operators who tirelessly dedicate themselves to the ecosystem rely on potential stability to maintain their contributions. At the moment, our ecosystem needs many tools and collaboration within the community. The reality is that many small operators deliver significant contributions. Lowering this fee in this exact moment of uncertainty would be shooting ourselves in the foot.

Keeping the cost at this level allows for a higher quality of services provided. The reduction would impact established small pools much more, as there is no guarantee that delegation will be sufficient to cover the operational cost based on staked value while also opening the field for greater competition. For larger pools, the effect is minimal, and it becomes only an additional operational cost in an attempt to divide further and increase the operation.

  • Potential impact on your stake pool: This option would likely bring more delegation due to the increase in K.

  • Potential impact on the broader Cardano network: I believe this option would bring more stake decentralization. Micro pools would become viable, and we would have a stronger community of operators.

  • Additional comments: A change in minPoolCost to 170 is extremely welcome, but this is a terrible moment to change this parameter. The change in minPoolCost should come from a new wave of adoption in the network, preferably followed by a new bull market, allowing operators time to prepare and make long-term plans for their operation to endure the next bear market.
    Without mentioning the tremendous ghosting that is happening in this discussion, we are simply ignoring the pledge factor.

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Why you prefer this option: I think this option is aligned with most SPOs. I dont think the parameters are too far from optimal today. But this will help us figure it out.

Potential impact on your stake pool: I dont think this will impact my pool at all.

Potential impact on the broader Cardano network: The community needs to know they are heard and not ignored.

Additional comments: Lets do it and stop complaining about it.

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  • Why you prefer this option:

I think the increase of k to 1000 is long overdue. K=1000 is vastly more in line with what the network actually looks like at present than k=500. This is one parameter change, and I think for this time around we should leave it at that. Changing two parameters at the same time muddies the waters before we have a chance to see what k=1000 actually does to the network and its decentralization (if anything).

Further, I plainly disagree with lowering MinPoolCost: small, independent SPOs will struggle (and most already do) to make income match running costs. I have been running RABIT since November 2020, and save the bull market toward the end of 2021, I have not made much out of running a stake pool. I keep doing it because I believe it’s the right thing to do for the network. I am one of many SPOs with infrastructure in the cloud, which for me has been really helpful, but comes with overheads. The MinPoolCost pays for those. If large entities wish to have more wiggle-room for competition, they can always lower their margins.

  • Potential impact on your stake pool:

Hard to say, I am not holding my breath. Nonetheless, increasing k to 1000 reflects much more closely the current state of the network, so it needs to happen.

  • Potential impact on the broader Cardano network:

I imagine that well informed delegators will respond to oversaturation of their preferred pools. It remains to be seen whether large, multi pool operations will just go ahead and split. Lowering the MinPoolCost might mitigate some pool splitting behaviour due to excessive costs, but for how long?

  • Additional comments:

Rather than MinPoolCost, once the change in k has sunk into the network to find a new equilibrium, in my opinion the Community should evaluate changes in A0 (pledge leverage). This is also long overdue, to give high pledge pools a competitive advantage over pools that run with virtually no pledge.

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Thank you for asking us. At this time, Berch Pool votes to increase K to 1000 while leaving the MinPoolCost at 340.

Why you prefer this option: - Until the recent delegation by Liqwid Finance, Berch Pool had a delegation of around 500,000 ADA. We would get a block for a couple of epochs and then go 5-6 epochs between blocks. This is tough for our delegators and as pool operators. Under this model, we run underwater nearly every month as it is while we try to grow our pool. The 340 min is a lifeline and we see it as the cost of doing business. We do not see it as taking rewards away from delegators, but rather the fee to run and maintain the pool…or something that contributes to running the pool. We run a single pool and are very aware of multi pool operators and how it must be for several pools to charge the same min fee. But that’s a different “problem”. We do not use that strategy of running multiple pools. Decentralization in our view, is an operator running a single pool. We hope to see more single pools and a reduction of the multipool operator strategy, but we do not begrudge those who run multi-pools. Moreover- if you change two variables at the same time, you will not know what is effective or which lever achieved or failed to reach a goal. We recommend k=1,000.

Potential impact on your stake pool: Moving k=1000 should see a redelegation to more single pool operators. While we cannot guarantee that it would positively benefit us, it’s a better chance of getting a new delegator who must shift from a saturated pool.

Potential impact on the broader Cardano network: More pools are better than fewer pools. More single stake pool operators are better than larger MPOs. Consider 8 single pools is better than 1 MPO with 8 pools on a shared relay. Which is more decentralized? The answer is self-evident.

Additional comments:- Not really at this time. Thank you for asking. We will continue to press on and work to attract delegators and promote decentralization.

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