# Stakepool Profitability Calculation

Most jurisdictions where ADA is considered property (almost everywhere), will try to tax the income component and the capital gains component. Thus, if you are running a pool, you want to make zero profit (income-expenses = zero). NOT TAX ADVICE

Hi Frank!
Tau is not a Tax to the financial system of your country.
Tau is a Cardano internal Tax which is taken into Cardano reserves.

“tau=5% → the treasury tax rate. It reduces total rewards, redirecting them to a treasury account for later use.”

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So Tau is easy to apply. But I’m really struggling with the Pledge Factor Calculation.
Hope someone can assist with that:

I’m taking the following formula:

My main question now is:
Is the formula used to (A) influence the chance to be selected for a block or (B) manipulate the rewards payed out for a minted block.

Assuming it is B for now, as the formula uses R being the Total Rewards for the eopich.
This means the chance to be elected for a block is not influenced. OK.

Then simply restating the formula (with a 0.3 Pledge influence factor):

Where z = 1/350 and Stake and Reward are Percentages of Total Supply (not saying Total Staked!).
What is strange now:

• If I just look on the left side of the formula. It takes the Stake Percentate of Total Supply which is a very low value and multiplies it with the reward. What is the expected outcome of this? It will result in a very low number, so cannot reflect the corrected reward.
• The first part of the right side is similar beside of the additional calculation (Stake-pledge, …). Unfortunately this is not giving any senseful results to me which would make sense to be added to the left hand side of the formula

Has anyone tried to apply this formula already? Where is my logical fault here?

Hey,
I was commenting on this from your earlier post:

Blockquote

his is connected with TAX on the earnings, but also maybe connected with TAX on the value increase of the Owned ADA (e.g. the 1 year limit to sell without TAX, in Austria is not applying if the ADA is owned by a company, meaning you will have to pay TAX for the value increase)
→ Not sure about other countries… but this could be a blocker for some of us.

Blockquote

Maybe lets keep the country-specific ministry of finance driven TAX out of consideration for now. Sorry, i know i raised the topic myself as a hint initially ;).
But I’d like to focus on the rewards calculation in ADA now.

Can someone help me with applying the Cardano Rewards Formula?
The order I use at the moment is:

1. Calculate Chance to mint a block / multiple blocks
2. Calculate Rewards (currently based on the assumption of statically being 1200 ADA)
3. UNCLEAR: Correct the regards according to Pledge Factor
4. Remove 5% Cardano Tax
5. Remove Operator Cost
6. Remove Margin
7. The rest is Payed out to Delegators

After reviewing the Reddit Post again I think that the Pledge Factor is not as important as I thought it might be.

Based on this a Pledge of 1M is providing a 0.04% better ROS (being 3% higher) compared to a zero Pledged Pool.
Means: A pool with 0 Pledge and 1% margin is equal with a Pool with 1M Pledge and 4% Margin

The much bigger impact is the Pool Saturation, because in a low Saturated Pool the Operator Cost is eating a higher portion than in a high Saturated pool where the Operator Cost is splitted to many delegators. Good rates are achieved with over 10M active stake. Still 10M has a 11% higher rate compared to a 3M active stake pool (5,46 vs 4,89).

As a final conclusion my best guess for the expected return is shown below.
Note: I updated the expected Rewards per Block to 1100 ADA to end up with realistic ROA Numbers.

What is the minimum pledge/stake I need to do as a stake pool operator starting out to achieve a good return ? I don’t have much to start.

“a Pledge of 1M is providing a 0.04% better ROS (being 3% higher)”.
Looking at the reddit article the difference of 1 Percent return for the delegators is reached at roughly 300k pledge. So everything below it is not making a huge difference…

I beliefe most of the new pools have this problem since the price of ADA increased so heavily.
Anyways I think the maths is one thing. The psychology from a delegator perspective is a different one. A pool with 200k pledge seems to be more trustable… So hard to start I know. I’m also just starting and hoping

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What do you recommend Zwirny, 10K pledge is probably the most I can do, and I Would need a friends help as I have less than 5K<

Must be a good friend with a lot of trust.
But acutally I do not think there is a real difference between 5k and 10k from both a Rewards and also Psychological perspective.

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im almost completed my pool setup. so i am still learning about pledge/ and finalizing the pool.

Just give it what you can afford, you can increase it laterwards!

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What is your strategy for staking your pool? How much pledge vs stake

Just Pledge what you have, stake shall come from the delegators.

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Do you get return on your pledge? if there is nothing s taked to your pool?

Yes, you also get rewards for the Pledge

Thanks for helping.

Is having more than 1 owner for having more pledge?

Do you think 2K pledge and 10K stake would be good? It seems there wont be very many blocks produced, but I can get about 10K I think from friends. And does pledge count as stake or no? What do you think the ROA would be on something like that?

Well, honestly with 12k in total it will take in average 2 years to mint one single block…
So without finding some delegators you will not get happy

Well thats the goal to promote delegation through my business. Where does luck come into play? I saw one 10K server with 50% ROA but had 100% + luck