Suggestion : Bring ‘bonus reward’ system to encourage longer contribution to the pool

Developers
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Hi Global community!
@1111167 from Korean Community would like to discuss about this idea with the global memebers.
Below is his ideas about bonus reward system. Please give him feedback and share your ideas :wink:

In case a person does not have a clear reason why he/she wants to be part of the network, his/her contribution will be weaken

Suppose you have a large amount of funds, then you can expect enough rewards to be satisfied. Then this huge amount of reward is the reason for you to remain in the pool for a long time. However, in case you doesn’t have enough Ada in the first place, so the expected reward would also be low, there is no attraction for you to be remained in a pool for a certain amount of time. To encourage people to remain in a pool longer, I suggest a ‘bonus reward’ system below.
The main idea of bonus reward system is : to distribute more rewards as a “bonus” to the pooler who remain in the pool more than others on a monthly basis.
For example, to the pooler who remain
1 month : gets 0.2% more rewards
2 months : gets 0.3% more
3 months : gets 0.35 % more
…
In case a pooler who is supposed to remain 2 months in a pool but stayed only for one and a half hour, only the bonus reward of 1 month can be distributed. The amount of the bonus reward for the rest of half month will not be given since the pooler didn’t carry out the promised task of 2 months. It would be easier to understand if you take this undistributed bonus reward as a penalty.

If Cardano is to take this bonus reward system into current stake pool system, how to set the bonus reward for the first month would be the crucial for maintaining this system. Cardano should figure out what % best suits with the current fund and incentive mechanism.
Please let me know your feedback on my idea!

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Original post can be found here.

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Hello, @YeJi.Kim! First of all - thank you for bringing the community together :raised_hands: :slightly_smiling_face:

Now, about the questions:

This assumption is somewhat incorrect, because everyone gets rewarded in the same equal fair way, whatever they stake is - and this is achieved by rewarding people proportionally to their stake. So whether I have a million coins, or whether I have a thousand coins - my reward would be the same in percents of my stake.

That said - of course 5% from a million would mean a bigger amount of coins than 5% from a thousand, but I think it’s quite reasonable to assume that a person with only a thousand coins would value 5% income somewhat similar to a person with a million coins valuing the same 5% of his profit. Shared profits are completely fair in this case.

There’s actually no specific reason for the system itself to try and have as many people as possible to lock their stake. System can operate perfectly well with a billion of coins staked, or with a 10 billions of coins staked. The only thing that changes is how much profit will the stakers receive. The less people there are participating in the staking - the bigger the reward gets. The bigger the reward gets - the more people would want to participate. So the whole system tends towards a golden mean equilibrium.

Separate pools might (and probably will) try to implement their own system of bonuses like this or in some other way, so they would propose the longest stakers a special bonuses or rewards. But they would pay them out of their own pocket. This is ok and might be a somewhat good idea, but only in order to convince people to stay with their pool instead of going to a competing one.

So “Cardano” itself does not need to make any bonuses like that. And it could actually end-up being counter-productive, because people would think that only “old rich stakers” get all the profits, because they are already staking their coins for a long time.

And let’s not forget that people with a very big stake would also receive all these bonuses, akin the people with a small stake, so the whole thing actually reduces to the same described problem :slight_smile: :

  1. Why would a person with a thousand coins and a 0.35% bonus want to stake their coins, if there’s another person with a million coins and the same 0.35% bonus?

  2. But the same person would not want to stake thousand coins and 0% bonus, if there’s another person with a million coins and the same 0% bonus.

Stakers should already be incentivised by the profits themselves. If someone does not want to stake coins for 3 months - he does not receive profits for these 3 months. If he wants to receive profits for 3 months - he stake coins for 3 months. I’m not sure the bonus system would really help in this case, since:

  1. 99% percent of people that want to stake their coins - will stake their coins with or without bonuses.

  2. For people with a smaller stake 0.35% or 0.5% increase in rewards would not even be noticeable.

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Hi @YeJi.Kim! It is kind of you to bring a Korean topic to the rest of us, thank you!

I agree with this statement, I am sure pools will want to have a minimum number of ADA staked with them to account for the cost of operating the pool and they will find new way’s to incentivize people to stay with them.

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Totally. The other thing, tho, is that whatever happens - a single pool in Cardano cannot get more than 1% of total reward, so when a pool caps - it becomes import for them to get a proportional new stake only out of new stake in the system. Or otherwise it might cause actually an outflow of old stake. Example:

  1. There are 100 pools and a 1000 coins of total stake, so each pool contains 10 coins (exactly 1%) and the system is in equilibrium

  2. Imagine that each epoch there’s a total reward in the system of 100 coins, so each pool receives 1 coin, and splits it among all its stakers proportionally. For simplicity we will imagine they are not restaking profits.

  3. Now there’s a new user with 10 coins and he has to chose a pool. Whatever he choses - this pool now has 20 coins out of total 1010 coin.

  4. This pools now has 1.98% of total stake, and all other pools now have dropped to 0.99% of total stake.

  5. So when next reward of 100 coins is coming - first pool will receive 1 coin, since it is capped at 1 percent, and 0.5 coins will go to the new staker with 10 coins, so all the old stakers will now get twice as less coins in reward.

  6. And, for example, an old staker with 5 coins that now receives here 1/4 coins immediately realises that he can withdraw his 5 coins and move it to either one of other pools and receive there 1/3 coins, or actually split it among 5 other pools and receive ((1/11)*5) coins which would sum up to ~0.45 coins (exactly why stake diversification is a good idea).

At this point the new person with 10 coins might decide that he hasn’t decided on a pool yet and withdraw his stake of 10 coins completely (so the first pool ends up with half of the stake he initially had), or the person might decide to also diversify and to spread 10 coins among 10 pools, so the first pool ends up with only 6 coins.

This is why the whole system is very smart and interesting, cuz we gonna directly observer pool-fluctuations like this, but, of course, on a smaller scale :slight_smile:

In any way - this does show that it might be rational for a pool to try attract new people only up to a certain point, and then it becomes more rational to try to keep old stakers instead of getting too much new ones. So yeah, bonuses for permanent users might actually be a good idea for them.

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Lets assume a Sybil attack level bad actor. Non-rational, only creating disruption.

In the 100 pools/ 1000 coins example, lets say the bad actor can come in with 100 coins… 10% of the network. That means he can disrupt 10 of the pools at any one time, causing members of those pools to lose 50% of their reward.

Potentially a bad actor could at minimum disrupt certain users and pools. Or they could zero in on certain users and devastate their earning potential. Curious what else they could do.

Bring this up because while the new research paper explores a Sybil attack resilience for the sake of control, it does not explore disruption events.

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