Thoughts on current pool fee structure

The current fee structure for stake pool operator rewards is based on a fixed fee set by IOHK and a variable fee. The fees are collected from the rewards associated with the blocks minted by the pool. It is designed to support the pool’s operating cost (hardware/software + manpower), however the current structure makes a big economic difference to a delegator chosing to delegate to a pool with a low level of saturation vs a high level of saturation regardless of the pool’s reason for existence (pool farm, mission driven pool or else) and shows its limits in supporting pools economic viability in a higher ADA price environment (high barrier to entry dictated by need to have at least ADA1m delegation to be able to mint blocks regularly and a higher level of delegation for minimum fee to stop being a differentiator for delegators economic returns).

My thoughts for a fairer income system for a pool would be:

  • minimum fee is taken from overall block rewards generated in an epoch by all the pools minting blocks
  • minimum fee is set according to a Dutch auction system whereby the adopted number is the nth lowest bid with n being the optimal number of pools set as per cardano ecosystem voted number (currently 500)
  • a variable fee set by each pool independently as per current construct and taken from the pool specific minting rewards

A pool p would therefore receive the following payouts:
minFi + (((Ti-(Mi*minFi))/Bi)*Bpi)*varFp

Ti = total rewards for an Epoch i
Bi = Total number of blocks for Epoch i (~21700)
Mi = Total number pools minting block in Epoch i (to be discussed if this parameter should be set a n: optimal pool number for the network)
minFi = minimum Fee for Eepoch i as per Dutch auction outcome
varFp = variable Fee for pool p
Bpi = number of blocks minted by pool p in epoch i

This would allow to level the pool’s apparent cost to delegators regardless of the current pool delegation size and it would also allow delegators to support causes or operators based on their merit (technical capability, cause supported, social media presence) without having to sacrifice on the economic performance.

There is a risk that 0 pledge pools might multiply and hijack the auction process. The auction could be weighted in function of pledge or have a minimum pledge level to allow participation.