Variable fee and rewards

It might be thought that a pool with a low percentage of variable fee is more favorable to the stakers, however, it is not so.

In fact, the difference in variable margin translates into a very small impact for the staker, but an equitable margin allows pool operators to invest in infrastructure, security, which is beneficial to their stakers.

In fact, it is likely that a very low-margin pool will subsidize its costs through alternative revenues, or will simply spend the minimum time and effort managing its pool, which translates into a detriment to its stakers and to the Cardano network, in short.

Of course, to evaluate the choice of a pool there are other variables to consider such as pledge, amount of delegation and saturation.

I will use an applied example to show the impact of the variable commission.

I consider a total participation of 40 million ADA and an average ROA (return on ADA) of 5.5% per year, with a fixed fee at a minimum of 340 ADA per season. The three “variable fees” most used by the pooles, 1%, 2% and 3%, are evaluated.

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For a 1% pool, net rewards (i.e., stakers rewards) are approximately 5.384% of your delegation. For a 2% pool, that number is approximately 5.329% and for a 3% pool, it is approximately 5.275%.

As you can see, the difference between a pool of 1% and 2% is only approximately 0.05% in the rewards for the delegate. Similarly, the difference between a 1% and 3% pool is actually only about 0.1% in the rewards.

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Nice one Ariel, great content, thanks for sharing this with us :muscle:

Thanks!! I will share more!