What does cost % mean?

Staking & Delegation Stake Delegation
7

To understand cost (for the delegator) you need to understand how the block reward is distributed. It is actually quite simple …

  1. From the first block in any given epoch subtract the “Fix cost”
  2. From the remainder subtract the “Pool margin”
  3. Distribute the remainder proportional according to active stake for that epoch

Most pools take the minimum fix, which is 340 ADA. For simplicity, lets say you stake 500k with a pool that has no other delegator and the owner pledged the same amount. The pool has a 1% margin.

The active stake is therefore one million and there is a good chance that the pool will actually win a block. Lets further assume that the block reward is 740 ADA.

Pool reward …

340 + (740 - 340) * 0.01 => 344

Delegator reward …

740 - 344 => 396

The owner would get: 344 + 396 / 2 => 542

You would get: 396 / 2 => 198

There is the important metric of cost per block, which in this case is …

344 / 740 => 46,5%

You would therefore give almost half of your rewards to the owner. The more blocks a pool makes per epoch the lower that cost per block.

In comparison, lets choose a much larger pool that makes 50 blocks per epoch.

Pool reward …

340 + (50 x 740 - 340) * 0.01 => 707

Cost per block

707 / (50 x 740) => 1.9%

You will notice that the value of ADA has not entered the game so far. Actual running cost for the pool is however likely not paid in ADA (just yet). Another important metric has entered the game recently, which is “effective cost”. Some pools have realised that the cost to the delegator are unreasonably high (especially for small pools), while at the same time the pool rewards are also higher than is actually needed. There are pools that give a significant share of pool reward back to the delegator - this is however something you won’t see in Daedalus.

You may need to shop around a little, to get the benefit of such extra payouts. There is often good reason to choose a pool not just on ROA. For example, whether it does other good things in the world - does it “Make the world work better for all”? Some good options are here.

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