Thanks to @rphair for pointing out the advertising motive in his github comment: CIP-0050? | Shelleys Voltaire decentralization update by michael-liesenfelt · Pull Request #242 · cardano-foundation/CIPs · GitHub
I think @rphair is right. I think one reason the min fee of 340 Ada is not being reduced, is because it drives pool operators to compete for delegators by producing youtube content and showing off their donation credentials. It is free advertising for Cardano.
The min fee of 340 means a pool needs 10 million total stake before this fee is small enough to be relatively insignificant to delegators. Pools are all competing to achieve this size so that delegators can choose them without foregoing significant lost rewards. Consequently, pool operators are behaving like colourful birds in the PNG forest, dancing and showing off their plumage. Generating youtube content and displaying proofs of donations.
Profit motivated pools are competing for a scarce resource represented by a pot of 10 million Ada. If they can get to this size then they have hurdled the bar and can then continue to accumulate delegators. If they grow too big, then they simply split into multiple pools and continue to grow. Small pools find it difficult to pull delegators away from multi pool operators since the min 340 fee imposes a financial penalty on the move.
So how are delegators supposed to choose a pool? Currently they can watch youtube content and choose particular pool operators through getting to “know them”. But how much can you really know someone through youtube or even meeting them in person? We all know that spies can infiltrate organisations for many years as trusted individuals only to turn when the time is right. Does choosing a pool based on how much you think you would like a youtube presenter improve decentralisation?
Then there are the sites like adapools.org that publish a leader board based on yields, social contact information, and whether the pool is part of a multi-pool group. I don’t think this encourages decentralisation either.
A small pool can’t get to the top of the leader board because their relative fees are too high with the mandatory minimum 340 Ada fee. Furthermore, why does listing social contact information affect the ranking? You might say it is because you want to know if you can trust the pool operator to not change his fees. But Cardano is supposed to be a trustless, permissionless, decentralised protocol, with non-custodial liquid staking. Surely it would be better to address such fee change risk with technology. For example, by building a notification mechanism into wallets to warn delegators before the change is enacted.
I don’t think the adapools.org style leader boards, or youtube advertising by pool operators, is the best way to push decentralisation. I think we should be able to measure the correctness and performance of each stake pool somehow. We should be able to know if the pool is producing appropriate blocks containing all the transactions it was given and not censoring anything. Also, that the pool is not providing preferential treatment to somebody or part-taking in MEV. In other words that the pool is operating in accordance with the mission and ideals of Cardano. I think these things are most important to Cardano delegators.
I don’t have the answers for how we can monitor and measure pool performance. But, I do know that there are many operators who will run a stake pool irrespective of any profit motive. Many of these operators are focused on correctness and running their pool to improve Cardano’s goals of decentralisation, open access, and fairness. Many are freedom, privacy, and free software, enthusiasts, and may be insensitive to pool running costs. Many probably don’t even care how many blocks they get to produce so long as they do produce occasionally for positive feedback of correct performance. Nevertheless they are professional and determined to not miss any assigned blocks or otherwise fail the mission.
The problem with the min fee of 340 Ada is that delegators are discouraged from staking with the enthusiast, service provider pools. These operators are running their pools for reasons other than profit. It might be to learn more or maybe because they are just idealistic zealots. These people are running their pools correctly. But, delegators are discouraged from staking with them because the mandatory 340 Ada minimum fee makes their pools not viable options.
There is not much else you can do with your Ada capital at present aside from speculate on NFTs or provide liquidity on a DEX. Both of which are risky. But this is about to change. There will be opportunities to use your Ada capital as backing for stable coins, lending agreements, collateral for derivatives, etc. These alternative uses for Ada will have a big effect on the staking ecosystem as will the staking of the Ada held in their smart contracts. Furthermore, staking rewards will continue to decline over time to eventually equal just the protocol fees.
So thinking long term:
- Do we want people staking with profit insensitive pool operators?
- Are profit insensitive pool operators good for the ecosystem?
- Would encouraging staking with profit insensitive pool operators improve decentralisation?
- Will reducing the min fee cause a race to the bottom?
- Would a race to the bottom in stake pool fees have a deleterious effect on decentralisation?
I am interested in the views of others.
@Michael.Liesenfelt and @Colin_Edwards have expressed ideas about the 340 Ada min fee in other threads. However, I don’t think anyone has talked about how profit insensitive pool operators affect decentralisation, especially since the costs to run a pool are low.