How To Identify A Better Pool

Trying to find a catchy clickbait title for this blog post, this is about the best I could come up with. 😁
The truth is that, in my opinion, the idea that some pools are better than other pools, is highly overrated. But let’s start from the beginning!

 

What Is A Better Pool?

Most delegators will probably agree that better pools provide more rewards for you than, well, a worse pool.

But the reality is that, over a long time, the rewards produced by all pools will largely be the same. I know this may be hard to believe, since the performance differences between pools seem to be quite big at the moment, but one year from now, most pools which produce at least a few blocks per month, will show ROS results within a +/- 1% bracket.

 

It’s All About Luck, But Not For Long

The reason why the differences are much bigger right now, is that luck is the dominant factor at play here. From one epoch to the next, pools can get assigned to produce double the amount of blocks, or only half or even less, depending on the random block assignment by Cardano’s Ouroboros proof-of-stake protocol.

But this luck-factor will even out over time, letting all pools produce exactly the average amount of blocks they are entitled to, in relation to their size.

So, after one year, a 200M pool for example, will have produced 12,000 blocks, generating 12M ADA in rewards, delivering 6% ROS for their delegators. And a 10M pool will have produced 600 blocks, generating 600k ADA in rewards, also delivering 6% to their delegators…

 

Pool Fee: Important For The Operator, Not For You

Believe it or not, also the influence of pool fee, or pledge, will only play a minor role in the overall ROS. For example, the difference between a 2% pool and a 1% pool, results in a ROS difference of only approx. 0.05%! So, if you delegated 10,000 ADA, the difference between a 2% pool and a 1% pool will only be 5 ADA after an entire year.

And even if 2,500 ADA seems like a lot to you if you delegated 5M ADA, this 0.05% gain can be entirely undone, or doubled, by selling your ADA one minute sooner or later (if you ever wanted to sell them of course).

So this undeniably at some point will bring us back to our earlier question:

 

What <IS> A Better Pool?

Since rewards are all going to be more or less the same in the end, perhaps your pool choice should no longer depend so much on size or fee, but on other, more qualitative factors. For example:

  • How pleasant is your experience in delegating your ADA to a certain pool? Does the pool operator keep you informed with relevant performance data or other useful information? Do you like their website or youtube channel or blog/newsletter, if any?
  • Do you feel confident that your pool is not unnecessarily missing out on rewards (pool saturation or technical problems)?
  • What is the contribution of the pool operator to the overall quality of the Cardano ecosystem?
  • Is there enough attention for things like sustainability or decentralization of the Cardano network?
  • Is the pool operator getting paid a fair amount compared to their efforts? etc. etc…

Happy staking! 🌞