How To Simulate Expected Staking Rewards

IOHK’S STAKING CALCULATOR

IOHK published a staking calculator, which lets you enter a number of variables to obtain an estimate of expected pool rewards. Although IOHK explicitly are mentioning the results should be interpreted with caution, it should give you an idea how various variables influence potential results.

IOHK Official Staking Calculator

SIMULATING EXPECTED REWARDS OF 4ADA

Let’s have a look at some of the variables and how you can modify them to simulate our 4ADA pool. Make sure “DELEGATE MY STAKE” is selected, and choose “ADVANCED OPTIONS”.

ADA AMOUNT
100,000 ADA
Pick any amount you choose, but keep the same amount when comparing between pools.
STAKE POOL DAILY FIXED FEE
68 ADA
68 per day is equivalent of 5*68=340ADA per epoch. This is the minimum fixed fee imposed by the protocol in order for a pool to get registered. This amount is deducted from total pool rewards every epoch, before calculating the rewards for all delegators.

Just to clarify: 340ADA are NOT deducted from your personal rewards. And, you do NOT have to pay 340ADA to a pool when delegating. Not once, not every epoch, ever.

IMPORTANT: most pool leave the 340ADA fixed fee per epoch at its minimum, but pay attention, as there are some pools which charge more than that, which can have a big impact on rewards, especially if the pool is small!

AVERAGE TRANSACTION FEES PER EPOCH
0 ADA
Whenever a pool produces a block, it not only receives a block reward, but also all the transaction fees for all transactions contained in that block. Since this amount varies for each block, best leave it to zero for the time being.
STAKE POOL OPERATOR’S STAKE
200,000 ADA
This amount is better known as PLEDGE. It is the amount of ADA permanently delegated by the pool owner, and says something about the pool owner’s ability to back-up their confidence in their own performance by showing their ‘skin-in-the-game’.

The amount of pledge also has a certain impact on rewards for all delegators. The higher the pledge, the higher the rewards. However, the effect is fairly limited. However, there is a small but increasing negative effect on rewards when delegating to a pool with a pledge less than 100k. Just vary the amount and see the changes in rewards for yourself.

STAKE POOL TOTAL STAKE
60,000,000 ADA
The bigger a pool, the higher the rewards for its delegators, as the impact of the 340ADA fixed fee gets smaller with increasing pool size. However, this impact quickly becomes insignificant once pools are at least 8M ADA in size, or larger.

And, once a pool gets very large (150M+), there is a real risk of pool saturation, which means that pools produce more rewards than they are allowed to receive, thereby generating less than optimal rewards for their delegators.

Very small pools, less than 7~8M, on the other hand, are risking to not produce any rewards on a regular basis, so picking a pool anywhere between 10M~150M is usually a safe bet.

TOTAL STAKE POOLS
150 ADA
This represents the maximum number of full, not saturated pools. Also referred to as “k-factor”, this protocol parameter, currently fixed at 150, determines how big a pool can get before saturation and rewards reduction kicks in. Even though there are currently over 1000 pools registered, leave this parameter at 150 in order not to distort the expected results.
STAKE POOL OPERATOR REWARD PERCENTAGE
2%
This is the variable pool fee that is automatically deducted each epoch from each delegator’s rewards. Pool operators use this fee (and the fixed fee) to cover their expenses to keep their pools and the Cardano network in tip-top shape.

Contrarily to what most delegators think, the impact of variable fee is not so high. The difference in rewards after one year, between 4ADA (2%) and for example a 1% pool, is only 0.05% !

STAKE POOL PERFORMANCE
100%
This represents the % of blocks missed by a stake pool. For consistency between pool comparisons, simply leave this at default (100%).
INFLUENCE FACTOR (a0)
0.3
Better known as the “Pledge Factor”, this fixed parameter determines the impact of the pool’s pledged amount on the rewards for all delegators. Currently, at 0.3, the impact of pledge is fairly low, giving a pool’s pledge amount above all subjective meaning, indicating to what extent the pool operator is able and willing to link their own pool results with yours.
TREASURY RATE
20%
The percentage of total rewards per epoch paid out to the Cardano Treasury, before distributing all remaining rewards to all delegators and pool operator’s. Leave at default (20%).
EXPANSION RATE
0.3%
This represents the inflation-rate of the protocol, and determines how many ADA are added to the total supply every epoch. Leave at default (0.3%).

4ADA RESULTS

Given [4ADA]’s current size of 60M ADA, these are the expected rewards after one year of keeping a stake of 100k ADA delegated to this pool without interruption:

In an upcoming blog post, we will also look at the expected results for [F4ADA] and [W4ADA]. And, last but now least, we will have a look at expected rewards of some of the competition…🥁

But why not start doing a bit of research on your own? Do let us know the results of your findings by posting a comment below!

See you soon! 🌞
Jos