How 4ADA and F4ADA voted in CF’s experimental poll
Cardano Foundation’s voting experiment is asking SPO’s about their preferred change -if any- in pool parameters, presenting them with the following question and voting options:
Which setup would you prefer to be put in place from Q3 2023 onwards?
– Keep k at 500 and minPoolCost at 340 ada.
– Keep k at 500 and halve minPoolCost to 170 ada.
– Increase k to 1000 and keep minPoolCost at 340 ada.
– Increase k to 1000 and halve minPoolCost to 170 ada.
– I would prefer to abstain.
– None of the above.
On behalf of 4ADA and F4ADA, we have answered as follows:
4ADA: Keep k at 500 and halve minPoolCost to 170 ada
F4ADA: Increase k to 1000 and halve minPoolCost to 170 ada
I will explain how we came to this result, but let me start by saying that all the options presented have their pros and cons, that we do not have a strong preference for or against any of them, and that the best option in my opinion is not listed.
k=500 vs. k=1,000.
To be frank, I think the Cardano network currently does not need many more stakepools. However, doubling the theoretical number of viable pools would reduce the efficiency-gap between large and small pools and make smaller pools more attractive from a relative perspective, creating room for more pools. Much of this extra room probably would get reclaimed by the large pools, as they see themselves “forced” to create more pools in order to keep their delegators and their share of the “business”.
So, while I think there is nothing wrong with the current number of pools, I am in favor of helping smaller SPO’s to try and take some of the rediculous profits away from some of the largest SPO’s running 5 or more pools. The real challenge however is to reach and convince delegators to remove their ADA from exchanges and to self-stake instead.
MinPoolCost @ 340 vs. 170 ADA/epoch
340ADA minimum compensation for SPO’s helping to run the network is an arbitrary amount, established around the time that 1 ADA was around 13cts. It was supposed to prevent a race to the bottom, potentially leading to a deterioration in network performance, caused by too many unserious operators (with insufficient incentives to try do a better job).
The current problem is that these 340 ADA weigh too heavily on the rewards of small pool delegators, making them less attractive. The result: large pools can lean back and enjoy their success, as small pools cannot compete. Moreover, large pools can further boost their profits by splitting-up and enjoying the extra 340 for each additional pool.
So, while halving the MinPoolCost to 170 is still an arbitrary choice, it would at least give small pools a better chance to compete.
What about the interests of 4ADA and F4ADA delegators?
Increasing k to 1,000 brings pool saturation from 70M down to approx. 35M, forcing many 4ADA delegators to redelegate (hopefully to F4ADA!). For this reason, we voted on behalf of 4ADA that k remains at 500, and MinPoolCost gets reduced to 170.
Our goal is that we can continue to accommodate our existing delegators. Should k get set to 1,000, we would launch a 3rd pool if needed, but only if the existing 2 are full.
Increasing k to 1,000 would bring F4ADA closer to saturation, thereby increasing its relative attractiveness. For this reason we voted on behalf of F4ADA that k gets increased to 1,000 and MinPoolCost gets reduced to 170.
How about MinPoolFee?
The options provided in the poll are within the limits of the current protocol parameters and how they are set up. What we would rather see, together with many other SPO’s, is that MinPoolCost is set to zero, along with the introduction of MinPoolFee (for example 1, 2 or 3%), so pools are always equally attractive, regardless of their size (if charging the same fee).
Our pricing going forward
In order to be able to keep doing what we’re doing, we need fair compensation for our investments, running costs and efforts. Currently our total income for the two pools combined sits just under 1,000ADA/epoch, which is equivalent to approx. 2,200 USD/mth at the current ADA-price of 37cts, which I believe is modest and acceptable. Should MinPoolCost get reduced to 170, eventually we’d probably need to increase our variable fee in order to at least stay above break-even.
Thank you for reading. Let us know your thoughts in our Telegram channel or in the comments below!
Explanation Cardano Foundation