Cardano Proposal Would Redirect Unallocated Staking Rewards

Cardano DRep Ryan Wiley, known as Cerkoryn, has submitted a proposal to redistribute part of the staking reward capacity that remains unallocated under the network’s current rules.

The Dynamic Rewards proposal was previously included in CIP-0163 alongside a mechanism for time-bound delegation. Wiley has now opened separate requests for the rewards proposal and the corresponding changes to CIP-0163, allowing the two ideas to be considered independently.

How Dynamic Rewards Would Change Cardano Staking

Cardano holders can delegate ADA to stake pools that participate in block production. Rewards are calculated each epoch, with a pool’s stake, pledge and performance contributing to the calculation.

A pool’s pledge is the amount of ADA its operator commits to the pool. The rewards system also includes a saturation cap, which limits the reward weight a pool gains as its stake increases.

According to the Dynamic Rewards proposal, reward capacity can remain unallocated when stake is inactive, when a pool exceeds its reward saturation cap or when an operator fails to meet its declared pledge. Under the proposed model, that capacity would be redistributed among eligible pools using capped reward weights.

The saturation limit would continue to constrain each pool’s relative weight. A pool that fails its pledge check would not receive a reward, while a pool’s production performance would remain part of the calculation.

The proposal also discusses how changes to saturation parameters could affect distribution. Cardano’s k parameter determines the target number of pools used in the saturation calculation. A separate proposal, CIP-0050, considers an additional limit based on the relationship between a pool’s stake and its pledge. CIP-0050 remains a proposal.

The Trade-Off Between Rewards and Reserves

Cardano’s reward system draws on transaction fees and monetary expansion from the network’s reserves. After the Treasury share is accounted for, the remaining funds enter the rewards calculation. Amounts left unallocated under current rules return to the reserves.

Redirecting more reward capacity to pools would affect how much returns to reserves. If other conditions remained unchanged, a larger distribution would result in faster net reserve depletion than a calculation that returned more funds.

Wiley’s work also discusses the possibility of separately lowering rho, the parameter that determines the rate at which funds are drawn from reserves. A reduction could offset part of the additional reserve use, while also affecting the funds available for rewards and the Treasury. It is presented as a separate policy choice rather than an automatic consequence of Dynamic Rewards.

The earlier CIP-0163 document also revisits a concern considered in Cardano’s Shelley-era design: whether large pools could have an incentive to censor transactions that delegate stake elsewhere.

Wiley argues that sustained censorship would require coordination among block producers and that any resulting reward benefit would be shared with other participants. His assessment forms part of the proposal’s rationale for revisiting the existing design.

[NEWSBREAK]

A Separate Decision From Delegation Expiry

CIP-0163 originally combined the rewards change with a proposal for time-bound delegation. Wiley’s new requests would separate the proposed reward calculation from the question of whether delegation activity should be reaffirmed after a period of time.

In the GitHub discussion, Wiley explained that the reason for the split was related to governance rather than a technical dependency. Feedback on the combined CIP had focused heavily on delegation expiry, while separate proposals would allow each change to be discussed on its own.

Wiley indicated that the two ideas could complement each other, but that one could be accepted without the other. CIP editors are reviewing the related requests with attention to whether the split preserves the relevant work.

The Dynamic Rewards request remains open and has not been assigned a CIP number. Cardano’s existing staking reward rules remain in effect during the review.