Cardano Staking’s 2% Paradox

For the first part of two-part presentation wey dem publish November 10 for Cardano Community YouTube channel, researchers Manvir Schneider and Juan Ignacio Beccuti Vázquez share early findings about Cardano staking incentives. Using data from epoch 644, dem estimate say about one out of five active pools for their sample generate enough operator revenue to cover the model benchmark cost. Nearly half of the pools hold up to 5 million ADA for total stake, and only 13 inside that group fit pass the benchmark.

How Delegators Fit Earn 2% While Operator No Reach Break-even

The researchers count pools wey produce at least one block inside the three months before the snapshot. Dem use benchmark operating cost of about 740 ADA per epoch, based on assumed ADA price of $0.15 and estimate for hardware, software, computing resources, and labor. The break-even point fit change based on each operator expenses and the price of ADA.

One modeled pool get 20 million ADA for total stake, including 100,000 ADA wey the operator pledge. The operator receive fixed fee of 170 ADA from the pool rewards, 5% margin on top the amount wey remain after the fee, and share of rewards on top im own stake. Under those assumptions, delegators earn about 2% per year, but the operator revenue still no reach the benchmark.

With the same fee and margin, the pool go need about 37 million ADA for total stake to break even. If dem raise the margin to 10%, that threshold go drop to about 19 million ADA. Alternatively, if stake remain 20 million ADA and the margin stay 5%, the operator go need fixed fee above 340 ADA per epoch. Any of those changes go reduce wetin remain for delegators for the same stake level. If delegators move their ADA because of the change, the operator break-even calculation go still change again.

Lower Saturation Threshold Fit Reduce Returns for Big Pools

Cardano k parameter dey help determine how much stake count toward pool base reward. For the researchers scenario, if dem raise k from 500 go 1,000, saturation threshold go drop from about 78 million to 39 million ADA. More than 200 pools for the snapshot go don pass the new threshold even before any delegator move.

For delegators inside one modeled pool with 45 million ADA stake, annual returns drop from about 2% to 1.74%. Stake wey pass the threshold still collect part of the payout, even though e no dey increase the pool base reward again. When the researchers simulate redelegation based on expected returns, the median annual return climb back to about 1.8%, and more operators fit pass the cost benchmark as smaller and midsize pools gather more stake. That scenario assume say no new pools open and no delegator comot from staking.

Operator Pledge Fit Change Rewards Even If Stake No Change

Another parameter, a₀, determine how much weight Cardano reward formula give to ADA wey operators pledge to their own pools. For the example wey dem present, with a₀ set to 0.3, one saturated pool wey no get operator pledge get base reward wey be about 23% lower than saturated pool wey the operator pledge alone reach the saturation threshold.

If pledge carry more weight, e fit make am less rewarding for operator to spread the same capital across multiple pools. E fit also make am harder for operators wey no get plenty ADA of their own to compete for delegation, because any change for the pool reward go affect wetin dem fit distribute to delegators.

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Only 24% of Tracked Pools Adopt the Previous Lower Fee

The researchers still model how e go be if Cardano minimum fixed fee, minPoolCost, drop from 170 go 75 ADA per epoch. Dem assume say every operator go reduce their fee to the new minimum. Smaller pools see the biggest improvement for delegator returns because fixed fee dey take bigger share from smaller payout. But the same cut reduce operator revenue, leave fewer pools wey fit cover the benchmark cost.

Operators fit still charge above the protocol minimum. When Cardano first reduce the floor from 340 go 170 ADA, about 24% of the pools wey the researchers track don adopt the lower fee by epoch 500. Roughly one in three smaller pools make the cut, compared with about one in six to seven larger pools.