Description
The 'Staking Center' is responsible for deciding where a considerable amount of stake gets delegated. In it's current form, it pretty much makes the decision for the delegate, by showing pools in an order curated by just one person (at times this person hand selects the top pool). This goes against the goal of decentralization and gives little useful information to uneducated delegates. A rational delegate is one that chases best rewards.
This post will lay out a format that will give delegates more information about pool parameters and their impact, allowing them to make informed delegation decisions and optimize their rewards.
All pools are not created equally. There are decisions operators can make to give delegates better or worse rewards. Delegates can also change a pool's reward rate by delegating too it. Delegates are given little information within the wallet regarding these decisions. As a result we are seeing delegates accepting sub-par rewards without their knowledge.
There are 4 things that have an impact on staking rewards.
Margin fee - The operator can choose any value between 0-100%. A 0 fee has 0 effect. Any increase in margin is a decrease in rewards. Margin has a negative to zero effect on rewards
Pledge - Higher pledged pools receive larger rewards. Pledge has a 0 to + effect on rewards.
Pool size - This is mostly related to fixed fee. When staking with a large pool, delegates are responsible for less of the fixed fee. Larger pool size has a positive effect on rewards from 0 to + (0 if the delegate's stake = total pool stake) (up to saturation)
Pool performance - A pool that misses blocks receives less rewards. This is difficult to quantify, and can only be witnessed over a long timeframe. For this reason trying to report performance is just a guess, so it should be excluded in scoring. Performance has a negative to 0 effect on rewards.
In current form, the 'Staking Center' gives 'Estimated ROA', 'Pool Size', 'Costs' (listing margin and fixed fee), and 'Pledge'
Estimated ROA should be a historic estimate, alongside actual lifetime ROA. What the pool 'should' have done next to what it did do. Just showing lifetime ROA will show pools with low stake for most of their life as underperforming, when they haven't. These values should be greyed out for pools under 20 epochs old. Estimated ROA has no way of knowing how total stake will change before the snapshot and does not change based on the viewers stake.
The margin and fixed fee should also be hidden. Intuition at a glance would seem that a 2% margin means 2% of rewards, which is incorrect. Margin is a backend calculation, that has different meaning then it appears to delegates. Fixed fee's meaning is dependent on pool size, and intuition would again mislead it's meaning.
Having just a slight undefined color change gives no information about pledge or it's effect.
My proposed fix is to assign 'change in rewards' values to 'pool size, costs, and pledge' - giving meaning for delegates and making them relative to one another. These numbers are unrelated to performance and can be definitively calculated.
Zero should be defined as a pool with minimum (0 ADA) pledge, minimum (0%) margin, and minimum (340 ADA) fixed fee. The delegate's stake is equal to total pool stake (minimum pool size). Everything else imposes a +/- to this 0 value.
Examples:
+/- effect on rewards
Pool size (relating to fixed fee)= + (up to saturation)
Costs (margin fee) = -
Pledge = +
Made up pools with imperfect calculations
Calculations should be run including the wallet's stake as delegated to each pool - whales can significantly change pool size effect
Pool Z - 2% margin, 32mil total stake, 750 fixed, 10 mil pledge
Pool size: 32 million; +2.34%
Fees: -0.11%
Pledge: 10 million; +0.21%
Net effect on rewards: +2.53%
Pool Y - 10% margin, 12 mil total stake, 340 fixed, 100k pledge
Pool Size: 12 million; +2.30%
Fees: -0.53%
Pledge: 100k; +0.02%
Net effect on rewards: +1.79%
Pool X - 0% margin, 4 mil total stake, 340 fixed, 3 mil pledge
Pool Size: 4 million; +1.91%
Fees: -0%
Pledge: 3 million; +0.05%
Net effect on rewards: +1.96%