Why should ADA stake holders care about Saturated Pools?
With Cardano Shelley main-net live there are some points I feel that Delegators need to know when choosing a Stake Pool to stake with.
Let’s take into consideration the saturation point of a stake pool and why it’s soo important to actively monitor your pools stats.
The saturation point
The saturation point ensures that staking pools do not become centralized. It’s a point at which rewards are essentially capped (not being able to grow any further).
Beyond the saturation point, rewards will decrease, encouraging new (and existing) stakeholders to actively seek other unsaturated pools. This is also a great method of helping smaller Pools grow.
Why should stakeholders actively monitor their stake pool’s stats?
The issue here lies in the way traditional banks have conditioned our view of storing wealth and generating income.
Within the traditional. banking system consumers are not encouraged to actively monitor the performance of their bank and actively compare interest offerings between banks.
The current system is also structured in such a way that its not easy to go bank-hopping.
Before being accepted at an other bank a whole KYC process is required.
This means that your identity first needs to be determine. And if you’re unlucky you’re family name is listed on a sanctioned list or is associated with a PEP (politically exposed person). In such a case your application at the new bank would require additional investigation — leading to a delay before you can actually be accepted as a new client.
We’re not used to bank-hopping
The issue here is that we’re not used to bank-hopping. We’re not used to actively comparing rates and then moving our funds accordingly. We usually open an account at one, two or three banks and stay there.
I personally hope that within the Cardano ecosystem we re-educate ourselves and start making use of the authority we are now given as ADA holders — by actively comparing stake pool performance, rates, trustworthiness, ideologies, etc. in stead of staking ADA at one place and remaining there.
What to do if the Stake Pool you are staking with is oversaturated?
As mentioned earlier, rewards earned with stake pools that are oversaturated will decrease. This is designed in a way to encourage new (and existing) stakeholders to actively seek other unsaturated pools — something that should prevent one pool from having too much power.
What about owners with multiple pools?
By design, this is allowed, but if it really contributes to the further decentralization of the Cardano Network is really the question. I’ll cover this in an other article and go further into details.
For now I don’t believe that the creation of multiple pools by the same owner really decentralizes the network. It’s really just a creative way of centralizing power.
So for example: if Stake Pool 1 (let’s say for example that the stake pool is called ADA1) is oversaturated, the pool owner then creates a second pool, calls it ADA2, and encourages stakeholders to move (some of) their stake to stake pool ADA2.
This reflects a very good business strategy to maximize ones profits (nothing wrong with that, so don’t get me wrong). Unfortunately this type of strategy shows no real concern for true decentralization.
I guess the main point of this article is to encourage stakeholders to actively monitor their stake pool’s performance and move/stake their ADA to other pools (perhaps one that offers a better performance or better rate*.
Not because you are earning rewards mean that you should stick with that pool. Of course, if you want to support a particular pool or their purpose/goal, then sure — do that. But if your an investor looking to maximize your return then it’s worth it to actively compare Stake Pools and action accordingly.
*pool performance and interest rates are subject to multiple factors. More information can be found in one of my previous articles 👉🏽 How much you can earn through staking?
Others useful sources:
A Deeper Look into the Features of Staking in Cardano
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The decline and fall of centralization - IOHK Blog
Full decentralization lies at the heart of Cardano's mission. While it is not the only goal that we're focused on, in…
Stake Pool Operation
Stake pools may be either public or private. A public stake pool is a Cardano network node with a public address that…
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