Cardano stakepool fee adjustments
When creating a stake pool on the incentivised Cardano testnet the pool owner had to define several fee parameters to go with. These are:
- Fixed fee (a fixed fee per epoch)
- Pool tax (a percentage fee)
- Fee cap (a maximum fee per epoch)
When the incentivised testnet started pool operators had no idea about the economical needs of running a pool: Hardware costs, setup and maintenance time, development efforts, etc… and we all went with a best guess what we thought might be a proper fee structure. Me for example started #HRMS pool with no fixed fee, 5% tax and a 10k fee cap. Later we added #HRMA to the pool family with identical fixed fees and cap but with a 4% tax.
While we think our fee structure is pretty decent there might be quite a lot of pools that set either too high or too low fees which caused them to either not run economically sustainable or not being able to attract delegators. Or some simply did a mistake when estimating the amounts which are specified in Lovelaces instead of Ada.
How to adjust your fees (until now):
Changing the fees of your pool would mean creating a new pool certificate and registering it “on chain”. Which on the one hand cost you 500 Ada, but would also result in a new pool ID. This means loosing all your delegators and starting from scratch with a completely new pool. This was quite a high hurdle and we assume none of the successful pools has ever done that.
How to adjust fees now:
With the latest update of the Cardano incentivised testnet software IOHK “silently” seemed to have added the possibility to change a pool’s fee structure without generating a new certificate and node ID. Although it’s not yet officially documented how to do it there seems to be no doubt it can be done now. Furthermore it’s currently not known how much time it takes for changes to take effect.
How does this affect delegators:
While we think it’s absolutely the right thing to enable pool operators to adjust their fees of an active pool we do see some issues with that! Mainly:
- Exit scams
- Unsustainable fee structures
Exit scams
As we said earlier it’s not yet known how many epochs it takes for changes in fees to take effect we highly recommend having at least a few epochs of a “hold period” to allow delegator to switch the pool in case they don’t agree with the new fee structure. Furthermore the delegators need to be informed by e.g. a popup in their delegation wallet. Else a malicious operator could start a 0% pool until he has a decent amount of delegators and switch the tax to 100% over night. This way he would easily be able to make tens of thousands of ada within a single day. With these ada he could simply open a new pool the day after with a 0% fee in the beginning and nobody would be able to know if it’s the same malicious actor or not…
Unsustainable fee structures
As many new pool operators currently struggle to acquire enough delegators to have a fair chance of creating at least one block per epoch we expect a flood of low fee pools soon to attract new delegators. As low percentage pools are not economically sustainable in the long run these pool owners will have to raise their fees at some point. If they don’t add anything else to the ecosystem than just a low fee pool they will loose their delegators again. This would basically and end up in a loop: Create cheap pool, get delegators, raise fees, loose delegators, start all over again…
We still consider our fee structure of 4% or 5% fair for both sides allowing for a long term availability of these pools instead of some kind of discount offering thus are a bit sceptical about what is going to happen.
Tracking your pool’s fees
The folks at adapools.org quickly reacted to this update and implemented a page where you can track any pool’s change in fee structures. We are extremely excited about the upcoming developments!
What do you think about this? We would love to hear your thoughts in our Telegram channels or through Twitter!
