Cardano SPO Column #034: Responsible Staking [VITAL]
This piece was published November 21st, 2021 on The Cryptonomist
This week’s guest on the Cardano SPO Column is a stake pool supporting projects which help to improve social stability, with servers running in a CO2-neutral way: Responsible Staking [VITAL].
Last week’s guest was a stake pool dedicated to helping protect online privacy and rights.
This initiative is a point of reference for everything Cardano and every week or two we will invite a Stake Pool Operator (SPO) to answer some questions and give us an update directly from within the Cardano community.
Considering that many of our readers are new to the crypto space, we will have a mix of simple and technical questions.
Hi, thanks for taking the time. Please introduce yourself, where are you based and what is your background?
Thanks for taking the time as well! I’m Markus, based in Austria and I’m operating the VITAL stake pool.
I started my professional career 20 years ago in web development and moved through different levels to an architect role. This helped me gather the required technical knowledge.
Running larger scale projects requires building trustful relationships with clients. This is very important for me in my professional career and I wanted to apply this to our pool philosophy as well.
What’s the path that led you to Cardano and to become a Stake Pool Operator (SPO)?
I moved into crypto quite late in 2017 straight before the major correction. I was just curious about learning how blockchain works and how usable it already was from an end-user perspective. At this time nothing was ready for day-to-day use. Transactions to custom wallets took hours. Wallets were very basic. So my feeling was that Bitcoin will never find major retail adoption if it stays that way.
My perspective changed when I learned about Proof-of-Stake as this new approach promised to be much more efficient in terms of transaction execution time and also in terms of power efficiency. So I dug into different projects and finally decided in February 2021 to create a Cardano stake pool.
I’m convinced that Cardano has a bright future ahead because Cardano Foundation is not only focusing on the technology. They are also creating a community and relationships.
As we have readers that aren’t familiar with Cardano, can you please give a simple explanation of the fees and rewards involved in delegating and operating a stake pool?
Sure, let’s take a look at it from the perspective of delegators:
Delegating ADA to a stake pool requires a transaction which involves transaction fees of ~0.18 ADA. Additionally there is a 2 ADA key deposit which is refunded when you stop delegating laterwards.
In terms of rewards, there is a block reward for every block which a pool generates. Currently this is ~680 ADA per block. From this fee the fixed cost of the pool (typically 340 ADA) is removed for the operator. The remaining is reduced by the margin fee. The rest is paid out by the protocol to the delegators.
As you see from the numbers above, the fixed cost can easily eat up a big portion of rewards if there is a low number of blocks generated in a single epoch. Per 1M active stake, there is ~1 block / epoch assigned. That’s why bigger pools often provide bigger ROA.
To attract delegators to the VITAL Pool, we pay back 240 of the 340 ADA which results in an effective fixed cost of 100 ADA. Some SPOs see this critically and call it a race to zero. For me 100 ADA is a fair amount to be able to pay off the infrastructure. Our income results from the 2% margin fee if we are able to convince delegators with our offering.
Looking at the future, what excites you the most about Cardano? But also, are you concerned about anything? Is there something that could go wrong?
The most exciting part for me is the enormously growing ecosystem. Cardano is one of the most decentralized projects and there is a lot of educational content and also funding available to ensure successful implementation of real-world use cases.
In my opinion the most important enablers for real-world use are a stablecoin solution and an ID solution.
Stablecoin because no corporation can make use of a volatile asset for their transactions. For this reason, we applied to be an ASPA (Ardana Stake Pool Alliance) partner and were approved there. Ardana will provide a stablecoin and low fee swapping solution which unlocks corporate use cases.
An ID solution is important because it helps to find acceptance with governments. Nobody knows what may happen in terms of KYC requirements. The Cardano Foundation is doing great work together with governments in Africa which is really a game changer for me.
In my opinion, Cardano has a big potential to serve as the best platform for many use cases. And this all comes with an excellent economic footprint which is important to ensure acceptance of it as well.
The biggest challenge right now is to find proper solutions to the increasing scalability demands. Layer 2 and Side-Chain solutions are on the way but this still will take time to get finalized. Another risk I see is that the large number of Financial Instruments being currently built on Cardano involves a big portion of new custom development. Any vulnerabilities and early launching projects would cause a loss in trust. So let’s hope all of those projects are prioritizing quality over time. Even if this is difficult as most investors have unrealistic expectations about timing.
Great contribution. Any final thoughts? Where can people stay in touch?
Our main goal is to serve the Cardano Ecosystem in a responsible way. Towards our delegators through transparency, fair rewards and our block insurance. To the Cardano network by providing a high availability solution. To nature by running in a CO2-neutral way and to the World through donating to social stability projects.
Thanks a lot for the interview Patryk!
Disclaimer: The opinions and views of the SPOs are their own and do not necessarily reflect those of the Cardano Foundation or IOHK.