A common misconception is that the increasing K to 1,000 will lead to delegators getting half the rewards and pool operators getting half the revenue. People logically get to this conclusion, observing that cutting the saturation cap in half means half the number of blocks in an Epoch (5 days). However, what is often misunderstood is that, while the pool mints half the number of blocks, the SPO is now splitting rewards with half the number of ADA delegated. So the block rewards per ADA delegated will be split with half the ADA.
Practical examples:
First we'll assume a stake pool charges a fixed fee of 170 ADA and 0% margin. Then we'll discuss when a pool charges a margin so that you can do the calculation later yourself. Below are the variables needed in order to calculate SPO fees:
- Saturation level in ADA
- Pool fixed fee
- Block minted in Epoch
- Block rewards per block
- Pool margin (optional if pool charges one)
As of Epoch 567 these variables were as follows:
- K=500 Saturation level = ~75 million
- K=1,000 Saturation level = ~37.5 million
- Pool Fixed fee = 170
- Block minted in Epoch of a fully saturated pool = ~60
- Block rewards per block = ~350 ADA
(please note the number of blocks per Epoch fluctuates based on a luck factor but for calculating rewards for this example we assume a fixed number of blocks)
Example 1: K=500
With that set, let's look at an example at current 75 million (K=500). Each epoch they mint 60 blocks. At 350 ADA in rewards per block:
- 60 blocks x 350 ADA rewards per block = 21,000
- Pool fees per epoch = pool fixed fee of 170 ADA
- 21,00 in total rewards - 170 pool fixed fee = 20,830 Total rewards to be split up per ADA delegated to the pool
- 20,830 / 75 million = ~0.000277 rewards per ADA
Example 2: K=1,000
Now let's look at 37.5 million (K=1,000). Each epoch they now mint half the number of blocks, so 30 blocks. At 350 ADA in rewards per block:
- 30 blocks x 350 ADA rewards per block = 10,500
- Pool fees per epoch = pool fixed fee of 170 ADA
- 10,500 in total rewards - 170 pool fixed fee = 10,330 Total rewards to be split up per ADA delegated to the pool
- 10,330 / 37.5 million = ~0.000275 per ADA
The difference when K is raised to 1,000
- Difference per Epoch = 0.000002 ADA (0.000277 - 0.000275)
- Difference over year 0.000002 x 73 epochs = 0.000146 ADA
Since SPO only charges Fixed Fee, SPO revenue remains the same at 170 ADA per epoch.
What if Pool charges a Margin?
For this example we assume the pool charges 2% margin and when moving to K=1,000 the pool owner increases the margin to 4.5%. We will also assume the same number of blocks per epoch as the above example and same rewards of 350 ADA per block.
Example 3: K=500 & 2% margin
- 60 blocks x 350 ADA rewards per block = 21,000
- Pool fees per epoch = pool fixed fee of 170 ADA
- 21,00 in total rewards - 170 pool fixed fee = 20,830 Total rewards to be split up per ADA delegated to the pool
- 20,830 rewards X 0.02 margin = 416.60 in additional pool owner revenue
- 20,830 rewards - 416.60 pool margin revenue = 20,413.40 Total rewards to be split up per ADA delegated to the pool
- 20,413.40 / 75 million = ~0.000272 rewards per ADA
Example 4: K=1,000 & 4.5% margin
Now let's look at 37.5 million (K=1,000). Each epoch they now mint half the number of blocks, so 30 blocks. At 350 ADA in rewards per block:
- 30 blocks x 350 ADA rewards per block = 10,500
- Pool fees per epoch = pool fixed fee of 170 ADA
- 10,500 in total rewards - 170 pool fixed fee = 10,330 Total rewards to be split up per ADA delegated to the pool
- 10,330 rewards X 0.045 margin = 464.85 in additional pool owner revenue
- 10,330 rewards - 464.85 pool margin revenue = 9,865.15 Total rewards to be split up per ADA delegated to the pool
- 9,865.15 / 37.5 million = ~0.000263 rewards per ADA
The difference when K is raised to 1,000 and pool owner increases margin from 2% to 4.5%
- Difference per Epoch = 0.000009 ADA (0.000272 - 0.000263)
- Difference over year 0.000009 x 73 epochs = 0.000657 ADA
SPO revenue on margin alone increases to 48.25 ADA per epoch or 3,522.25 ADA over a year or 73 epochs. SPO revenue on Fixed Fee per Epoch remains the same at 170 ADA.
What does this mean for the average Cardano Delegator?
Based on the Cexplorer wealth chart we can see the majority of ADA holders have 1,000 or less ADA. (https://cexplorer.io/wealth)
So using the examples above we can see in Example 2 that if K is raised to K=1,000, the average delegator who has staked 1,000 ADA will see a difference in rewards over a whole year (73 epochs) of 0.146 less ADA for the year.
From Example 4 above if K is raised to K=1,000 and if a pool charges a margin of 2% and decides to increase their margin to 4.5% the average delegator who has staked 1,000 ADA will see a difference in rewards over a whole year (73 epochs) of 0.657 less ADA for the year.
These seem like small prices to pay to increase the decentralization and security of the Cardano Blockchain.
TDLR:
K=500 vs K=1,000 if Pool only charges fix fee:
K=500 Rewards per Epoch
Pool Revenue = 170 ADA
Rewards per ADA = ~0.000277
Rewards for average ADA holder of 1,000 ADA = 0.277 ADA
K=1,000 Rewards per Epoch
Pool Revenue = 170 ADA
Rewards per ADA = ~0.000275
Rewards for average ADA holder of 1,000 ADA = 0.275 ADA
Difference per Epoch:
Pool Revenue = Unchanged
Rewards for average ADA holder of 1,000 ADA = Decrease of 0.002 ADA
K=500 vs K=1,000 if Pool Charges fix fee and Margin of 2% and Raises Margin to 4.5% when K is increased to 1,000:
K=500 Rewards per Epoch
Pool Revenue = 586.60 ADA
Rewards per ADA = ~0.000272
Rewards for average ADA holder of 1,000 ADA = 0.272 ADA
K=1,000 Rewards per Epoch
Pool Revenue = 634.85 ADA
Rewards per ADA = ~0.000263
Rewards for average ADA holder of 1,000 ADA = 0.263 ADA
Difference per Epoch:
Pool Revenue = Increase of 48.25 ADA
Rewards for average ADA holder of 1,000 ADA = Decrease of 0.009