Min fee is a tax on the first block
Stake pools must set a min pool fee. The current minimum (i.e. the lowest fee) a pool can charge is 170 ada.
A common misconception is that the pool min fee is applied to all blocks produced in an epoch by the pool. In reality, min pool fee is only applied once an epoch if and when a stake pool mints a block.
So, in essence it's best to think of pool min fee as a tax on the first block minted in an epoch.
Practical examples:
Pool with 10 blocks
Let's assume a pool mints 10 blocks in an epoch and the block rewards per block are 307 ada. The total rewards issued to the pool at the end of the epoch would be 3,070 - 170 ada pool min fee (we assume for this example a margin of 0% for ease of reviewing the numbers).
3,070 total rewards - 170 min pool fee = 2,900 ada to be split between the pool's delegators
170 min pool fee / 3,070 total rewards = 5% of rewards goes to pool min fee
Pool with 1 block
Now let's assume a pool only mints one block in the epoch and the block rewards per block are 307 ada. The total rewards issued to the pool at the end of the epoch would be 307 - 170 ada pool min fee (we assume, as above, a margin of 0% for ease of reviewing the numbers).
307 total rewards - 170 min pool fee = 137 ada to be split between the pool's delegators
170 min pool fee / 307 total rewards = 55% of rewards goes to pool min fee
It is easy to see why this first block tax creates an unfair barrier for small pools to grow: their delegators ROI is greatly impacted by the first block tax.
Changelog: edited 2025-06-03 by RABIT