During the debate on Contingent Staking, an interesting point was made that stakers are customers of staking pools. Is this really the case? Let's use this question to explain the basic principles of economic incentives and the rewarding mechanism in staking. This allows us to find out who is running what business and who the customer is. TLDR Delegating ADA coins is a similar mechanism to voting in a democratic election. Stakers delegate coins to the pool and continue to have full control over the coins. Cardano can be perceived as an employer paying for the services of its employees. Both SPOs and stakers are running a business. SPOs are active participants when it comes to the production of blocks, while stakers are passive ones. Stakers are probably something like co-owners or shareholders of pools. If a Lovelace is delegated to a pool, this means that the pool mints the block on behalf of the staker. Who's the customer? Customers usually buy something and get something in return. In order for customers to buy something, they need to choose a merchant to satisfy their demand. There is a business between the merchant and the customer. They both profit. The customer gets what they need and the merchant makes a margin on the sale. This is not the case with staking. Stakers do not buy a service from SPOs and do not pay them anything. They only voluntarily delegate ADA coins to pools, thus increasing the total stake of the pools. With delegated coins, pools can mint a larger number of blocks. For this, both SPOs and stakers will receive rewards from the Cardano protocol. It is important to note that delegators still hold control of ADA coins. They can delegate to another pool at any time. It's very similar to the voting process in a democratic election where people elect their representatives. Representatives temporarily gain certain powers and could be punished if they abuse their position. Delegating ADA coins to a pool is a very similar mechanism. Staking pools are mainly responsible for block production. The Cardano protocol only pays rewards to pools that perform their job duties well. The quality of block production affects the rewards for stakers who have delegated their coins to the pool. SPOs and stakers can be said to have common economic interests. They both want rewards. SPOs promise to perform their roles well and want stakers to delegate coins to their pools. Similarly, politicians compete for votes. People who vote in elections are not customers of the state. They are the ones who keep the government in power. They can change their minds. It's about delegating power and not about buying services. The SPO and the stakers have similar goals, which are decentralization and security for Cardano. It's a kind of joint business. Note the difference between the words "joint" and "mutual". You could say that both SPOs and stakers are running a business. For this to be possible, there must be a Cardano protocol which is the only one in the staking process that pays rewards. Thus, both SPOs and stakers can be said to be customers of the protocol. However, I don't think that's accurate, as customers usually pay and they are not the ones providing the service. Isn't it the other way around? Both SPOs and delegators are limited in their business by what protocol allows. They have no free will in what they can and cannot do. They can only do what the protocol rules allow them to do. SPO can mint a block if the pool becomes a slot leader. Stakers can decide which pool to delegate ADA coins to. They provide a service and they want a reward for it. Their business is limited to what protocol allows. The protocol can be perceived as an employer paying for the services of its employees. It can also be said that Cardano is a customer who pays for services provided by SPOs and stakers. SPOs and stakers jointly provide a service for Cardano and are paid for it. Are stakers the customers of SPOs? A special relationship exists between SPOs and stakers. Are stakers customers of SPOs? I don't think it can be phrased that way because, as has been said, stakers don't pay SPOs. It's more about supporting the best candidate who applies for a particular job. If successful, both will be rewarded. SPOs are active participants in the operation of the protocol, while stakers are passive ones. Stakers oversee the quality of the SPOs' work, as their own rewards depend on it. The main job of SPOs is block minting, but they can do something extra for the community. Stakers can make decisions based on the fees but they can be influenced by the marketing or activity of SPOs. It can be said that SPOs and stakers need each other. Even if there are only 1000 unsuitable SPOs and stakers dislike them for some reason, they are economically motivated to choose one of them. Cardano needs SPOs. SPOs need stakers. Stakers rely on their good choices because if they make a mistake, they will lose their own rewards. Thus, they are economically motivated to choose the best SPOs. SPOs are therefore economically motivated to mint as many blocks as possible, not cheat, and go the extra mile for the community. Cardano benefits from the whole mechanism because the services that ensure its existence are provided. Each ADA holder oversees the quality of the work of SPOs and demands the best from them. Let's try to look at it from another point of view. The draw for who becomes the slot leader is done by all the Lovelaces that are used for staking in a given epoch. At a given time, a specific Lovelace is drawn and thus assigned the right to mint the block. If a Lovelace is delegated to a pool, this means that the pool mints the block on behalf of the staker. This can be seen as the staker using hardware owned by the SPO. This is similar to a car owner lending his car to a taxi company. The taxi company would use the car for its business. The profits would be split between the car owner and the taxi company. The owner doesn't want or can't run the taxi service, so he lends the car to the company. The company cannot buy its own car and therefore needs to use the borrowed car. Note that the success of the company depends on how many people will be willing to lend the company a car. ADA holders are not the customers of the pools, but the ones who directly decide the size and success of the pools. Stakers are probably something like co-owners or shareholders. SPOs gain trust and if they lose it, ADA holders delegate elsewhere thus weakening the pool. Conclusion The debate around Contingent Staking (CS) is about whether to allow agreements between SPOs and stakers. This is not necessary as the economic incentives are sufficient motivation to provide quality services for Cardano. CS allows SPOs to reject delegation from stakers. From the perspective of economic incentives, this is not a problem as stakers remain motivated to find another pool. This will not reduce the number of coins used for staking and probably not the number of stakers. Let us add that SPOs are economically motivated to accept all delegations. So CS will only be used for special cases and I believe most stakers will never come into contact with this feature. Cardano can't refuse the pool and anyone can become SPOs if they have or get enough ADA. Should SPOs have the right to reject stakers? Rather, yes. In the real world, if you want to invite some associates to your company, you want to choose them and possibly reject them. In some cases, this is unnecessary, in others appropriate or required. Stakers have the right to choose the pool they delegate to. Why shouldn't SPOs have the right to choose stakers?
