Insight into Cardano pools

On average, about 4,000 people delegate 17K ADA to the regular Cardano pool. The average pledge, i.e. ADA coins owned by a pool operator, is roughly 400K. The numbers are only approximate as they come from a small sample of data. Come take a closer look at the pools in the Cardano ecosystem.

How to explore pools and what data to look at

In the Cardano ecosystem, you can find many useful tools for analyzing on-chain data related to the pools. In this article, we will use data from Cexplorer.

In CExplorer you will find a list of all registered pools and basic data. The most important information includes stake (size), saturation, pledge (possibly pledge leverage), and fees. These pool parameters determine the number of blocks the pool can mint in each epoch, which directly affects the staking rewards of both the pool operator and stakers.

A pool with a low stake, say 1.4M ADA (saturation is roughly 2%), has a chance to make at least one block per epoch (5 days). When the stake of the pool is less than 1M ADA, there is very little chance that the pool will produce at least one block in the epoch. If the pool makes no blocks, it is not eligible for a reward in a given epoch. Pools with a stake of about 8M ADA (saturation is roughly 11%) can mint about 7 blocks per epoch, which is a relatively safe limit.

Saturated pools with a stake around 72M ADA can mint something like 68 blocks per epoch. Beware of pools that are oversaturated (saturation is above 100%), as such pools have lower rewards.

Notice the Blocks column, where you can find the number of blocks the pool has already minted in a given epoch and an estimate of the number of blocks the pool has a chance to mint in the epoch.

In the Fees column, you will find the fixed fee (usually 340 ADA which is the default minimum setting) and the margin which is expressed in %. The reward for the pool operator is made up of two parts and consists of a fixed fee and a margin. The fixed fee is first deducted from the total pool reward, followed by the margin. The remainder is proportionally distributed to the stakers. So the margin expresses the reward for the pool operator.

Let's take an example. If the pool is rewarded with 36000 ADA coins, 340 ADA is deducted first. That leaves 35660 ADA. The margin can be set by the operator at 2%. In this case, ~713 ADA is deducted. The operator gets a reward of 1053 ADA (340 + 713 ADA), leaving 34,947 for all stakers.

Pool operators cannot reduce the fixed fee (but they can increase it). They usually define their rewards through margin. Some may set the margin to 0 and be fine with just the fixed fee. Other operators set the margin between 1 and 10%. Of course, it is possible to set the margin to 100%. In this case, the stakers get nothing and the pool operator gets the entire reward.

The margin set to 100% can be found in private pools. This can be a pool that is run by a whale that delegates ADA coins to itself, or a pool run by exchanges. High margins can be used, for example, for various forms of ISPO. We'll talk more about this later.

Pledges are the ADA coins of a pool operator and represent their skin in the game. The higher the pledge, the better. It is healthy for the Cardano ecosystem that pool operators have their own wealth associated with running a pool. This shows their commitment to behaving in the best interest of the protocol and stakers. It is necessary to do business in a quality way. Moreover, it is a kind of prevention against attacks, as they risk losing their own wealth if they do not behave as expected.

Pools with low pledges pose a risk to the network, as poor pool operation or even attacks only threaten ADA coins belonging to stakers, not coins belonging to the pool operator. Delegate only to pools that have sufficient pledges in your opinion.

A common phenomenon is that MPOs have a larger pledge for the first (main) pool and a smaller one for the other pools. However, there are also those who have the same pledge for all pools.

If you click on a pool in Cexplorer, you will get very detailed information including history.

You can see that the pool with ticker CRDNS is 100% saturated. No point in delegating more ADA coins to it. The live stake is 71.97M ADA coins, the pledge is 200K ADA and the number of stakers is 9454. You can also find the date the pool was created and the number of blocks that have been minted by this pool in its entire existence.

Below you will find tabs with more detailed information about Performance, Blocks, Rewards, Delegators, etc. For example, you can look at the list of stakers. You can see that most often stakers have delegated 100 to 1000 ADA to the pool, or that one staker has delegated 9.6M ADA to the pool.

Cexplorer helps you clearly distinguish between single-pool (SPO) and multi-pool (MPO) operators. In the case of MPO, it is easy to find all pools of an operator.

There is a relatively large number of pools that have a low stake (tens to hundreds of thousands of ADA), a low pledge (hundreds to thousands of ADA), and a margin set to 0. The operators of these pools probably rely on someone delegating coins to them. This will probably happen just by mistake. These pools don't mine blocks, so they don't get rewarded. It doesn't make sense to delegate a small amount of ADA to these pools.

Almost 19K stakers delegate 83.3M ADA to pools that are retired. For example, nearly 2000 stakers delegate a total of 28.6M ADA to the SOBIT pool. Retired pools no longer have a chance to mint a block and do not receive rewards.

Insight into the pools

Let's look at some statistics now. The data in the table below comes from a small sample of data, so it is only illustrative. We randomly selected the pools listed in the table, choosing mostly medium and higher saturated pools. We put the pools BNP, TREZOR, ETO6, and RATS in the table on purpose.

On average, about 4,000 people delegate 17K ADA to the regular pool. The average pledge, i.e. ADA coins owned by a pool operator, is roughly 400K. We do not consider pools operated by whales and exchanges to be regular pools, so we deliberately did not include them in the calculation. Our idea was to select regular pools operated by SPOs and MPOs to which stakers routinely delegate.

It would be ideal to process all on-chain data and have more accurate statistics. Unfortunately, no such tool exists yet. Having said that, we can continue.

There are a large number of SPOs and MPOs who run pools that are almost saturated, while the margin and the number of stakers are not significantly different. There are SPOs who have a margin set at around 3-4%. SPOs with a lower margin have a better chance of achieving higher saturation, which is also true for MPOs.

Pool RATS, which is run by Charles Hoskinson and could serve as a model, has a margin set at 10% and a pledge of 1M ADA. RATS is only 7% saturated.

The lowest average delegation for regular pools is 3K ADA coins, which is due to the high number of stakers, namely almost 16K. On the other hand, the highest average delegation is 30.5K ADA coins for a pool with approximately 2250 stakers. It is common for saturated pools to have 2K or more stakers (rather more). However, it is possible that pools saturated less than 60% have over 4K stakers.

It can be said that for regular pools, high saturation correlates with higher pledge size, which is positive. On the other hand, an above-average pledge is no guarantee of saturation.

Now let's look at the pools we don't consider regular, i.e. pools operated by exchanges, whales, and other commercial entities.

BNP pools are operated by the Binance exchange. TREZOR pools are operated by HW wallet manufacturer Trezor. The ETO6 pool is operated by the eToro exchange. All of these pools are characterized by low pledges. For BNP it is 2 ADA, for TREZOR and ETO6 even 0 ADA.

Commercial entities are not interested in having their own skin in the game, because by running pools they only risk ADA coins of users. At the same time, they have some advantages that they abuse. Exchanges serve those users who do not want to have coins in their own wallets. The company Trezor has its own pools as a default setting in the user interface of Cardano wallets. Note that Trezor has a margin of 10%.

What Trezor does can also be observed in other entities in the ecosystem.

Only 2 stakers delegate mostly to Binance pools and the total stake is usually 32.1M ADA coins. The margin is set at 6%. People from Binance may think that someone from outside could delegate coins to their pools. The eToro exchange has only a single staker and the margin is set at 100%. Note how exchanges optimize costs. Users' ADA coins are held at fewer addresses and delegated from those to their own pools. Exchanges will save fees for sending staking certificates.

Conclusion

We can recommend everyone explore the pools through available explorers. Make sure you are delegating to a pool that regularly mints blocks. Staking is said to be a passive income, but it is not completely free. Stakers must be careful that they delegate to a pool that is saturated and regularly mint blocks. If the pool misses blocks too often, this would be a reason for delegation elsewhere. It is good to choose pools of those operators who do something for the community. However, the choice is purely up to ADA holders.

Running a pool is time- and financially demanding, and the operators definitely deserve the rewards they receive. If the pool operator does something extra for the community, it should be financially compensated. Rewards for operators can be seen as an investment in the infrastructure or ecosystem, and it is advantageous for stakers from a long-term perspective. Cardano will only succeed if it is reliable. Block production is not provided by IOG or the Cardano Foundation but by hundreds of independent operators from around the world.