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What Is The Profit Of Cardano SPOs

Published 25.4.2024

The Cardano network boasts over 3000 registered pools, with the majority contributing to block production in each epoch. Operating a pool comes with its own set of costs, which can fluctuate based on a variety of factors. This article will delve into the potential earnings in ADA coins and USD for Staking Pool Operators (SPOs).

Calculation Of Profitability

Every operator can determine the operational costs of their pool. They can then adjust the pool’s rewards to ensure profitability. This is achieved using two parameters: fixed cost and margin.

Fixed cost is a fixed amount of ADA that the pool operator can set to cover the costs of running the pool. It's deducted from the total rewards before distribution.

Margin is the proportion of the rewards that the pool operator retains before the remaining rewards are distributed to the delegators.

The fixed cost serves as the minimum reward per epoch for the pool. Despite the reduction of this parameter to a minimum of 170 ADA, most operators retain the original setting of 340 ADA.

The margin parameter can be adjusted anywhere from 0 to 100%.

Other factors affect rewards.

A pledge is an amount of ADA coins that the pool operators commit to their pool. While there's no required minimum pledge amount, a higher pledge can make a pool more attractive as it can lead to higher rewards. The influence of the pledge on the reward is defined by the a0 protocol parameter.

The rewards increase with the stake delegated to the pool, but stop increasing once the pool becomes saturated.

The operator can influence the reward amount with his own ADA coins or the attractiveness of the pool for delegators.

In the table below you can see a few randomly selected pools. You can see the important parameters of the pools that affect the rewards and the rewards that the operators receive per epoch (lasting 5 days). The numbers are indicative only.

An operator who owns a substantial amount of ADA can afford to set a lower margin and still earn more than an operator with a smaller pledge and a higher margin.

An operator with several million ADA coins can secure a relatively high reward, even if the pool isn’t very saturated.

A pool that is about 90% saturated, with a fixed reward of 340 ADA, a margin set at approximately 2%, and a pledge of several hundred of thousands of ADA, can earn a reward of around 900 ADA every epoch.

If a similar pool had a pledge of about 1M ADA, it could earn 1500 ADA per epoch. With a pledge of around 5M, the reward could reach up to 3000 ADA.

An operator with a high pledge can receive a relatively large reward, even if the pool is only slightly saturated (the pool must produce at least one block). For instance, an operator with a pledge of 5M ADA and a margin set to 2%, even with a pool saturation of around 15%, could receive a reward of 2500 ADA per epoch.

A relatively high reward can be achieved with a 0 pledge if a high margin is set. If the margin is set to 10% and the saturation is only 45%, the pool operator could earn a reward of 1500 ADA per epoch.

A pool that is about 40% saturated, with a margin set to 1% and a pledge of about 100K ADA, will receive a reward of about 500 ADA per epoch. This is approximately only half of what a fully saturated pool would receive.

If the pool is 100% saturated, has a margin set to 0%, and has a relatively large pledge of 500K ADA, the reward would be only 550 ADA coins.

For a pool that is fully saturated, or largely saturated, earning a reward of 1000 ADA per epoch should not be a problem, even with a relatively low pledge. Operators with pledges in the millions of ADAs can earn around 3000 to 5000 ADAs per epoch. Operators of less saturated pools may have to settle for a reward of around 500 ADA per epoch.

An epoch lasts 5 days, which means that operators will receive 6 rewards per month.

In a month, a saturated pool operator can earn between 6000 to 18,000 ADA coins, depending on the amount of the pledge. A half-saturated pool with a low pledge can earn roughly 3000 ADA coins per month. A pool with a low saturation but a high pledge of around a few million ADA can earn around 12,000 ADA per month.

You can see the approximate rewards in the following table. The margin is always around 2% and the fixed reward is 340 ADA. The results are indicative only.

The current market value of ADA coins is roughly 0.5 USD. A half-saturated pool with a low pledge can earn an operator around $1000 to $1500 per month.

With increasing saturation and pledge, the reward also increases, up to about 10,000 USD per month.

The business is more profitable with a higher ADA market value. Conversely, during a bear market, smaller pools may struggle to survive.

Conclusion

Operators managing multiple pools tend to see higher profits as they receive rewards for each pool under their operation.

The protocol is designed to pay the highest rewards when there are exactly 500 fully saturated pools. However, with more pools in existence, the rewards are lower.

Pools that have low pledges and low saturation might not succeed in minting a single block in an epoch. This means they would receive no reward. If this scenario repeats multiple times within a month, the profit could be relatively low, pushing the sustainability of the pool to its limits.

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