Cardano ada: stake pool selection and ada delegation

in LeoFinance2 months ago

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As Cardano Shelley started, delegation and staking also began.
Ada holders can benefit from either delegating ada or staking into their own staking pool.

But for novice holders, finding the best or not bad delegation pool can still be challenging.

Variables such as staking pool rates, skating rewards, and pool saturation are interrelated. And delegating to a pool of limits and delegating to multiple pools at the same time has advantages and disadvantages.

Slot leader's selection: a lottery-like selection method where a pool with many adas has a higher probability

In the Proof of Work (PoW) blockchain, miners use hash power to verify blocks. Therefore, there is a high probability that miners with higher hash power will be selected as block validators with a high probability.
Cardano's Proof of Stake (PoS) method is similar to the slot leader selection method.
Each ada can be thought of as a single ticket, and anyone participating in staking has the potential to become a slot leader. In other words, there is a possibility of receiving a block reward paid to ada.
A staking pool with many delegated adas is chosen as the slot leader and has a higher chance of generating the next block. Therefore, the probability of receiving more block rewards naturally increases.
However, not only pools with a large quantity of these delegated adas receive high rewards.

Variables other than delegated ada quantity

There are various trade-offs throughout the staking process.
Each stake pool will decide its own cost. And deciding which pool to delegate between a small pool with a low cost and a large pool with a high cost can sometimes be tricky.
Large stake pools that are delegated too much can lead to pool saturation. This saturation state is defined by the “K” value. The notion of pool saturation prevents some pools from exerting dominant influence over the entire protocol, reducing the rewards of ada delegates if the amount of ada delegated to that pool is excessive.
Pool saturation helps delegators find and delegate to a variety of other pools, preventing delegation from being concentrated in popular pools.
Pool diversity doesn't just mean looking for high rewards. It also means ensuring that the entire ecosystem is decentralized to a sufficient level.

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Pool favorability

There are many pools that can be delegated, and the pools are ranked through an evaluation of how much reward they can produce.
Favorability is determined by reliability, cost of the pool, profits the pool takes, saturation, and amount of collateral.

• Reliability-The stake pool is maintained at all times every day, and new blocks must be verified when selected as the slot leader. Pools that maintain uptime at all times have a high level of reliability.

• Pool cost-It costs less than the proof-of-work method, but the manager of the Skake Pool cannot avoid the cost of running the pool. These costs are charged in ada for each epoch.

• Pool Profit: In addition to the cost of managing the pool, the pool charges their profit. It can be viewed as a kind of expense in managing and maintaining the pool.

• The amount of collateral-The amount of collateral is the amount of ada held by the pool manager. There is no obligation for a minimum amount of collateral, but a pool with a larger amount of collateral will have a higher reward. In conclusion, you should also check the amount of collateral when choosing a pool to delegate.

Source: medium.com, Cardano forum, Cardano foundation

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