Increasing the pool margin

Increasing the pool margin

Since the pool started its activity in February 2021, the fixed fee was 340 ADA (minimum possible) and the margin (variable fee) was 0%. The plan was too keep the margin 0% until the pool is minting blocks each epoch, and then increase it to 2%, and donate a part of the rewards to a non-profit organization that is doing amazing things (name and link on the front page of the this website).

This month, APEX Pool received the IOG delegation of about 3.4M ADA, which will help minting blocks each epoch (about 3 blocks on average with a luck of 100% – first epoch the luck was 64% and only 2 slots were allocated and 2 blocks were minted). The intention was to keep the margin at 0%, because it did not make any sense to increase it (the extra rewards for the pool would have been minimal) and to use all the rewards to increase the pledge.

One epoch after the IOG Delegation, the Cardano Foundation (CF) Delegation was also received by APEX Pool. This came as a big surprise, because Cardano Foundation had some strict requirements for the delegation that APEX Pool did not met. But the Cardano Foundation changed the requirements without making it public until after they delegated to the selected stake pools. Probably for the same reason as IOG, the CF choose to delegate one of its wallets to APEX Pool: because of its contributions to the Cardano community – helping other people on the official Telegram and Discord groups, and sometimes also on Reddit. APEX Pool also has an open source command line tool in its Github repository, facilitating complex transactions that no wallet can do for the moment, but this is probably something too insignificant to have mattered.

After receiving also the CF Delegation, setting a moderate pool margin of 1% or 2% could bring some extra consistent rewards for the pool, without visibly affecting the delegator’s rewards. I even did a simulation for Epoch 298, which is not a very good one with the current delegation (83.73% luck, 14 blocks, 100% would be 16.72 blocks in average). A delegator with 10k ADA would get 5.27 ADA rewards for Epoch 298 with a pool margin of 0%, 5.22 ADA for 1% pool margin, and so on, until 5.01 ADA rewards for 5% pool margin.

One extra minted block would have meant actually bigger rewards with 5% pool margin than with 0% margin fee and 14 blocks minted (which is what happened). This shows how important it is for delegators that their SPO is taking his job seriously and he makes everything in his power to enable the pool to mint all possible blocks. And if the pool margin is greater than 0, this will be an extra motivation for the SPO to do this, because each extra block minted will bring the pool extra rewards. With 0% margin, the difference between 1 block and 20 blocks (for example) per epoch means 0 extra rewards for the pool.

Getting extra rewards for the stake pool from the margin does not necessarily mean the SPO is greedy (although sometimes this is the case – some of the pools increased the margin to 100% in the past while they had the IOG or CF Delegation). He could use the extra rewards to increase the pool’s pledge and to donate to a cause he believes in. After talking to other SPOs and people from the Cardano community about the pool margin and the IOG and CF delegations, I was surprised to see how many people have encouraged me to change the pool fee to 2% (or even more) and to donate a part of the fees. I was oscillating between keeping the margin 0% or set it to 1% and donate 25% of the variable fee rewards. But all these discussions convinced me that setting the margin to 2% and donating half of the rewards obtained from the margin is the better option. So I decided to increase the pool margin to 2% and use all the ADA rewards to increase the pledge, and to donate the equivalent in Euro of 50% of the margin rewards to the non-profit organization mentioned before. This will happen today, before then end of epoch 298.

What will happen after IOG and CF delegations will move to other stake pools? I do not know for sure yet, but I believe the margin will remain 2%. It is not sustainable on long term to run a stake pool with 0% margin, especially when you dedicate a lot of your own time for this. In a normal day, I am spending between 16 and 18 hours in front of the computer, I have a full time job and the stake pool to run. The most difficult part is promoting the stake pool and finding delegators. I would like to quit my job and dedicate all my time to the stake pool and other projects related to Cardano, but for the moment this is not possible. But I hope this will be possible one day!