What are the Stake Pool fees?

What are the Stake Pool fees?

Many times, delegators do not know exactly what the Stake Pool fees are. Some of them scare when they see the 340 ADA fixed fee, because they understand they have to pay this fee to be able to stake (delegate to a Stake Pool). But this is not the case. Let me explain you what the Stake Pool fees are.

A stake pool has two types of fees:

  • Fixed fee, which is an absolute value, usually 340 ADA
  • Variable fee (margin), which is a percent, and it can be between 0% and 100%

Let’s say a Stake Pool has the fixed fee 340 ADA and the margin 2% (just like APEX Stake Pool has now) and let’s calculate the fees.

The fixed fee has a minimum value of 340 ADA per epoch. One epoch has 5 days in Cardano, and each epoch Stake Pools and their delegators are winning rewards for staking and securing the network (if the Stake Pool is minting at least one bloc in that epoch). The rewards depend on the number of minted blocks, and the number of minted block depends on the total stake of the Pool. The more total stake (delegation) a pool has, the more blocks it will mint (luck is also involved, but on the long term the luck will be close to 100%).

Let’s say the total stake pool rewards are 20k ADA for an epoch. From the 20k ADA, the 340 ADA fixed fee are going to the stake pool as rewards. From the remaining 19,660 ADA, 2%, the variable fee (393.2 ADA), are also going to the stake pool as rewards. The rest of 19,266.8 ADA are split between all delegators, proportional with their delegation (stake).

Assuming the Stake Pool has a total delegation of 25M ADA, and a delegator has 10k ADA in his wallet, from the 19,660 ADA rewards for the delegations, his share will be 7.864 ADA (19,660 * 10,000 / 25,000,000).

The Stake Pool fees should pay for the hosting of the servers, for the work of the Stake Pool Operator and for the marketing of the Stake Pool (the efforts to attract new delegators and to keep the current delegators), and also to ensure a profit. Some of the Stake Pools are also donating a part of their incomes for different causes, depending on their mission.

I would like to highlight one more thing: if a stake pool has 0% margin, minting 1 block or minting 100 blocks means the same for its own income (the fixed fee), but it makes a HUGE difference for the delegators. Only one extra block minted by a Stake Pool will usually cover all the stake pool fees (fixed fee plus margin). If a stake pool has a margin higher than 0%, the stake pool will be VERY motivated to mint all possible blocks, because each extra block will also bring rewards for the stake pool, and this will also be very beneficial for the delegators: they will get higher rewards with each extra block. This is why, in my opinion, the delegators choosing only stake pools with 0% variable fee might be wrong many times, considering that their rewards will be higher. A Stake Pool that is not working optimally, or a Stake Pool that has a Stake Pool Operator with let’s say less experience, even if it has the minimum fees, it might bring less rewards than a Stake Pool run by an experienced Stake Pool Operator.