At first, Cardano might appear to have a complicated staking system, but in reality it's quite simple. In this article we will begin by outlining Cardano’s staking architecture before moving on to the key factors about validator pools that will affect your Return-on-Assets (ROA). By the end of this article, you will be able to confidently select a validator pool that is the right fit for you.
To get a better understanding of the whole staking architecture, let's first start with how rewards are generated. Within each epoch, fees from network operations and new emissions are collected into a fund. Part of these collected assets goes to the Cardano treasury, while the rest is distributed to validators and delegators as a reward for their commitment to securing the network through staking.
The validator's role is to secure the network. They are responsible for confirming the validity of new blocks of transactions which are then added to the network's ledger. Every time a new block is added to the ledger, validators are rewarded with staking rewards.
Cardano token holders can earn staking rewards by delegating their ADA assets to one of the many available validator pools. By delegating your ADA to a validator pool, you are providing this validator with your tokens rights to participate in the validation of blocks. Validators will redistribute their earnings to their delegators pro rata to their stake.
A validator's probability to be allocated a block to produce, depends on a number of factors. Pool saturation, which refers to how much stake a particular pool has, is the most important factor when it comes to allocation of new blocks. The higher the pool saturation, the higher is the amount staked in the pool. The greater a pool's stake is, the more blocks will be allocated to them. If the pool does not have enough stake to be allocated a new block, it can take as long as 5 or 50 epochs before they will produce a block.
So what factors are important to take into consideration when selecting the right validator pool? Below we explain the several key factors to take into account.
The Cardano staking architecture was created in a way that pool saturation does not have a significant effect on ROA in the long run.
Pools with larger stakes will have more blocks allocated to them and therefore will generate more rewards, but they will also have to distribute it amongst more delegated stake. Smaller pools will produce blocks less often, but will generate a high return to their delegators when they do.
One has to consider their strategy when deciding which pool to select: Whether they would rather choose a pool with high saturation that will produce more blocks and distribute rewards more evenly and frequently, or choose a less saturated pool that will produce fewer blocks but distribute greater rewards when it does.
However, in order to promote decentralisation, the Cardano protocol has a cap on the amount of rewards a validator's pool can receive. Therefore, if a pool is oversaturated, the rewards received for producing blocks will have to distribute between all the ADA that was delegated to that pool. This leads to lower rewards per each ADA delegation. The current oversaturation limit is 64 million ADA.
Validators may charge a fee (margin) for maintaining its pools, keeping a percentage of all rewards received. The usual margin for public pools is between 1 and 3%, which has a very low impact on rewards. For example, even if you stake 1 million ADA on nodes with 0% and 1% commission (let’s take average nodes with 50% saturation), the difference in rewards between them will be about 5-10 ADA per epoch.
Do note that validators can set the fee up to 100%, so it is important to check that the commission is not set too high.
A pledge is an amount of assets self-bonded by the validator intended to remain staked to its pool for as long as it operates. It can affect ROA, but only very slightly. Below we will take a look at an example.
As an illustration, let's look at the change in the possible ROA depending on the pool parameters:
Let's imagine we have three pools, each with a saturation of 30 million ADA. Each of them has the following pledge values:
Pool 1 - 10,000 ADA,
Pool 2 - 100,000 ADA
Pool 3 - 1,000,000 ADA
If you were to stake 10 million ADA, you would get the following ROA on each pool:
Pool 1 - 3.958%
Pool 2 - 3.960%
Pool 3 - 3.982%
As we can see, although there is a difference, it is not significant.
Luck reflects the protocol randomness in the allocation of blocks. When a pool gets allocated more blocks to generate than expected, the luck metric is greater than 100%. If a pool gets allocated less blocks than it would be expected then that number is less than 100%.
Pools experience this metric every epoch regardless of their size and it is completely random, so smaller pools will see swings between 0% and 100% during long streaks, whereas larger pools will see higher returns in the same period. Over a long enough period of time, the expected APY on rewards will average towards the network expected value.
It's important to keep in mind that block allocation is calculated on the basis of statistics. If a pool has gotten more than it's expected share of blocks in the past, future block allocations will be lower and vice-versa.
Since Pool Saturation, Pledge and Luck do not have a significant impact on ROA in the long run on pools with similar fees, the main consideration a delegator needs to have when selecting a validator pool is the validator’s reliability. In case of failures, errors, etc., no blocks will be created and consequently no participant will receive any reward. So when choosing a pool, this decision should be made responsibly to be sure that the infrastructure is maintained without failures. You can analyse validators' historical performances on explorers.
Let's take an example with one of P2P’s pools. Using the following link to the explorer, you can verify the performance and configurations of P2P. You can see that the saturation is less than half, it has a margin of 0%, a pledge of 1M ADA and it has a ROA of around 4-5%.
Delegating to a public node is not the only way to stake. Many experienced validators, including P2P, provide the option to maintain a whitelabel node for large token holders. Essentially, a team would be responsible for maintaining the node, but it would be managed and owned by the token holder. In other words, a DevOps team would solve all the technical issues, whereas the owner would control the margin, marketing, etc.
The Cardano staking architecture was designed in a way to provide all well performing staking pools with similar profitability opportunities, regardless of the size of their stake. Therefore, when selecting a public node, the most important consideration is the fee, the stability and reliability of the validator. Validators with low up time, or in cases where technical failures occur, may miss blocks and as a result delegators will lose out on potential rewards.
P2P Validator is a world-leading staking provider with the best industry security practices and proven expertise. We provide comprehensive due-diligence of digital assets and offer only high class staking opportunities. At the time of the latest update, more than 1.5 billion USD value is staked with P2P Validator by over 25,000 delegators across 40+ networks.
If you have any questions, feel free to join our Telegram chat, we are always open for communication.
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<p></p><h3 id="summary">Summary </h3><p>On September 4 at 15:15 UTC one of our collators stopped syncing and due to an error in the monitoring rules the incident went unnoticed. As a result of this the collator did not produce blocks for a period of 27 hours.</p><h3 id="what-happened">What Happened?</h3><p>An error was made in one of the many rules of our monitoring system. When writing this rule, we mistakenly used the wrong metric to determine the status of the collator in the candidate list. As a result, when the collator stopped synchronizing, the engineering team did not receive any notifications about the incident.</p><h3 id="customer-impact">Customer Impact</h3><p>Delegators who nominated and had their staked allocated to this collator did not receive rewards for a period of 4 rounds.</p><h3 id="what-went-wrong">What went wrong?</h3><p>Unfortunately, we received information about the incident from an external source, which is unacceptable.</p><h3 id="what-went-well">What went well?</h3><p>After receiving information about the incident, the failed collator was promptly restored as soon as possible and began to produce blocks.</p><h3 id="lessons-learnt-and-action-plan">Lessons learnt and action plan</h3><p>We are going to implement strict checks and audits of all our monitoring rules. We are also in the process of automating testing of monitoring rules as much as possible before applying them to the production environment.</p><p><br>P2P takes full responsibility for the event that led to the weak performance and we are sorry for the inconvenience. Please be assured that we are taking actions to eliminate even a small probability of such an event occurring in the future.</p><hr><p><strong><strong><strong>About P2P Validator</strong></strong></strong></p><p><a href="https://p2p.org/">P2P Validator</a> is a world-leading staking provider with the best industry security practices and proven expertise. We provide comprehensive due-diligence of digital assets and offer only high class staking opportunities. At the time of the latest update, more than 1.5 billion USD value is staked with P2P Validator by over 25,000 delegators across 40+ networks.</p><p><em><em>If you have any questions, feel free to join our<a href="https://t.me/P2Pstaking"> Telegram chat</a>, we are always open for communication.</em></em></p><p><br></p><p> </p>
<h1></h1><p>P2P Validator has been supporting the Polkadot network from day one, <strong>providing high-quality validation services</strong> for DOT nominators. Our <strong>developed products allow nominators</strong> to easily manage investments and receive a detailed report on their staking income.</p><p><strong>We invest in the development of the Polkadot network</strong> and see long-term prospects, however, the costs of maintaining the infrastructure and product development are higher than the revenues that the validator currently receives. We have decided to <strong>set a commission of 1% starting from 5 September 2022</strong> to remain flexible and provide more sustainable services.</p><h2 id="what-have-we-done"><strong>What have we done?</strong></h2><p>We <strong>did not stop the development activity</strong> in the Polkadot network and put in more than eight months of hard work for a reduced fee. Here is a list of the <strong>most significant achievements</strong> that we have released for the Polkadot ecosystem:</p><ol><li><a href="https://p2p.org/snapshot/polkadot">Snapshot service </a>for everyone who is running their own validators.</li><li><a href="https://github.com/p2p-org/substrate_node">Substrate node</a>. Compact set of terraform and ansible roles for deploying substrate-based node</li><li>Received and released a grant from WEB3 Foundation for a Multi Blockchain ETL solution for blockchains with an API for the collected data. We proceed to support the infrastructure for the MBELT, spending thousands of dollars every month.</li><li>Five articles and users guides posted.</li><li><a href="https://reports.p2p.org/superset/dashboard/polkadot_sample_report/?native_filters_key=UDDVi9IA6qtvjLQ1Kdg1lZ0LK4ZYcpf5oOs_UlOMnt7mBS7cc76QJ-Vw_5uBnPYT">P2P Dashboard</a> for Polkadot users:</li></ol><ul><li>Track and analyse nominator rewards</li><li>Different strategies performance overview</li><li>CSV reward report</li></ul><p>Product development inside the ecosystem is an essential element not only to support the Polkadot network but also as a part of the <strong>long-term growth of the community and the network value.</strong></p><h2 id="when-will-the-commission-be-increased"><strong>When will the commission be increased?</strong></h2><p>We will increase the commission to 1% starting September 5, 2022. There is a lot of work ahead, and we believe that <strong>joint efforts will accelerate the evolution of the Polkadot network.</strong></p><p>We want to <strong>thank all our nominators</strong> for their continuous support and for being with us!</p><p><strong>Special offer for <strong>20</strong>,<strong>000+</strong> DOT holders</strong></p><p>If you stake 20,000+ DOT, you can benefit from staking with P2P rebalancing service. Our optimized staking strategy provides up to 20% higher rewards than the network average. Our clients currently benefit from a 15% APR vs 13.8% net</p><p><strong>P2P plans of further developments</strong></p><p>While staying a reliable and affordable validator, P2P team plans to design and release block finalization community exporter to share our findings in tracking validator performance. We are committed to success of the Polkadot Network in the long term and hope that you can embark on this journey with us.</p><p>If you would like to know more about our offer for Polkadot please visit: <a href="https://p2p.org/networks/polkadot">https://p2p.org/networks/polkadot</a><br><br>If you have any questions, feel free to join our<a href="https://t.me/P2Pstaking"> Telegram chat</a>, we are always open for communication.</p><hr><h2 id="about-p2p-validator"><strong>About P2P Validator</strong></h2><p><a href="https://p2p.org/">P2P Validator</a> is a world-leading staking provider with the best industry security practices and proven expertise. We provide comprehensive due-diligence of digital assets and offer only high class staking opportunities. At the time of the latest update, more than 1.5 billion USD value is staked with P2P Validator by over 25,000 delegators across 40+ networks.</p>