A Six-Step Guide for How to Choose a Cardano Stake Pool Like a Pilot
In the daily operation of a passenger aircraft there are a multitude of decisions that have to be made. Some of them are easy judgment calls, others are largely predefined by regulations and extensive training procedures. But occasionally, when it comes to critical abnormal situations due to technical malfunctions, irregular and unexpected weather phenomena, or other conditions impacting the safety of a flight, pilots rely on a formal method of decision-making called FORDEC.
In the following text we would like to show you how that method works by applying it to the task of “How to choose a Cardano stake pool?”
The six letters of the acronym FORDEC stand for:
The very first step would be to determine if the situation is time-critical and needs immediate action. In the case of staking we can answer that in the negative. Epochs in the Cardano ecosystem are five days long, so you have plenty of time to make an in-depth assessment.
There are 900+ pools to choose from. By checking a site like pooltool.io or adapools.org, you can find each pool’s defining parameters. These will show you how much of your staking rewards will go to the operator for running the stake pool and what you can expect for yourself. These parameters are:
The Epoch Fee is a constant value that will go to the operator at the end of every epoch and is subtracted from the total rewards the pool made during that period. The minimum value is defined by the protocol at 340ADA. No operator can choose less because it would not be possible to register the pool on the blockchain. Most operators choose the minimum value in order to be attractive to delegates, but a few do go with a higher amount.
The Variable Fee is much more diverse. It is the percentage cut an operator gets from the pool’s rewards, which are paid out after every epoch. For example, a Variable Fee of 2% would mean that 98% of the rewards would be forwarded to you, the delegates, whereas a 5% Variable Fee would mean a payout of only 95%.
The Pledge tells you how invested the pool operators are themselves. It can give you a feel for how much incentive the operator has for their pool to run well, and furthermore, for the entire network to succeed. An operator with a very small pledge does not have as much to lose if they run low-quality equipment that risks failing and destabilizing the network. Additionally, a combination of a stake pool operator with a low personal investment, but a large control of the stake through one or more pools, could pose a danger to the Cardano ecosystem. If a participant with malicious intent were to gain control of over 51% of the entire stake it would put the network at risk of a sybil attack. Therefore, as a delegator, you would want to make sure that your chosen pool has a decent amount of “skin in the game” themselves.
The Performance of a pool is a significant factor, but hard to determine in this initial phase. As of now, the ranking feature in the official wallets is not yet functional and assigns the different pools only random values. It is crucial, however, to understand that the theoretically possible rewards will only materialize if the pool you have chosen performs 100% of the time. That is why an initial assessment of that factor is quite important.
Now is the point when you will have to do a little bit of investigation. Check out the website of the operator and see what kind of setup is used. Be aware that equipment run out of private homes will most likely not have the same power backup systems as machines run out of larger data centers. Additionally, a reliable and consistently available internet connection is of utmost importance. Availability and low-latency far outweigh a high-speed connection that has random outages. If you cannot find this information on your operator’s homepage or social channels, go ahead and ask directly. You should avoid putting your money into a pool that promises very low fees but doesn’t deliver because of under-performing equipment. A transparent operation, whether though published information or strong communication, is another good indication to go by.
Risks and Benefits
Now you will have to weigh each of these options accordingly.
Option 1: This choice is decent, however, you may not get the best rewards because well-known pools often have higher fees that they can justify with their popularity. They are also most likely to hit the saturation level first, at which point, your rewards will decrease even further and you will either have to move to another pool, or hope that enough other delegators will move in order to bring the pool back down below saturation.
Option 2: A pool with very low fees might not earn enough money to keep proper equipment and maintenance running and will be forced to cut costs wherever they can. This could lead to substandard performance which might ultimately lead to fewer or no rewards at all. Should you be very lucky, however, this choice would return the highest rewards.
Option 3: As with the popular pool option, a pool with an already-high amount of staked ADA runs the risk of reaching saturation more quickly than pools with less stake, and you might have to make another decision as soon as that happens. On the plus side, pools with a high amount of ADA delegated to them will make blocks more consistently if they run at optimum performance level.
Option 4: Requires the biggest initial effort on your behalf by investigating, comparing, and even communicating directly with stake pool operators about any questions or uncertainties you might have. The benefits of this approach are that you will have a clear understanding of where you are putting your money to work and will have more confidence with the operation, setting your mind at ease. By establishing a connection with the operator through their social channels, you will be able to stay informed on a personal level.
Option 5: If you choose not to stake your ADA, the downside would be a lost opportunity for extra rewards, but a benefit might be that you would not be bound to a wallet and could more easily use them for day trading. But remember, if you do stake your ADA, it stays in your wallet at all times and is only linked to a stake pool. You can access them whenever you need or want. Staking with a pool simply allows for the opportunity to grow your current amount of ADA.
Option 6: Staking with multiple pools requires more initial research and extra effort since you will have to split up your funds into different wallets. If you have very high funds, however, this approach would diversify your “risk.”
Now you are in the pilot’s seat and have to make the decision depending on your personal risk assessment of all the facts, your options, and their respective risks and benefits.
After selecting your stake pool(s), execute your decision by using your Daedalus or Yoroi wallet to stake your ADA.
This last point is often overlooked but is nonetheless very important for your overall success. After you have made and executed your decision you should regularly check whether some of the conditions have changed and would justify a different choice. For instance, have the fees changed? What’s the level of saturation? Is the pool performing as promised? Etc. Should any of those factors change, modify accordingly. If you are content with how everything is working, and have re-confirmed that your initial facts have stayed the same, then your decision stands.
We hope that you find this guide helpful, and that you will consider ATLAS among your FORDEC options.
Happy staking, everyone!