Our stance on the cip-0094 Poll

In May 2023, the Cardano Foundation launched an on-chain poll for stake pool operators to gauge opinions around the decentralization factor, k, as well as the minimum fixed pool fee in preparation for entering the Voltaire era. (see cardano-foundation/CIP-0094-polls (github.com))

Here are the options provided in the poll:

• Keep k at 500 and minPoolCost at 340 ada
• Keep k at 500 and halve minPoolCost to 170 ada
• Increase k to 1000 and keep minPoolCost at 340 ada
• Increase k to 1000 and halve minPoolCost to 170 ada
• I would prefer to abstain
• None of the provided options

The AzureADA pool family voted “None of the provided options”.

TLDR

The short explanation for why we made that choice is that we don’t feel that any single option listed above provides a complete solution for improving the Cardano blockchain protocol parameters. There are options such as minimum percentage fee or a scaled fixed fee or percentage that increases with stake that were not present as options, and having paired K and minPoolCost options did not allow for gauging interest in each parameter separately. Pledge weight is also not represented. Hence, none of the provided options is a complete picture of the tuning required, so that’s how we voted.

Here is an FAQ on where we stand around Cardano protocol factors:

Does AzureADA support raising the k factor to 1000?

Yes, although we don’t think that a change to k alone will be that much of a boost for decentralization. Most, if not all multipools will add pools to try to keep as much of the delegated stake. Systems tend toward the most financially rewarding scenario. If it is more profitable to split stake and spool up additional pools, that is where “the market” is going to go. And, to look at it from another point of view, many delegators chose their stake pool for specific reasons. The LIKE them and TRUST them and many don’t want to be “forced out” to choose another pool. There is brand loyalty and when the k parameter changed to 500 that it is now, we had delegators requesting for us to open pools so they could stay with us.

Does AzureADA support reducing the fixed 340 ADA fee?

Yes. Without a doubt, the 340 minimum fee places a hardship on small pools. We’ve experienced this firsthand, ourselves, and had to make it over the hurdle of 5-10 million ADA staked before the delegator’s rewards stop getting noticeably penalized. We completely agree that a delegator who is 100% focused on financial performance will NEVER choose a small pool, due to that fixed fee penalty. We don’t know what the “magic number” for the minimum is (see below for more on that) but would support a well-designed set of parameters that eliminated the “small pool penalty”.

Does AzureADA support having both a 0 minimum fee and 0% variable fee option?

NO. We don’t see that as a good thing. We value having a healthy Cardano ecosystem. That includes having sufficient decentralization as well as the blockchain being run on good computer servers by skilled operators. We see these issues with 0/0% configuration:

1. Sub-par computing: there will be stakepool operators who, having no income with 0/0% fees, will choose the absolute minimum, or below minimum spec servers to run Cardano on (this already happens now). The Cardano blockchain is the sum of all of the servers running the “cardano-node” software. We don’t like the thought of a sizeable footprint of the ecosystem being run on “junk”. Yes, market pressure should eventually cause pools that routinely miss blocks due to being run on poor infrastructure to lose delegation and eventually they would go out of business, but that will take months or years, and in the meantime, how much of the backbone of the blockchain be “hanging by a thread”? We’ve spent enough time in the “Best Practices” Telegram channel to see that many have already tried to cut costs by using sub-standard equipment and services.
2. Sometimes you get what you pay for, and successful stakepool operators are incredibly skilled, as a whole. While there are stakepool operators from many walks of life (we know of farmers, high school students, doctors, accountants and others), many, if not most of them have a background in development and network operations. These are highly skilled professions, and contribute to the success of the blockchain. They identify bugs and make the cardano-node product better. They have resisted rolling out a Cardano version when it was premature. They develop and host many ecosystem tools and websites. They give IOG ideas. In short, the Cardano ecosystem ABSOLUTELY is better because of these skilled operators. Cardano rewards were designed to incentivize stake pool operators to put in the necessary time, effort, and money into their operations. We don’t feel that a “race to the bottom” is a good thing. We have spent LITERALLY hundreds, if not thousands of hours on our stake pool components and community tools and know that other reputable pool operators have too. We feel that the Cardano ecosystem should provide rewards for the work performed. We would not expect a lawyer, construction worker, school teacher, engineer, or any other profession to be able to sustain working for free.

Does AzureADA support a minimum variable fee?

Yes. Allowing a 0 ADA fixed fee but enforcing a minimum variable fee would let small pools not be penalized unfairly (because the delegators would not have reduced rewards) and simultaneously prevent a race to the bottom. As a premiere stake pool (not a discount), we’d vote for that minimum variable fee to be at least 2%. Again, we use premium infrastructure and don’t cut corners, and rely on the rewards for paying for these expenses.

Does AzureADA support having pledge matter more?

Absolutely. AzureADA pools are all high-pledge pools, with 1M ADA being the minimum. We wish the protocol had a better reward incentive for consolidating pledge for higher earnings. Although on paper, the current protocol parameters reward higher pledge, it’s not really noticeable until very high levels and it does not have the desired effect. Our observation of humanity is that they will gravitate to what is the most financially rewarding, so if it were more profitable to consolidate pledge and run one pool, that’s what the bulk of stake pool operators will do.

To what factors does AzureADA contribute our success

1. Delegators. Ultimately, without people delegating to our pools, we would not have our level of success. Period. We thank those 10,000+ people who have chosen one of our pools to delegate to and the almost 500 Telegram channel members and 1,800 Twitter followers that support us.
2. Early marketing. We did not consider technical skills enough to run a successful stake pool. There are many stake pool operators who have NOT put efforts into marketing, expecting technical skill alone to suffice.
   1. Thousands of US dollars were invested in marketing. Not just advertising, but content creation, developing ecosystem tools like (whenada.com and the epoch calendar), attending Cardano Summit and Rare Bloom conferences, and other activities.
   2. Hundreds, if not thousands of hours of time were spent on these activities
   3. We enlisted multiple subject matter experts from around the globe
   4. We experimented with many ideas. Some stuck. Some didn’t.
3. Early involvement in Cardano. Our team has followed Cardano since 2017 and we were involved in the Incentivized testnet beginning in 2019. We were able to turn that early experience into success. Incidentally, we struggled to attract enough stake for regular blocks in testnet and raised our game on mainnet.
4. High pledge. We take Cardano seriously and have the personal ADA investments to back that up. We have more pledge than a number of stake pools larger than us. We take pride in that and are in for the long game.
5. AzureADA community
   • We “grew up” in Cardano with many of the other “OGs”. We all became a family and helped lift one another up. We received help and offered help.
   • Several of our AzureADA delegators contributed materially to our success, even developing much of our website and providing content. We used marketing funds to pay them for their contributions.
6. Multiple team members. We have 5 people involved, each of whom has contributed time, effort, and money into the success of AzureADA (see below for more info). Combining our talents has given us an advantage over pools with one or two members. As mentioned on our team page, 4 of us are IT and dev professionals, EXACTLY the skillsets required to run 24/7/365 server operations that Cardano runs on.
7. High standards. We expect a lot from ourselves, and our public cloud of choice, Microsoft Azure.

Why is AzureADA a multipool? Aren’t they “evil” and anti-decentralization?

We could have had each of our 5 members create their own stake pool, for pure decentralization. Instead, we pooled our ADA, talents and resources.

• We use fewer servers than 5 distinct stake pools. That uses less electricity than 5 stake pools and contributes fewer greenhouse gasses.
• It also allows us to provide more to the Cardano ecosystem by having lower operational overhead. We have added whenada.com and the number one epoch calendar to the community. We have mentored and even provided ADA loan to a new stake pool operator and walked “competitors” through setting up stakepools. We are team players and want a healthy Cardano ecosystem.
• We also are among the highest staked pools in the ecosystem. We are not a group simply putting a tiny amount of pledge into pools and trying to spread out for pure profit. Each of our 3 pools has at least 1 million ADA pledge.
• As we’ve grown, our delegator community has asked us to allow them to stay in our pools when the k factor was bumped from 150 to 500. AzureADA has over 10,000 wallets delegated to our pools and a great reputation as pool operators and we have many people loyal to us.
• Our ratio of people to stake pools is 0.6:1 — LESS than a 1:1 of a single stake pool operator