OMG! You Are Saturated!
Updated: Aug 17, 2020
A: "My pool has 10 million, it's saturated!"
B: "Oh no, mine has 20 million - it is also saturated. What do we do? Where do we hide?"
C: "Guys, relax, I heard that it needs to be at least 50 million to be saturated. Guaranteed."
You ever wondered what the heck are all these people on forums freaking out about? Well, you came to the right place to find out. It actually is a very important metric to understand. It may not play a deciding role early on. But as staking mechanism in Cardano matures, it will prove to be a crucial parameter to look out for. This is not an issue you need to be concerned much about today, YET. Unless you are delegated to one saturated pool out of 900+ in existence today. Let's hop right in so you can stand prepared.
Think of saturation as an ability of a cup to hold liquid (cup = pool, liquid/water = ADA live stake). As your cup fills up, its saturation point increases. Until such time when your cup can no longer add any more water in it without spilling it over. If that happens, we are talking about your cup aka pool being saturated. But why should you care in the first place?
Here is what happens when your ADA finds its way into a saturated pool, or stays in a pool which becomes saturated over time. Mind you, even if your pool initially wasn't saturated - it can turn into such down the road.
Let's talk about desirability of a pool first. We understand desirability based on the ability of that pool to produce competitive rewards to its delegators at any given time. In fact, e.g. Daedalus wallet takes saturation limit very seriously into its ranking algorithm. Naturally, there are other parameters that go into it and you can check out further reading on that matter via this post.
Rewards are increasing proportionally as pool attracts more and more live stake over its life span. But at some point, when this pool reaches its saturation point (and starts spilling over the liquid aka too much of live stake) - rewards no longer increase and remain flat. That is total amount of rewards awarded to your pool. So you are now in a situation where the same rewards are now split amongst bigger number of constituency.
Therefore, as a selfish human being that you are, you should move your ADA to a pool which isn't saturated just yet. This is all good and well but how do we know which pool is saturated or not? Hold on, we're getting there.
In the long run - staked ADA should spread out evenly amongst the k number of pools. K what?
K parameter is in an essence a desired number of pools at any given point in the network. It is a balance between desirable decentralisation level on the one hand and network efficiency and total costs of the Cardano system on the other. Today, this number is set at 150. In the future, as we make progress collectively, we expect it to reach even a @plane1,000.
In simplest terms - top 150 pools - should have roughly equal rewards structure in place provided each and every one of them is optimally saturated. We are not there yet, by far.
It is an important parameter of the network to keep pool stakes capped. While you may be thinking about the problem in terms of how many rewards you get in return, the system has another motivation in place. Saturation limit helps mitigate a possibility of a sybil attack where a very small number of pools (or even one) could end up with more than 51% or even all the stake. Gaining control over the network in the process. Direct opposite of what decentralisation is after.
Having pool saturate, essentially, incentivises stakeholders to move their stake into a non-saturated pool in order to keep their rewards optimised. Nothing technically prevents you from delegating to a saturated pool but you will be earning less rewards as a penalty over time.
The idea of desirability is such that the k number of most desirable pools will eventually be saturated. Any other pool outside of that k parameter loses all their members leaving only their respective owners there. Ouch.
We know that reality is somewhat different. People stake and forget, loosing access to their wallets, etc. There will always be imperfections. Hence, it is your responsibility to check network parameters and your stake pool performance over time.
"But you forgot to tell us how to actually calculate the saturation point!" Ah, right!
That's easy. Take the total supply of ADA in the existence today. Mind you, that this number increases over time through monetary expansion. It isn't static. But that's a topic for another time. You can find out this number on common third party web-sites like Coin Market Cap (somewhat inaccurate at times but within 1% error margin) or soon to be on pool sites such as cardanoscan.io which will eventually show you an exact live number.
Thus, let's say that CMC website shows 31,112,483,745 ADA in total supply today. You take this number and divide by k parameter which is 150 today. The result you get is 207,416,558.3 ADA. Hence, in order for a pool to be saturated today, it needs to attract at least the above amount or more. Until your pool reaches such point, you don't need to worry much. You can see how this works in practice by checking out an already saturated pool on publishing date of this piece like this one.
Remember though this: as the k number will rise in the future, so will the saturation level threshold decrease over time. It may be 207 million ADA today, but when k number is at 500 - saturation point will decrease to just above 62 million using same total supply equation above.
Make sure to tell it to your friends who told you your pool is already saturated today. Now you know what's up. Spread the knowledge, not the fud.
Happy staking, everyone.
Undecided about your pool yet? We invite you to consider staking with us. We are small community pool that would welcome you. Reach out to us on telegram link in the footer of the page. Pool Ticker: FAY
Pool ID: 9ac6f4118dccc20d978e7239d73d47e939cc594c350effa8711f5ac4