The last couple entries in this series have been a bit technical, so today we’re going to talk about a difference between the Incentivized Testnet (ITN) and the new Shelley mainnet that is less technical, but will still have a HUGE impact on you as a delegator.
Probably one of the main new items in the descriptions of Shelley mainnet stakepools that you’ve encountered has been an item called pledge. What is pledge and how important is it to you as a delegator? Pledge is how much ada the owners of the stakepool have delegated to their stakepool themselves. It is a sign of good faith, that the owners and operator will be faithful actors within the Cardano ecosystem. In the ITN, there was no pledge implemented, so no one knew how much “skin in the game” each stakepool owner/operator had. The idea with Proof-of-Stake, of course, is that those with the largest amounts of ada have the most incentive to see their investment grow, which means they would be expected not to harm the system by operating rogue stakepools that do not forge blocks or otherwise attempt to attack the network. Therefore, the pledge in mainnet is a quantitative signal that shows a potential delegator how much financial interest the stakepool owners have in Cardano.
Pledge has another function which delves into the more technical side of the Cardano protocol, but still is very important. Pledge additionally plays an important role in helping to prevent the so-called Sybil attack. Briefly, in a Sybil attack, a single bad actor would try to spin up a bunch of stakepools in an effort to gain a large influence over the network by attempting to attract a disproportionately larger number of delegators than any other faithful pool operator. By implementing pledge in Cardano, the person wishing to attack the network would have to spend a lot of money in order to have large pledges for each of the pools he makes in order to show “skin in the game”. So, this is a big disincentive for such an attack. In addition, Cardano has a constant called a_0, or “a nought,” that also has an important function in helping to stop Sybil attacks. When the a_0 constant is large, then pools with larger pledges will earn more than pools with smaller pledges. The ITN obviously did not have this constant because there was no pledging in the ITN. In Shelley mainnet, this a_0 constant is currently 0.3, which has some influence on the amount of total rewards a pool can earn, but is not so much that it hurts pool owners with smaller bags of ada from getting started. Of course, the idea behind a_0 is that it adds a financial incentive for ada holders to stake with pools that have large pledges since the rewards could be significantly higher for those pools. At the current a_0 setting, the difference in rewards between pools with large and small pledges is almost negligible. The a_0 constant can be changed by the community if there is wide enough agreement to either raise or lower it for the purposes of protection against Sybil attacks.
Tomorrow we are going to talk about fees that stakepools charge. There is a cost/epoch and a margin/epoch. These existed in the ITN, but there is a crucial difference between how these operated in the ITN and how they operate now in Shelley mainnet. Please check back tomorrow to read about this important difference.
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