Slide What is saturation? Saturation is a key feature of Cardano's Staking Protocol

There are safeguards currently in operation that will discourage delegators from collecting all their stake into one MEGA-sized stake pool. Why is a saturation mechanism an important feature? Well, just imagine for a moment what might happen if all the stakeholders condensed into a single pool. That pool would have the only power to forge new blocks for the chain. In essence, all the control of the blockchain would be centralized into the hands of that one organization running that pool. This would defeat one of the main goals that Cardano has which is to decentralize the control and governance of the blockchain. Going forward into the Shelley mainnet era, the hope of Cardano is that no single entity can collect a majority 51% stake of the Cardano cryptocurrency. This goal is known as decentralization, and it is potentially the most important feature that cryptocurrencies can offer. Today, nearly all economies have various layers of centralized control. In the US, for example, the Federal Reserve has control of monetary policy, the ability to shrink or expand the money supply and control interest rates. Fiscal policy is controlled by the US Congress, which ostensibly carries out the will of the US people as a representative republic. Trade with other nations can also be hindered or favored by the government's centralized control of the economy. Centralized control is not necessarily a bad thing, but it does take away from you, as a debt note holder of that particular nation, the ability to make important decisions that will affect the value of the assets you hold. Decentralization in Cardano gives you a vote in those governing decisions that is proportional to the stake you hold in the blockchain.

So, what kind of saturation mechanism is currently being used? I will communicate a simplified version of what is being done. Currently, IOG has the ability to set a parameter which will cause saturated stake pools to forfeit some of the rewards they might otherwise earn if this mechanism were not present. Currently, rewards are given for each block successfully forged by a stake pool. Since a larger amount of stake leads to a higher probability of being elected a slot leader, generally the more stake a pool has, the more rewards it will earn - up to a point. That point is known as the saturation point. There is a maximum amount of rewards that can be earned in one Epoch. Once a pool becomes saturated, it may continue to produce more blocks, but the blocks produced beyond the saturation point of maximum rewards will not gain any additional ada for the pool (this assumes that the total amount of ada staked worldwide is not changing). As more people join the pool, in fact, the amount of rewards each delegator receives will begin to decline because the same maximum reward will be divided among a larger population of delegators. This goes against a delegator's self-interest, and the hope is that this will incentivize delegators to move their stake to smaller pools and more or less evenly distribute the amount of Cardano.

Currently, the parameter that controls saturation has been set by IOG and they plan to lower the saturation level in the future. This will have the effect of spreading stake to more pools. The parameter is currently set so that once a stakepool has a 0.67% share in the total amount of ada, it is saturated. This means that the ideal scenario this mechanism should produce over time is a group of 150 successful stake pools each having a 0.67% share of the total amount of ada. Be sure to follow our news feed for updates on the topic of saturation.

When you are making your selection to delegate to a stake pool, first make sure that pool is NOT saturated, or you will be receiving less rewards than you could earn by delegating to a different pool.
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