What is pool pledge and why is it important

stakepool pledge

Pledging is a mechanism that encourages the growth of a strong ecosystem within the Cardano blockchain. When you register a stake pool you can choose to pledge some, or all, of your ADA to the pool, to make it more attractive to people that want to delegate.

This is an important consideration when users decide where to stake their ADA for maximum reward.

Although pledging is not required when setting up new stake pool, it can make the stake pool more attractive to delegators, as the higher the amount of ADA that is pledged, the higher the rewards that will be paid out.

The pledged amount can be changed on an epoch-by-epoch basis and will be returned when the pool is closed.

It is preferable to stake to pools with larger pledge from the stake pool operators. This helps cover most of the expenses that come in with the fixed fees and this helps smaller delegators receive a better reward. This also shows the commitment of the pool owners to maintain the stake pools top performance for the delegators. At the NCA stake pool we have an initial pledge of 500,000.000000 ₳.

Pool operators can optionally pledge some or all of their stake (or the stake of their friends and partners) to their pool to make their pool more attractive. The higher the amount of ADA pledged, the more rewards the pool will receive, which will attract more delegation.

How attractive a pool is to delegators depends on several interacting elements:

  • operating costs (the lower, the better);
  • operator margin (the lower, the better);
  • performance (the higher, the better);
  • level of pledge (the higher, the better).
  • saturation lever (equilibrium).

By pledging more, the pool operator can ask for a higher operator margin while still being attractive to delegators.

Why is pledging necessary?

Pledging provides a mechanism to encourage a healthy commercial ecosystem on the Cardano blockchain. The pledging mechanism is also necessary to protect the system against Sybil attacks (when someone with very little personal stake creates hundreds of pools with low margins and tries to attract the majority of stake to their pools).

By making pools with higher pledges more attractive, such attacks are prevented, because an attacker now needs to split their stake between many pools, making those pools less attractive and increasing the inherent cost of attempting a Sybil attack.

At NCA we have a large initial pool pledge of 500,000.000000 ₳ to ensure the stabillity of the system.

Read also: How to choose a great stake pool

Ready to earn rewards? Here is how to stake your Cardano – The complete guide.

 

Draven Flash

Draven Flash is an IT professional with 20 years of network, server administration and security experience. Avid Cardano/ADA enthusiast since 2017.