Cardano is a 3rd generation cryptocurrency that supports staking.
There is a formula that determines how stake pools are elected to mine a block and what reward to receive. You can take a look at the detailed technical report by IOHK that features this formula:
When a pool has too much ADA delegated to it, the rewards distributed to it’s delegators start to decrease. The saturation level is represented by the so called “k” parameter in the formula that determines which stake pool is selected to produce the block.
The amount of rewards gets capped at a pool saturation level of 100% this is embedded in the Cardano block chain to promote decentralization of the stake, at this point it is best to move to another unsaturated pool.
Currently the saturation level of a stake pool is around 210 Million ADA (soon to change to 64 Million ADA). This means that you may want to stake ADA in staking pools that have a total stake lower than that to ensure best performance.
This is the official blog post from IOHK with details about the formula and the different parameters that determine the block minting of the stake pools.
The parameter “k” is used to drive growth in the number of pools by encouraging delegators to spread their stake. By setting a cap on the amount of stake that earns rewards (the saturation threshold), new delegators are directed towards pools that have less stake. In ideal conditions, the network will stabilize towards the specific number of pools that have been targeted.
The k parameter was set to 150 at the Shelley hard fork. This setting was chosen to balance the need to support a significant number of stake pools from the start of the Shelley era against the possibility that only a small number of effective pools would be set up by the community. This initial value set the saturation level of Cardano stake pools to 210 Million ADA.
On December 6th 2020, the k parameter changes to 500, which means that stake pools that have delegation of more than 64 Million ADA will be saturated and will receive less rewards.
Future plans include changing “k” parameter to 1000 around March 2021, which means staking pools will get saturated at an even lower delegation threshold.
In due course, it will be increased to reflect the substantial number of pools that have emerged in the Cardano ecosystem since the hard fork. This will spread stake, and so block production, among more pools. The overall goal in choosing the setting of the parameter will be to maximize the number of sustainable pools that the network can support, so creating a balanced ecosystem.
Here is a really good video from HOHK regarding the saturation level and plans to lower the saturation level (increasing k parameter).
These community operated websites useful information on pool saturation stats, fees, performance and up time of the stake pools:
- ADApools – Cardano pools stats
- CardanoScan – Cardano blockchain explorer
- The NoCentralAuthority (NCA) stake pool at CardanoScan
When you choose a stake pool you should make sure the pool is not saturated. Here is more info on how to select a stake pool.