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A staking rewards story

This example will give you a better understanding how staking rewards are calculated.  Please keep in mind this story uses fictive numbers, actual rewards might be different.

Four friends just noticed this great crypto project called Cardano and decide to buy ADA.  For security reasons they choose not to leave their ADA on the exchange and transfer everything to their own wallets (e.g. Daedalus or Yoroi). A bit later they hear about this thing called staking and decide to try it out without knowing the ins and outs of it.

Initial situation

  • Alice stakes 100 000 ADA
  • Bob stakes 350 000 ADA
  • Carol stakes 1 500 000 ADA
  • Dave stakes 50 00 ADA
  • Other people already delegated an amount of 8 000 000 

The total stake of QFR is now 10 000 000  ADA.

They go on a trip to Hawaii where they have a great time and totally forget about their staked ADA.
Back home Bob opens his wallet and sees that his balance has increased to 350 577.4405 ADA. When he calls his friends and asks them if they received some extra ADA as well, all of them answer they did.  But they have no idea what happened and definitely have no clue why Dave got the least and Carol got the most.

What happened

QFR used their stake to secure the network and has created a total of 15 blocks over 10 days (2 epochs) doing so.

Epoch 1

  • QFR mints 8 block and receives a total of 9 600 ADA (=8 blocks * 1200 ADA/block) from the protocol
  • As QFR has a fixed fee of 0 on top of the 340 ADA / epoch required by the protocol, only 340 ADA are subtracted from the 9 600 ADA received from the protocol
    • 9 600 ADA – 340 ADA = 9 260 ADA remaining
  • Running a pool & securing the network ain’t free, therefor QFR charges a variable fee of 4.75% on the remaining 9 260 ADA to cover all costs
    • 9 260 ADA * 0.0475 = 439.85 ADA
  • The 8 820.15 ADA remaining is distributed automatically to Alice, Bob, Carol, Dave and the other people who delegated proportionally to their stake:
    • Alice has 1% of the total pool stake (100 000 / 10 000 000= 1%), therefor she receives 1% of the remaining ADA
      • 8 820.15 ADA * 0.01 = 88.2015 ADA
    • Bob has 3.5% of the total pool stake (350 000 / 10 000 000= 3,5%), therefor he receives 3.5% of the remaining ADA
      • 8 820.15 ADA * 0.035 = 308.70525 ADA
    • Carol has 15% of the total pool stake (1 500 000 / 10 000 000= 15%), therefor she receives 15% of the remaining ADA
      • 8 820.15 ADA * 0.15 = 1 323.0225 ADA
    • Dave has 0.5% of the total pool stake (50 000 / 10 000 000= 0.5%), therefor he receives 0.5% of the remaining ADA
      • 8 820.15 ADA* 0.005 = 44.100075 ADA
    • The 80% remaining gets distributed automatically to the other people that have staked to QFR
      • 8 820.15 ADA * 0.80 = 7 056.12 ADA

Epoch 2

The four friends start this epoch with following ADA in their wallets:

  • Alice: 100 000 ADA + 88.2015 ADA = 100 088.2015 ADA (~ 1%)
  • Bob: 350 000 ADA + 308.70525 ADA = 350 308.70525 ADA (~3.5%)
  • Carol: 1 500 000 ADA + 1 323.0225 ADA = 1 501 323.0255 ADA (~ 15%)
  • Dave: 50 000 ADA + 44.100075 ADA = 50 044.100075 ADA (~ 0.5%)
  • Other people: 8 000 000 ADA + 7 056.12 ADA = 8 007 056.12 ADA (~ 80%)

The total stake of QFR is now 10 008 820.15  ADA.

  • QFR mints 7 block and receives a total of 8 400 ADA (=7 blocks * 1200 ADA/block) from the protocol
  • As in the previous epoch only 340 ADA is subtracted from the 8 400 ADA received
    • 8 400 ADA – 340 ADA = 8 060 ADA remaining
  • The variable fee remains unchanged at 4.75%
    • 8 060 ADA * 0.0475 = 382.85 ADA
  • The 7 677.15 ADA remaining is distributed automatically:
    • Alice receives 1%
      • 7 677.15 ADA * 0.01 = 76.7715 ADA
    • Bob receives 3.5%
      • 7 677.15 ADA * 0.035 = 268.70025 ADA
    • Carol receives 15%
      • 7 677.15 ADA * 0.15 = 1151.572502 ADA
    • Dave receives 1%
      • 7 677.15 ADA * 0.005 = 38.385749 ADA
    • The rest receives
      • 7 677.15 ADA * 0.80 = 6 141.719999 ADA

Their final balances

  • Alice has 100 164.983 ADA
  • Bob has 350 577.4405 ADA
  • Carol has 1 502 474.748002 ADA
  • Dave has 50 082.490824 ADA

YOUR REWARDS = (POOL REWARDS – FIXED FEES – VARIABLE FEES) * YOUR % OF THE POOL STAKE

Additional resources

You can simulate your own rewards using the official Staking Calculator

promise

Why I’m not pledging all of my ADA

In a recent conversation someone asked me how I came up with the initial pledge amount of 125 000 ADA for QFR. My short answer was that I don’t own billions of ADA as I didn’t want him to know how big (or small) my actual bag of ADA is. The longer answer is, obviously, a little bit more complicated.

I still don’t have billions of ADA but the amount pledged ain’t my complete bag. Two reasons why I chose to pledge 125k ADA:

First and foremost, it allows me to take profits & pay for goods / services with ADA without compromising your staking rewards.

If I would pledge all of my ADA and use a part of it to pay off my mortage or buy an Aston Martin DB9 (Lambos are meeh) in the future my actual pledge would drop below the amount what I promised to pledge. As a result QFR would still be able to mint new blocks, however it wouldn’t receive any rewards for this anymore. This automatically means that QFR loses the trust of its delegators as they don’t receive any ADA anymore.

Secondly, as long as the k-value = 150 and a0 = 0.3, there is almost no difference in stake returns between pools having zero pledge and pools having millions of ADA pledged. Hence, people delegating to QFR wouldn’t really benefit from a higher pool pledge (but < 30 million ADA).

A significant increase of pool pledge will be reevaluated if these parameters change.

On a side note, I do want to mention other people have offered to pledge to QFR. As we believe there’s currently no 100% safe, hassle-free way to do this, we’ll only start looking into this offers once Goguen smart contracts are available.