K and what it means
With the launch of Shelley, IOHK introduced the notion of the “k” parameter. We mentioned it briefly in our September update. We described it as way of limiting the rewards a stake pool can earn based on its size. The intention of increasing key is to encourage decentralization of the network. If a pool exceeds the size limit, it will not generate additional rewards for the incremental ADA.
On December 6, 2020, k will be set to 500 and the new saturation point for a stake pool will be around 64M ADA. When a pool exceeds 64M ADA, the rewards per delegator will be reduced. The number 500 means that the network will be optimized for approximately 500 stake pools. The plan is for an increase of k to 1000 in March 2021.
As a delegator, you will want to ensure you are in a pool that is does not have 64M ADA or more to gain full benefit from your staked ADA.
This will result in a lot of movement from the pools that currently have more than 64M ADA to mid-sized or smaller pools. This is great news for smaller pool operators and the network as a whole. It will certainly encourage a better distribution of ADA, and allow the smaller pools to more consistently received and mint blocks. When k goes to 1000 in March, the upper limit will again be decreased to about 32M before rewards are reduced.
What CANUK is planning
Cardano Canucks have been looking at our long-term business plan, which includes considerations for “k” going to 1000 in March. At that time the saturation point will be 32M ADA. In order to build a sustainable operation, we believe that increasing our pool count to 3 will provide us enough capacity to continue building our community and contributing to the Cardano ecosystem, while not negatively affecting decentralization by creating too many pools. We will not be splitting our pledge, but rather pledging additional funds to create these new pools.
Our goal is to ensure that all of our delegators maximize their potential rewards. We also want to offer different options for different delegator risk profiles. For example, smaller pools may have higher volatility allowing lucky delegators to perhaps make greater than the average 5.5% ROA, where larger pools will be more consistent in rewards, but stay closer to that 5.5%.
We currently don’t have plans to open more than 3 pools, however we will continue to adapt as the network and landscape changes. As always, we will continue to focus on community, including delegators as well as our fellow stake pool operators.