Ada Staking (delegation) strategies

In this article some pointers are given based upon which you can decide on your staking (delegation) strategy. Before proceeding to read we advice you to first read the article "Staking (delegating) ada" here and the article "Saturation level" which can be found here.This to make sure you get an understanding on the delegation/reward mechanism and saturation level mechanism of Cardano. The pointers given below should not be looked at from an isolated perspective per pointer, but the pointers need to be combined to be able to develop a strategy that best suits you.

Pool cost and pool margin influence and effect on rewards

As explained the pool cost and margin are taken from the total pool rewards before the rewards are distributed across the delegators. This means the more stake is delegated to a pool, the more remains (relatively) for the delegators. The less stake is delegated to a pool, the less remains (relatively) for the delegators. Example:

Pool A has 10.000.000 delegated stake, 50 delegators (all staked 200.000 ada), a pool cost set to 500, pool margin set to 1%
Pool B has 1.000.000 delegated stake, 5 delegators (all staked 200.000 ada), a pool cost set to 500 and pool margin set to 1%

Both pools had a performance of 100% in epoch X based upon which the rewards are calculated and distributed.

Pool A: Total rewards 10.000 ada for epoch X
Pool B: Total rewards 1.000 ada for epoch X

Pool A rewards distribution

First pool cost are taken off: 10.000 - 500 = 9.500. Then margin is taken off from the remainder: 9.500 - (0,01 * 9.500) = 9.405. Rewards per delegator: 9.405 / 50 = 188,10 ada. Rewards per delegated ada: 9.405 / 10.000.000 = 0,0009405 ada.

Pool B rewards distribution

First pool cost are taken off: 1.000 - 500 = 500. Then margin is taken off from the remainder: 500 - (0,01 * 500) = 495. Rewards per delegator: 495 / 5 = 99 ada. Rewards per delegated ada: 495 / 1.000.000 = 0,000495 ada.


Pool performance influence and effect on rewards

Pool performance has impact on the rewards. The more stake is delegated to a pool, the more stable the performance will be, however, the performance will be more or less the same for each epoch as well as the height of the rewards (with same delegated stake). The less stake is delegated to a pool, the more unstable the performance will be, however, the performance will fluctuate widely as well as the height of the rewards (with same delegated stake). Example:

Pool A: Expected blocks to produce in epoch X based upon delegated stake is 20
Pool B: Expected blocks to produce in epoch X based upon delegated stake is 2

As explained pool performance is 100% in case a pool produces the number of blocks equal to the number of expected blocks.

Scenario 1: Pool performance below 100%

Pool A: Produced 19 blocks out of the 20 expected blocks, this means a pool performance of 19 / 20 = 0,95 (95%)
Pool B: Produced 1 block out of the 2 expected blocks, this means a pool performance of 1 / 2 = 0,50 (50%)

Pool A: Total rewards 10.000 ada for epoch X at 100%, however the pool rewards at a performance of 95% is: 0,95 * 10.000 = 9.500
Pool B: Total rewards 1.000 ada for epoch X at 100%, however the pool rewards at a performance of 50% is: 0,50 * 1.000 = 500

Pool A rewards distribution

First pool cost are taken off: 9.500 - 500 = 9.000. Then margin is taken off from the remainder: 9.000 - (0,01 * 9.000) = 8.910. Rewards per delegator: 8.910 / 50 = 178,20 ada. Rewards per delegated ada: 8.910 / 10.000.000 = 0,000891 
ada.

Pool B rewards distribution

First pool cost are taken off: 500 - 500 = 500. After pool cost are taken off, no rewards for further distribution are left.

Scenario 2: Pool performance above 100%

Pool A: Produced 21 blocks out of the 20 expected blocks, this means a pool performance of 21 / 20 = 1,05 (105%)
Pool B: Produced 3 blocks out of the 2 expected blocks, this means a pool performance of 3 / 2 = 1,50 (150%)

Pool A: Total rewards 10.000 ada for epoch X at 100%, however the pool rewards at a performance of 105% is: 1,05 * 10.000 = 10.500
Pool B: Total rewards 1.000 ada for epoch X at 100%, however the pool rewards at a performance of at 50% is: 1,50 * 1.000 = 1.500

Pool A rewards distribution

First pool cost are taken off: 10.500 - 500 = 10.000. Then margin is taken off from the remainder: 10.000 - (0,01 * 10.000) = 9.900. Rewards per delegator: 9.900 / 50 = 198 ada. Rewards per delegated ada: 9.900 / 10.000.000 = 0,00099
ada.

Pool B rewards distribution

First pool cost are taken off: 1.500 - 500 = 1.000. Then margin is taken off from the remainder: 1.000 - (0,01 * 1.000) = 990. Rewards per delegator: 990 / 5 = 198 ada. Rewards per delegated ada:  990 / 1.000.000 = 0,00099 ada.

In case the performance increases in this example, the rewards of Pool B, will exceed the rewards of Pool A. 

Determining an ada staking (delegation) strategy

B
y playing with the values given in examples above, you are enabled to get insight in the effects on the rewards. Not that here is a strong influence of the saturation level, so we advice you to consider the saturation level as well while determining your delegation strategy.

You might consider going for one or more "large" pools only, going for one or more "small" pools only or going for a combination of one or more "large" pools AND one or more "small" pools.