Saturation level influence

Saturation level

An important influencing factor is the saturation level. The saturation level is a measure to support the decentralization of Cardano. It prevents pools from becoming too large in regards to amount of stake. Being aware and knowing about the influence of the saturation level is essential when delegating ada to stakepools. The saturation level is the point on which the rewards of the pool are being capped. The saturation level can be calculated as follows: total ada supply / k-value. The k-value is a blockchain setting where "k" is the number of pools based upon which the saturation level is calculated.

Example:

Total ada supply: 31.700.000.000
k-value: 150

Saturation level: 31.700.000.000 / 150 = 210.333.333 ada

This means that in case a pool reaches a total amount of 210.333.333 ada delegated, the rewards for the pool are capped on the amount of rewards at a pool performance level of 100% based upon a delegated stake of 210.333.333 ada.

Influence

As mentioned the saturation level influences the rewards. The influence is explained by the examples/scenario's below.

Scenario 1: Pool is on saturation level and has 100% performance

Let's say a pool is exactly on the saturation level with a total amount of 210.333.333 ada delegated stake. The pool also produced 100 blocks out of the 100 "expected" blocks in a certain epoch, so has a performance of 100%. At this point the saturation level has no influence on the rewards; the pool has a 100% performance and is exactly on the saturation level. Full rewards will be paid out.

Scenario 2: Pool is above saturation level and has a performance of 100%

In this scenario the pool has a total amount of 220.000.000 ada delegated stake and has a performance of 100%. Because the rewards are capped at the saturation level, the amount above the saturation level is not taken into account for the rewards. This means that over 220.000.000 - 210.333.333 = 9.666.667 ada no rewards will be paid out. This means that the actual performance of the pool is below 100% seen from a rewards perspective.

Scenario 3: Pool is on saturation level and has a performance of 130%

Here the pool is exactly on saturation level and has a performance of 130%. Because the pool is on saturation level, the rewards are calculated based upon 210.333.333 ada total delegated stake and a performance of 130%, which means that the rewards will be 1,3 * the rewards at a performance of 100%. Here there is no difference with a non-saturated pool.

Scenario 4: Pool is above saturation level and has a performance of 130%

This pool has a total amount of 220.000.000 ada delegated stake and has a performance of 130%. The rewards are capped at rewards based upon a total amount of delegated stake of 210.333.333 ada at a performance of 100%. In this case one misses out on rewards twice. Firstly, one misses out on rewards because 220.000.000 - 210.333.333 = 9.666.667 ada are not taken into account and secondly one misses out on the full extra 30% rewards compared to the rewards at a performance of 100%. This is because the rewards for the over performance of 30% are calculated based upon the amount of stake at saturation level, which is 210.333.333 ada, instead of based upon the pools' active stake of 220.000.000 ada.

Scenario 5: Pool is on saturation level and has a performance of 70%

In this case the pool is exactly on saturation level and has a performance of 70%. Because the pool under performed with 30%, the rewards will decrease with 30% compared to the rewards at a performance of 100%. Here is no difference with a non-saturated pool, so there is no influence.

Scenario 6: Pool is above saturation and has a performance of 70%

Now the pool has a total amount of 220.000.000 ada delegated stake and under performed with 30%. The the maximum rewards of the pool are, as mentioned earlier, based upon the rewards belonging to the active stake of 210.333.333 ada (saturation level). The rewards will therefore decrease with 30% compared with the maximum rewards of the pool.

We advice you to proceed reading the article "Ada Staking (delegation) strategies", which can be found here.