When trying to decide which Cardano stake pool to delegate to alot of people will overlook small stake pools as they think they wont get any returns from them or they will get less rewards than some of the bigger pools.
I have already done a video on this topic and the video is posted at the bottom of this post for people whi just want to skip straight to the video.
Will I get less staking rewards from a Small Pool?
There is a difference in the type of rewards you get from a small Cardano stake pool vs a big pool but over the longer term they are generally the same or even better with the small pool with a bit of luck in the slot lottery.
For anyone not familiar with the slot lottery there is a lottery before every epoch to decide how many slots (basically blocks) each pool will get in the upcoming epoch and rewards are given to a pool based on the number of blocks they mint in an epoch. Every pool is given tickets for the lottery based on their pool stats but the most important one is the active stake in the pool.
Big Cardano Stake Pools
Bigger Cardano stake pools generally get consistent blocks and rewards once the pool is not saturated. When a pool goes over 64m it is saturated and delegators earn less rewards so if you choose a big pool make sure you keep an eye on the total stake in the pool. The saturation level will also change to 32m in March 2021.
Small Cardano Stake Pools
I generally consisder a pool under 5m Stake a small pool, even up to 10m is still considered small but once you go over 5m you are generally getting consistent blocks and regular rewards.
With small pools you get less consistent rewards but when they do come they they are generally alot bigger. The reason for this is when the small pool does get blocks there are less delegators to share the rewards. You will get some epochs that give 0 rewards and some that are 20% +.
Example of Small Pool
- epoch 233 produced its first block
- Active stake was 287k ADA
- Gave delegators a 23.29% APY which was the same as 4-5 epochs from a regular pool.
The pool then missed a few more epochs and epoch 237 was 17.52% APY which was over 3 epochs worth of rewards in one.
On balance any delegators of this pool who stuck with it would have got better rewards than a big pool. This isn’t always the case but this is what is possible with a small pool.
The Catch for Small Cardano Stake Pools
Some small pools get caught in a cycle that stops them from growing.
The problem they face is that they need people to delegate to their pool so they can get blocks but in order for people to trust the pool and delegate to them they want to see blocks first. If you see a pool owner that is visible in the community and trying to give back then consider giving them a chance and delegating to them.
Summary of Small vs Big Cardano Stake Pools
Small pools can give you just as good of returns as big pools and by delegating to small pools you are really supporting the work that pool owner is doing in the community. There is a sweet spot when small pools start generating blocks that delegators can see really good returns too which can even end up been higher than big pools for a while. Over the long term as the small pool grows the returns should average out to the expected average of 5% – 6% APY
Yes the pool in the example above was my pool 🙂 As I write this post we are just under 2m stake so we are very close to regular blocks and that sweet spot now.
Below is a video I done covering this subject where I talk through some of the information above and a bit more