Cardano Foundation Unveils New Delegation Strategy Amid Centralization Concerns

October 14, 2023 1:24 pm Comments

The Cardano Foundation seems to have ruffled some feathers with the latest major update to the Cardano network.

On Friday, the foundation announced numerous overhauls and changes to its proof-of-stake delegation model. Delegate proof-of-stake works by allowing large Cardano holders to pool together assets from smaller holders and then stake those assets on their behalf.

This allows smaller users to reap the rewards from staking without adhering to minimum staking requirements that are often out of reach for smaller investors.

Cardano’s newly announced delegation policies were aimed at creating better efficiency for block minting practices and Cardano staking pools.

After running a series of delegation rounds and collecting over 1,700 applications from interested staking pools, only 351 have been chosen by the Cardano Foundation to serve as official delegate staking pools at the time of this writing.

According to this official post made by the Cardano Foundation, the changes will primarily affect these six categories listed below:

More specifically, the network is extending the delegation period from three months to 12 months, and delegators will no longer be chosen arbitrarily—they will instead be chosen based on a data-driven approach that the Cardano Foundation did not elaborate on.

Additionally, large multi-pool operators can now be considered for official delegation roles, and delegators who raise fees to excessive levels will lose their status as a delegator.

The Cardano Foundation claims that by limiting the number of available pools, increased staking rewards can be distributed among the few, remaining pools.

However, the Cardano community was quick to criticize the new changes and cited concerns about increased centralization of the network.

One Cardano user wrote: “Last I checked the priority of Cardano was decentralization, by delegating to Multi-Pool operators you are doing quite the opposite. Can’t wait to see 1PCT get 20 of the delegation slots for 12 months… I really hope this isn’t about ADA rewards. If the main reason for these changes is to ensure the CF’s ADA gets better returns, this would be the ultimate insult.”

Indeed, it is difficult to see how increased control over the delegation process and the limiting of delegation pools could help the decentralization of the network; moreover, allowing large delegators with multiple pools to become official delegators also allows for ever greater centralization.

Despite all this, the Cardano Foundation attempted to justify the changes on its official website:

Delegation Duration: Instead of a short delegation period of about three months we will move to an extended period of approximately 12 months. An extended delegation period will benefit operators, allowing them to really focus on their contributions.

Delegation Packages: We will reduce the number of pools we delegate to, which will increase the size of the packages. This, combined with extended delegation duration, will help enhance the overall quality of our selections plus allow pools to flourish and establish themselves more effectively.

Delegation Criteria: We will remove the single pool requirement which will ensure greater flexibility in our selection process. This new approach aims at greater inclusivity.
Selection Process: Our team will now handpick pools based on the data and insights we’ve gathered. This ensures that our delegation strategy is driven by experience and thorough understanding.

Expectations: We understand that greater delegation may tempt pools to raise fees, however, we want to clarify that if pools increase costs or raise fees, we may withdraw delegation. Also, we will closely monitor pools and engage with them on a regular basis to understand how they are actively contributing to the ecosystem.

Application Process: As the regular delegation rounds will be replaced with the extended delegation, we will change the application format to a single form. If you are a new pool or undertaking a novel initiative that you believe merits attention, you can use this form to submit your pool for consideration.

Additionally, the Cardano Foundation launched its own stake pool [CAG]. Maintaining and running a stake pool for a fraction of our own assets means the Foundation will obtain a genuine understanding of topologies, building from source, pre-releases, hard fork preparations, server-resources and network bandwidth. This firsthand knowledge is essential for refining our decisions and offering more nuanced support to our community.

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