If your goal is to maximize rewards, then pledge, saturation, fees, and performance are the most important factors to consider when choosing a stake pool.
Pledge is the amount of ADA that the Stake Pool Operator (SPO) has staked in their own Pool. This is the skin-in-the-game promise that an SPO has made to maintain the Stake Pool. The higher the pledge, the bigger the rewards.
There is a point at which the stake pool will start receiving diminishing returns as more ADA is delegated to it. Currently this point sits at about 64 million ADA. Saturation is the percent of delegation achieved of that ~64M. Generally, the higher the saturation, the greater the rewards, but once a stake pool goes over that amount (over 100%), then it is over-saturated and delegators start receiving smaller returns proportional to their stake.
The epoch fee helps pay for costs associated with running the stake pool including marketing, infrastructure, etc. The epoch fee is taken from the total rewards for the entire pool. The minimum and standard epoch fee is 340 ADA. Though some SPOs charge a higher fee, most charge the minimum to be competitive.
The variable fee is an additional fee that the SPO charges for running the pool (usually 2%-6%). The variable fee is split proportionately based on the amount of ADA staked.
Stake pools make rewards when they produce blocks. Pools that regularly produce blocks make the highest rewards. So ideally, choose a stake pool that performs well.
The above are not the only factors to consider!!
As we’ve mentioned, delegations to over-saturated stake pools receive a smaller return. This mechanism was put into place to encourage decentralization. The idea is that we don’t want a centralized system in the hands of a single or a small number of entities.
One way around this limitation is for SPO’s to spin up multiple stake pools. Therefore, another factor to consider when you’re choosing a stake pool, is whether the SPO is running multiple pools. If they are, consider supporting a single SPO instead. You can find a list of SPOs committed to running a single stake pool for the sake of decentralization at: singlepoolalliance.net.
You might also consider supporting smaller stake pools. As we mentioned before, bigger pledge and higher saturation means bigger rewards, so this might mean sacrificing rewards but this is a good way to support the community and further decentralize.
Another factor to consider is whether a pool is a mission driven pool (MDP). MDPs support various causes and charities. They donate all or a portion of their profits to a cause. You can find a list of MDPs at missiondrivenpools.org. The beauty of these pools is that you’ll still get rewards but you’ll also be contributing to a good cause.
One final good reason to support an SPO is their work to contribute to the Cardano/Crypto community. They might be contributing in the form of educational content on youtube, development projects, etc.
Tl;dr – Choose a stake pool that has over 1M ADA active stake that is regularly producing blocks and doesn’t have high fees. Extra cool points if you can find one that is also supporting a good cause, is a single pool, and/or is contributing to the Cardano/Crypto ecosystem in some way.
Stake with GUI Pool! Single, small, mission-driven-pool donating 33% of profits to code.org, expanding access to computer science in schools.
This content was originally published here.