Pool Splitting Behaviour and Equilibrium Properties in Cardano’s Rewards Scheme
by Christina Ovezik & Aggelos Kiayias Posted 19 April, 2022
Since the introduction of blockchain systems more than a decade ago, groups and individuals from both academia and industry have strived to refine the underlying protocols, improving their scalability, stability or decentralisation properties, to name a few. In this blog post, we will focus on the aspect of decentralisation and particularly on its dependence to system incentives. We examine the case of Cardano, a Proof-of-Stake blockchain whose design followed a first-principles approach, guided by research performed jointly with our Lab.
First, we will briefly explain how rewards are distributed in Cardano, and then we will examine several questions that arise in this reward scheme. For instance, how do we expect the stakeholders to engage with the protocol? Does the system converge to an equilibrium, i.e., a state where stakeholders have settled on their “strategies” and have no incentive to deviate from them? If yes, how many pools are there in this stable configuration of the system and how many independent stakeholders are behind these pools? In other words, how decentralised is the system at equilibrium?
To address these and more questions, we make use of a simulation engine that models the way stakeholders interact with the reward system under different conditions, and we carry out numerous experiments with it, examining the dynamics and the final outcomes of these interactions.
Last updated