Youtubers running Cardano Stake Pools — Genius Incentive System or Marketing Scheme?
Introduction
I was scrolling through Youtube when I got recommended a video by a pretty well-known Youtuber in the crypto space about Cardano. During the video he mentioned to join his stake pool and it made me wonder how profitable it is to run your own stake pool to the point that a Youtuber would have his own Pools. So, I did a quick google search and here’s what I found. Spoiler: It’s quite profitable.
To set up a pool, you can pledge an amount of ADA to increase rewards, but if I’m not mistaken you are not obligated to. In this case, it seems like the Youtuber has pledged 100,000 ADA and the rest of the pool is filled to saturation by delegation. Every Epoch if the pool gets blocks to mint, they get a reward. The number of blocks per epoch fluctuates, but thankfully Adapools.org can give you an average over time which I used for the math below. At the time of writing this article, the average reward per Epoch for this pool was about 2040 ADA rounded down. Each Epoch lasts about 5 days.
The fees charged by the stake pool across all the Youtuber’s pools are set as the same and were set at a tax-ratio of 3.99% and tax-fixed at 340. 340 is the fixed minimum cost according to protocol parameters.
So, here’s the math:
According to this post on the Cardano Forum, the fixed tax is deducted from the total rewards before the tax ratio is applied.
(Rewards -Tax Fixed) x Tax ratio + Tax Fixed = (2040–340) x 3.99% +340 = 407.83 ADA per Epoch
Stakepool rewards per month (assuming 1 month is 30 days so 6 epochs) = 407.83 x 6 = 2446.98 ADA
Or in a year (365 days = 73 Epochs) = 73 x 407.83 = 29771.59 ADA per year
The above are the staking rewards for running the pool and does not include the Pool Owner’s own pledged amount which should get the same % distribution as all delegators to the pool.
The pledged amount for the YouTuber’s pool is 100,000 ADA where they earn roughly the same 4.4% ROA as everyone else. At today’s numbers would be about 52800 ADA per year. By running the pool, they earn an extra 56% in rewards. But we’ll exclude this amount as anyone with 100,000 ADA can delegate and earn the same staking reward but not everyone will be able to have a community where they can leverage to earn from running a pool.
Now let’s factor in the cost of running the pool:
According to this forum post, the estimated amount could be anywhere from $400 USD to a very crude estimate including work hours to be $1000 USD per month. The cost of maintaining additional pools is close to 0 once the hardware has been acquired for the first pool.
Assuming $1000 USD per month as the cost to run the pool, and factoring in today’s ADA price after the past couple of weeks dump to $1.30 and the fact that the YouTuber has 3 pools:
Total profit per year = $1.30 x 29771.59 x 3 — $1000 x 12 = $104,109.20
By leveraging their community, this Youtuber should be able to earn about $100k per year at today’s ADA price.
My own thoughts:
I might have made a math error somewhere, and if so, someone should correct me. I’m aware that I’m assuming that the block rewards remain constant but in actuality they should decline over time. I’m also aware that I did not factor in the higher block rewards early on when the pool first launched and I’m only calculating it based on rewards today mid-December 2021.
But assuming the math checks out, a YouTuber can leverage their community to run a staking pool (or multiple staking pools) to earn 6 digits USD worth of ADA. Cardano’s staking model whether intentional or not makes a lot of financial sense for YouTubers with big enough communities to promote. It’s a genius marketing model that leverages (or exploits) existing social media communities. We have not even accounted for positive price pressure from convincing your community to buy ADA.
You could argue that social media personalities are hence incentivised to have a positive bias towards Cardano because it’s profitable for them to be. But you could say the same to anyone holding any coin to be bullish about that coin. It just seemed interesting to me that they way the staking system is run, it’s almost as though it pays for its own advertising.
Technically anyone could run a stake pool but not everyone will have a community they can so accessibly get delegations from. As an influencer you could also adjust a higher tax on your community as they are more likely to be loyal to you than to some random anonymous person who set up their own stake pool.
Disclaimer: I have owned ADA in the past, I currently do not. I don’t like/dislike ADA.
Tl;dr: Youtubers can make big money from running ADA staking pool with delegations from their communities.
If any Tiktok influencers want to set up your own stake pools, send me a donation or something when you make 6 digits. Thanks in advance. Someone also let me know if it ever becomes a new trend because I don’t use tiktok.
