Cardano has over 30 parameters. Each parameter plays a role in shaping the network’s functionality, governance, economics, and performance. The min_pool_cost parameter was a point of consternation for many within the Cardano community for a long time. Here is what the parameter does, and why you might care.
What is it
The min_pool_cost sets a minimum fixed fee that every stake pool operator (SPO) must charge to run a pool.
Why a Minimum Cost?
Running a stake pool isn’t free. You need hardware (or cloud servers), electricity, and time to keep everything secure and up to date. The min_pool_cost sets a floor on how low a stake pool’s fixed fee can go. Without it, some pool operators might try to race to the bottom, slashing their fees to zero to attract delegators—only to realize later they can’t cover expenses. That would cause them to shut down or run a poor-quality service, which isn’t good for anyone.
By enforcing a baseline cost, Cardano ensures that every stake pool has at least a little guaranteed income for operational expenses. This also helps delegators by making sure there are no “fly-by-night” pools trying to reel people in with unrealistic fees, only to disappear when bills come due.
How Does It Work?
When you look at stake pool information in your favorite Cardano wallet or explorer, you’ll see two main fees associated with each pool: the fixed fee and the variable fee (also called margin). The min_pool_cost affects that fixed fee—the amount of ada that comes out of the pool’s rewards each epoch before the rest is distributed to delegators.
•Fixed Fee: A set amount of ada subtracted from total rewards in an epoch. If min_pool_cost is 340 ada, then the fixed fee cannot be lower than 340 ada.
•Variable Fee (Margin): A percentage of the pool rewards that the operator takes after subtracting the fixed fee.
In Cardano, the sum of these fees covers the stake pool’s operating costs and provides an incentive for the operator. The rest of the rewards go back to the delegators.
How this works at Lido Nation
Our stake pool, ticker LIDO (id: pool1kks6sgxvx7p6fe3hhnne68xzwa9jg8qgy50yt3w3lrelvns7390), has been operating since epoch 227 (November 2, 2020). As of this writing we’ve produced over 2,500 blocks and currently stand at 198 delegators. Lido has the usual min_pool_cost set to 200 ada. Suppose Lido pool earns 10,000 ada in rewards in a given epoch. Here’s a simplified breakdown: Fixed Fee: we take 200 ada off the top, because of min_pool_cost. Variable Fee: Lido pool also has a margin of 2%, so we also take 2% of the remaining 9,660 ada (which comes out to 193.2 ada, roughly). Delegator Rewards: The rest of the rewards (around 9,466.8 ada) get split among everyone who staked ada to the lido pool.
Without min_pool_cost, a pool could try to set its fixed fee to 0 ada, hoping to draw in delegators who see “free” in the details. That pool operator might not be able to pay their server bills or take home any rewards for their effort. Eventually, they might shut down—leaving delegators scrambling to re-delegate somewhere else.
Why Should You Care?
If you’re a stake pool operator, min_pool_cost ensures you have some guaranteed baseline income. That’s crucial for maintaining healthy infrastructure and high uptime, which keeps the Cardano network running smoothly. If you’re a delegator, knowing about min_pool_cost helps you understand how stake pool rewards work. While it might be tempting to chase the lowest possible fees, you still want to pick a pool that can sustainably cover its costs—so it sticks around for the long haul. In other words, a healthy network is in everyone’s best interest.
Looking Ahead
The min_pool_cost can be adjusted through Cardano’s governance processes if the community decides the baseline is too high or too low. This adjustment has happened once so far in Cardano’s history. min_pool_cost was initially set to 340 ada.
After much debate and back and forth within the Cardano community, it was finally adjusted in October of 2023 to 170 ada, after two years of debate. Some folks still argue that it should come down even further to encourage even more competition among pools; others say it needs to stay put or even rise a bit to cover growing infrastructure needs.
Whichever way it goes in the future, the guiding principle is the same: balance the needs of operators (who provide critical services to the network) with the interests of delegators (who want the best returns). By maintaining a baseline cost, the Cardano network keeps its foundation strong, ensuring a fair shot for high-quality stake pools.
Final Thoughts
min_pool_cost is part of what makes Cardano’s Proof-of-Stake system fair and robust. It ensures everyone shares in building and supporting the network, from large professional pools to smaller, independent operators. With min_pool_cost, Cardano has a built-in tool to keep stake pools sustainable, which in turn keeps the entire ecosystem healthy and thriving.
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