Pool Wars III – My experience as a stakepool operator

This is the last article of the Pool Wars series. If you haven’t read Pool Wars I and Pool Wars II already I suggest giving them a read. We’ve explored why you should delegate to a small stake pool, how to find a small stake pool, and that pools with less than 10m ADA offer a lower return.

To round things up, let me take you through my experience of operating a stake pool for 3 months. The goal here is demonstrate how hard it is to grow a pool as I was blissfully unaware until we started running our own pool. In short – being a Cardano stake pool operator is all about being able to grow an online presence and following. I would go as far to say, do that first, before launching a pool.

Pool set up

Let me first give a shoutout to my co-founder, who did the bulk of the set up and maintenance work, while my focus has been on marketing. Running a pool would not have been possible without him.

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One mistake we made was not being diligent enough in checking if our ticker, ROBOT, already existed. We typed it into Daedealus and could not see it, and we assumed we wouldn’t be able to register it, if someone else already had it. It was only after we got set up did we find that:

1. ROBOT had been used in the past by someone else but was no longer active
2. You could register the same ticker as someone else
3. Even though it was no longer active the old ROBOT showed up in searches on sites such as pool.pm, and AdaPools (though it appears to have dropped out of the latter now).

When it came to margin – we took a look at what the margins for the top pool operators were (around 2-3% on average), and decided to under cut them with 1.5%.

Tip: Check pool.pm when deciding on a pool name!

Week 1 – a rocky start

As a fresh-face rookie, I set up a Twitter account , a basic website (RobotPool.io) and then decided to go onto r/Cardano and create a post about our new pool. I was immediately shut down by Auto-Mod saying that it looked like I was trying to promote a Cardano stake pool on the Cardano sub. Bots huh? They don’t like other ROBOTs encroaching on their territory, am I right? 😉

So after my stern rebuke I messaged a real mod and enquired where I should be promoting instead, and I was told to use r/CardanoStakepools.

So I went off to r/CardanoStakePools, a smaller audience for sure, and I had assumed it was a sub for fellow pool operators, but hey-ho, I was keen to do things right by the community. First thing I saw was a discussion on whether pool promotions should be allowed. For example one Reddit user commented:

“It was disheartening to try and read this subreddit and have to climb over endless promotions instead of actual pool discussions. Someone elsewhere already pointed this out, but this space is hardly the ideal location to place promotion emphasis, as the main audience is likely to be pool operators. Most new stakers are just downloading Yoroi and clicking the “Delegate” tab.” – Reddit user

This is how I felt reading that, having just arrived to promote my pool…

I got into a brief discussion with someone (a mod I think) in which I jokingly mentioned that I might have to launch a successful YouTube channel just to get some delegators. I was taken seriously and told that yes, some SPOs do indeed go down that route.

Gadjooks! Images flashed in my head of becoming a famous YouTuber. I pictured myself having to do heart shaped hands, dressing up as Cupid like BitBoy, or even doing a TikTok dance routine in which I rapidly spelling out R O B O T with my arms.

Side bar: It seems crazy that you have to be a big YouTuber to get delegations, yet that’s exactly what we are seeing playing out with all the big YouTubers, jumping in and opening multiple pools to milk the Cardano cash cow for all its worth. If you are reading this and you stake to one of these multiple pools then this person would like to have a word with you. Just kidding, I feel like there are certain YouTubers like Big Pey that have done a lot for this community and deserve it. However I do worry when I see folks like BitBoy and Benjamin Cowen jumping in. But I’m going off-tangent here.

I did not have a strong desire to be a YouTube star. Instead I settled on starting a blog – yes this very blog you are reading. It’s sole purpose was to lure you in with a good article and then sneak in a little promotion at the end. I wrote a few good posts and tried posting it on r/Cardano to get attention. I could immediately sense people disliked the self-promotion at the end of each article. Comments such as “Why don’t you just paste you article into here” and so on. Aside the fact that some of these articles contained images that would not transpose well to Reddit, my other rebuttal was that I did consider recording it as a YouTube video instead as no one bats an eye lid to YouTube videos containing self-promotions.

So yes – as someone that had no marketing experience, I got off to a bit of a rocky start. Still onwards and upwards!

Month 1 – Tweet, Tweets, and more Tweets

So I now had a blog; a side effect of which was that I re-discovered my long dormant interest in being a writer. Wasn’t quite the novelist or playwright I had dreamed of as a kid, but a crypto writer ain’t a bad prize. But blog posts were periodic, they are good in that they can still get attention months later but I needed to start promoting the pool on Twitter. So I sent out a solitary tweet into the vast ether of twitter space. I even tagged it with #cardano #staking hoping that the signal would get picked up by delegators passing through the night.

I rapidly realized it would take a lot more than this. Due to the short-term nature of twitter, it wasn’t enough to post once a day or once a week. You have to build up a following and to do that you need to be replying to others, retweeting other posts, and promoting your pool whenever you can. I found myself going from someone that hardly ever used Twitter, to reading, posting, and commenting like a madman, trying to build up followers on both the Robot pool handle and my own personal ReddSpark handle. The worst was scouring Twitter for freshly posted comments such as “Just got some Ada. Who should I stake to?” and rushing in to promote ROBOT, only to find I was one of literally hundreds of pools doing the exact same thing.

So after a month of writing blogs (which was getting views I was pleased to see) and tweeting like a Rockin Robin, the new delegator count stood at 0.

Month 2 – Pool on a mission

At this point, we decided to become a mission driven pool. I picked “environment” as a theme as it would play into Cardano’s low energy creds, the fact we were running the pool on low power ARM processors, and it’s something I was passionate about. I put together a brand new site, RobotPool.blog, that focused on advocating for Cardano’s green credentials. We donated 10% of our profit to charity.

I re-doubled my efforts on Twitter, this time with our mission driven status. No new delegators.

It was at this stage I also started digging deep on the question: Do small pools provide the same ROI as large pools?

The answer to this question would mean the difference between whether I’d be appealing to someone’s rationality (same ROI but added bonus of helping the environment and keeping Cardano decentralized), or to their empathy.

I did not want to lead people on with claims that they would have the same ROI as with a large pool if it were not true.

It actually took over a month to get to the bottom of it, primarily thanks to 1 Redditor that came armed with data (see the update note in Pool Wars II). Asides from them, everyone else was glibly telling me that a small pool has the same ROI as a large pool in the long run. Turns out this is only true for pools with 10m+ Ada.

I felt quite uncomfortable about this. We had our friends and family staking with us. One of them was about to get married and needed the money yet still chose to delegate with us. I felt terrible knowing she was earning less than if she were at a larger pool. I even secretly donated Ada out of my own wallet so that I wouldn’t feel bad, but knew I could not do this every month.

So I ended up recommending that she moves to a larger pool. I pretended it was because we were going to shut the pool down so that she wouldn’t feel bad. Nevertheless we still had 1.2m Ada staked so it wasn’t a big impact on our metrics.

I wrote a Reddit post about possibly shutting the pool down. It wasn’t my intention to gain any delegations out of it, and I did not shill the pool, but I think two people felt sorry for me because shortly after we got our first two delegators. They were small amounts but we were still grateful. However we knew we needed to be gaining delegations through our regular marketing.

Month 3 – 0% margin

A month later and we still had not gained any new delegations. Now we weren’t expecting overnight success in the space of a month or two, but we were hoping to see some return on our efforts. Marketing had become a half-time job and the incessant need for “likes”, followers”, “upvotes” and “views” on social media was causing me constant anxiety.

I discussed it with my co-founder and we decided we would drop our margin to 0%. I was intending to continue with donating 10% of profit to an environmental charity but my co-founder (rightly) said we should end it if it wasn’t bringing us in new delegators, esp. now that we were dropping our margins to 0%.

We decided to see how the next few weeks went. I continued to tweet and blog but not with the same fervor as I had done the previous month.

Side bar

The ROI issue weighed on my mind, culminating with posting on Reddit to bring more attention to the topic. I learnt that it’s the fixed fee that was driving the difference, that AdaPools showed an incorrect ROI.

I looked up ROBOT pool, and found we actually had a 3% ROA. I then compared it to a pool of 10m which showed it had a 5% ROA. This was in-line with what the theory suggested. This conversation between Rick and Prof. Aggelos also confirmed this.

I did the math’s and worked out I was earning less running a pool than if I had just delegated my Ada to a large pool instead.

I came across the following Reddit comment (I’m going to try to change the words a little to anonymize it):

“The doubter in me tells me that it is great for the small pool operator because they get the bulk of any return (block), but for myself as a delegator, I’d only get tiny portion of that. So if a small pool only produces a few blocks the operator does great, but I’d see a much smaller return on my investment than with a larger pool. ..from the point view of trying to grow an investment I can’t see the upside (except for the operator).” – Reddit user

This person is a little too cynical but I agree with their view that should be seeking to maximize their investment. To paraphrase the famous Supreme court ruling on paying the lowest tax possible:

Anyone may arrange their affairs so that their return on investment shall be as high as possible; they are not bound to choose that pattern which best helps the network. There is not even a patriotic duty to delegate to small pools

Seeking to maximize ROI, is important as it sends a signal to the network that something needs changing. Prof. Aggelos in the aforementioned tweet discussion, suggested having Daedalus give extra weighting to pools that are mission driven, but I cannot see how that is a good solution. Who would judge whether a pool is mission driven? Why should a small pool have to be mission driven and larger pools don’t?

Last week

So to recap I’ve seen an aversion to stakepools promoting themselves on existing Reddit forums, I’ve been met with cynical responses for having pool promotions at the bottom of my blog posts (which often took a day or more to write and provide a lot of value to people). I’ve found myself shouting over hundreds of other (perfectly good) SPOs on Twitter in order to try and win the affection of 1 new delegator. I found myself asking people to delegate to us out the goodness of their hearts, and even then people talk about keeping the majority of their holdings in larger pools and delegating a small amount to supporting smaller pools. I don’t blame them – it’s the rational thing to do if you are interested in maximizing your ROI.

And all the while I see YouTubers opening up new pools like popcorn. Even YouTubers that have not had strong ties to Cardano have started getting in on the game as the penny has dropped – if you have a big following to begin with, you can make good money by running a Cardano stake pool. Also, as discussed in Pool Wars I, Binance offer 8%+ ROI, which is impossible to compete with, and we now have new token offerings utilizing stake pools.

To be honest – small pools don’t have any more “right” to exist than these bigger ones. Everyone is playing by the rules. I just hope the rules do not lead to a greater amount of centralization over time.

I’m also not saying my experience is the same experience as other small pool operators. I have seen small pool operators do really well in growing their delegation in a matter of months (hint: The more you can make your pool feel personable the better). Hopefully the average small pool experience is a lot better than ours. I’ve asked this question on the Cardano forum – let’s see what they say.

I also think 3 months is a very short space of time to be judging success. Nevertheless I got together with my co-owner and we decided we would give it one more week and if nothing else worked we would shut the pool down. There was one last thing: A campaign to educate politicians about Cardano. It’s an idea I quite likely will do regardless, but we wanted to see if it wins us any new delegators. Most importantly I stated that we would kick-off the campaign if we reached 2m Ada delegated.

Today: End of the road

Which brings us to today. We still have zero new delegators so we’ve decided to bring it to an end. ROBOT pool will be shutting down this weekend. PLEASE DO NOT STAKE WITH US.

However it’s not necessarily a good bye. We will keep all our servers archived in case we wish to spin it back up down the line. This will be subject to building up a following on social media and a resolution on the fixed fee issue.

If you were one of the two new people that delegated with us, then thank you for your support and we ask you to delegate to one of the other many great small pools that are out there.

Tomorrow: New roads

Running a small pool has been a good experience overall. I’ve rediscovered my joy of writing, learnt a lot about social media, had good interactions with other SPOs, and become knowledgeable about how stake pools operate. It’s all knowledge I can put to good use as I go forward in my career.

I’ve decided I will continue to blog, tweet, and put some more effort into my YouTube channel (I will have to improve the format though – right now it’s a good sleep aid).

More importantly my interests right now have fully turned to Plutus programming. I’m only on week 3 of the course (possibly week 4 by the time you read this) and I’ve been really enjoying it so far. People have been asking for a blog post on Plutus but I reckon it may easier to do it as a video instead, so subscribe to my channel if you want to see that when it lands.

Hopefully this post and the other two in the series have been useful in helping educate people about pool delegation and the challenges faced by small stake pools. This should not put anyone off setting up a stake pool. There are probably a lot of things we could have done better. But do make sure you research marketing strategies before jumping in.

Happy staking everyone!