Please describe your proposed solution.
Problem Statement expansion:
Due to how certain stake pool fees work, delegating to stake pools with low active stake penalizes delegators by reducing their net (after fees) staking rewards compared to stake pools with more active stake, as can be seen in the following graph.
This issue harms new SPOs by making it hard to get new delegations as they are not able to provide competitive returns compared to other more established stake pools.
Thus reducing the current rate of appearance of new stake pools, lowering the emphasis on mission-driven pools & single-stake pool operators, and making profitability the main driver for a user to pick a specific stake pool.
The problem presented, if not taken care of, may end up centralizing the allocation of active stake toward stake pool farms like the ones in the following graph.
Theorized solution:
The unique approach proposed involves allowing users to swap their ADA for a token called sADA, which represents staked ADA inside the protocol.
The staking rewards of the users of the protocols will then be the average of all the stake pools on the protocol.
To ensure all stake pools are providing the same rewards as the fixed average, the SPOs are to sign a smart contract that subtracts from or adds to their stake pool fees depending on various factors.
In theory, this approach would not only help small SPOs, and allow users to get consistent and competitive staking rewards, but it would also allow for universal double yields.
Please describe how your proposed solution will address the Challenge that you have submitted it in.
The proposed solution is going to address the challenge by investigating the viability of a DeFi protocol.
By ensuring that there is a real use case and the approach proposed is technically possible, the core philosophy of Cardano, based on peer review and vigorous examination is being implemented.
In the case that, this solution goes through the research phase, it has the potential to make Cardano a more vibrant ecosystem by making it more convenient for users and fostering the creation of new stake pools with more emphasis on providing to the community.
What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?
For the following proposal, the current objective is to investigate the feasibility of the project itself, analyze the problem in-depth, and publish papers on both.
So, even if the approach to solve the issue is unfeasible, the publications on the problem are to be made regardless, thus providing value to the community even in the worst-case scenario.
As for the approach itself, the main risks that it may encounter are:
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It may be technically impossible to execute: hence the emphasis on research and peer review beforehand. To mitigate the damage that could be done if this step were to be skipped.
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The problem it's solving doesn't exist or the solution is worse: to reiterate what was mentioned above. The parts involved are going to be interviewed during the research phase to ensure the problem the approach mentioned solves a real problem.