Cardano New proposal to cut costs by 55%, but the smaller mining pool will pay for it

A new Cardano governance proposal is seeking to lower the minimum pool fee (minPoolCost) from 170 ADA down to 75 ADA. Unlike previous failed votes, this one strips Plutus of its memory cap adjustment and no longer triggers a vote link with Stakeholder Pool Operator (SPO), thus clearing out key hurdles in the last round of denials. The proposal currently remains subject to approval by each governing entity, whereby each minepool can still set their own actual filing fees.

Previous post: Bundled memory cap changes lead to SPO vote shortage

Previous proposals to bundle the same pool fee reduction with a higher Plutus memory cap expired on September 1. The data shows that 68.6% of DREP votes were in favor, exceeding the 67% threshold; five out of seven constitutional committee members voted for it. But SPO support is only 34.5% of the counted vote, well below the 51% pass line. It was partly because of the memory cap that this bundling action had to be passed by an SPO vote.

The new proposal was submitted separately on September 11, modifying only minPoolCost. According to Cardano's parameter classification, this parameter belongs to the economic class parameters and its individual adjustment requires approval of DRep with the Constitutional Committee without SPO voting. This provides a viable governance path for similar changes. However, votes by DRep and the committee will still decide whether or not the proposal succeeds, and there is an ongoing debate within the operator community about its economic impact.

Progress of the vote and possible changes after its adoption

According to DRepTalk's statistical cache data queried on September 23, the votes in favor of the new proposal represent only 11.7% of the counted ballots, far from the 67% threshold; two out of seven committee members voted for it at 28.6%, well below the 66.7% barrier. These numbers are still subject to change before voting ends and will end on October 11th (the 661st anniversary).

Under the current system, fixed costs for mining pools are deducted from total rewards in each era before a percentage of floating commissions is calculated. The remainder is distributed according to coin holdings.

For example, for a small pool of mines: when one block yields about 300 ADA in total rewards, approximately 57% of the reward is taken away by fixed fees before any commissions are deducted at 170 ADA based on fixed costs; if it drops to 75 ADA, this percentage will be reduced to 25%. Assuming that an operator with 170 charged ADA recovers 75% of the ADA during a period where there is sufficient reward, then 95 ADA can be left over before commission and share distribution. How much more each client actually receives depends on its deposit quality, pool commission ratio, and actual output.

Historical experience: Carriers do not generally follow up on last year's tariff cuts

The biggest uncertainty comes from the behavior of carriers last time around. A study by Input Output Research found that after Cardano lowered its minimum fee from 340 ADA to 170 ADA in October 2023, the 370 ADA is still the most commonly reported fixed cost among active mining pools of all sizes. Instead, it has become a second tier used by smaller competitors.

The same study used a 36-year window (AD 548 to 583) with 3 million ADA deposits and 5,500 ADA cumulative rewards as feasibility benchmarks: 627 active mines did not meet either of the two metrics and were in difficulty; another 246 are viable small mines, 741 reaching or exceeding 3 million AD deposits. Since multiple mine pools can be controlled by the same entity, it is impossible to judge whether ownership tends towards decentralization based on the number of mines alone.

Mining pools that lower their fixed fees will have more distributable rewards, but operators will forgo a portion of the stable revenue. This trade-off is most acute in small mining pools where blocks are irregular and operating revenues would otherwise be meagre. The authors of the proposal see this as merely helping to attract collateral from smaller mines, and view it as a transitional step towards broader fee reforms.

Greater context: The issue of where the reward money comes from is not on this ballot.

Cardano's broader issue of reward funding was not affected by the vote either. Over a 73-year period, transaction fees accounted for less than 1% of collateral rewards. The threshold changed only as to who would be entitled to share in the rewards within the pool of downgrades, rather than the size of the reward itself.

The test at hand is governance: whether the DREP and Constitutional Commission can meet their respective thresholds by October 11th. If they pass, the next test will be the actual behaviour of operators. Measurable returns for commissioners will depend on how many mines actually declare lower fixed costs, how often these mines produce rewards, and if the revenue retained by the operator supports its independent operation.

Cardano proposal slashes fees by 55%, but it comes with a cost for small pools