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I remember that initially the percentage of rewards for delegators was around 5.12% visiting Cardano Calculator. Now they are approximately 4.6083%.

How this is calculated? Will the percentage decrease over the years?

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As explained in the docs, rewards come from:

  • Transaction fees (increases in time if adoption and network traffic increases)
  • Monetary expansion (decreases in time)

The sum of these is denoted by R and the share of rewards that a given pool gets is given by:

enter image description here

where: R - total available rewards for this epoch

a0 - pledge influence factor (can be between 0 and infinity)

z0 - relative pool saturation size, i.e. 0.5% based on a number of desired pools (k=200)

σ - stake delegated to the pool (including stake pledged by the owners and stake delegated by others)

σ’ = min(σ, z0) - as σ, but capped at z0

s - stake pledged by the owners

s’ = min(s, z0) - as s, but capped at z0

About monetary expansion and issuance, you may check this section of the docs. Essentially, every epoch, a fixed fraction ρ is taken from the ADA reserves and is added into R. From the docs:

Calculating the ‘reserve half life’ (that is, the time that it takes for half of the reserve to be used up) visualizes the impact of choosing a specific value of ρ over another. This was the subject of much discussion, and eventually, the value assigned was 0.3%. The reason why is that mathematical projections showed that a ρ (the fixed percentage of ada going into the virtual pot every epoch) value of 0.3% would mean a reserve half-life of four to five years. In simple terms, just half of the remaining reserve would be used every four to five years.

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  • 1
    Based on that information can we say that this percentage of 4.6% annual return will be approximately the same or over the years this can decrease substantially? I am asking because based on that information I will be able to better plan the future of a foundation which will funded from the rewards. May 31 at 13:15
  • At best, you can define different scenarios under different assumptions. Perhaps a simple lower bound could be established assuming that R is mainly given by monetary expansion and ignore transaction fees. In that case, rewards should decrease by 50% every 4-5 years. But a more general analysis should also consider projections on network growth. I'll leave that work to you ;)
    – vaz
    Jun 1 at 8:40
  • Charles mentioned that over the time the idea is the rewards to be ensured by the transactions fees when we have billion of transactions. I just wanted to see if there is something else to this question (like the formula above). Jun 1 at 14:55
  • That's correct. By network growth I mean more transactions and hence more fees. You would need to evaluate different scenarios to get a better idea.
    – vaz
    Jun 1 at 19:25
  • The link to the formula is not available anymore. It can now be found here: testnets.cardano.org/en/testnets/cardano/get-started/…
    – Sandro
    Sep 23 at 11:11

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