The Initial Stake Pool Offering model

5 min readJul 15, 2021


The Initial Stake Pool Offering (ISO or ISPO) model consists of financing a development project through the creation of a stake pool, establishing a very high variable margin, or even 100%, through which developers collect all the rewards of block validation, and deliver in exchange tokens of the project to their delegators.

This novel model, was designed by the SundaeSwap team, in April 2021, which it did not implement so far, as it twice postponed its stake pool. Then, MELD took advantage of the design and since July of this year, started its funding campaign. Finally, MinSwap recently developed an update on this model, called Fair Stake Pool Offering (FISO), through which an algorithm fairly distributes tokens among its delegators, according to its developers.

To better understand the model, I will first explain, in brief, the incentive model for block validation, in Cardano.

In the Proof of Stake (PoS) consensus, transactions are validated and included in blocks on the blockchain. The validators are nodes in the blockchain, in order to verify the transactions according to the consensus algorithm, by means of encryption. Each time a node is designated as a slot leader, it is enabled to forge a block and collect rewards. The selection of the node (stake pool) by the protocol (Ouroboros in the case of Cardano) depends, among other variables, on the delegation, which is the most important parameter to increase the luck in the slot draw. The delegators, those who are not stake pool operators, are those who, with their ADAs, want to participate in the network consensus (they are not obliged), and give power to the pool they choose, to increase their luck in the validating election. The delegators cede their power to a pool operator, in exchange for rewards.

Now, following the ISPO model, if the variable margin set by the pool operator is 100%, the Ouroboros protocol leaves all the rewards in their hands, after deducting the fixed cost, which is also charged by the operator, and which as a minimum today, per protocol, is ₳340, and can be higher as decided by the pool operator itself. In these cases, delegators will not receive rewards in ADA.

If the variable margin is less than 100%, the Ouroboros protocol will distribute, after deducting the fixed cost, the percentage to the pool operator, and the balance among its delegators. In this case the delegators receive some ADAs for rewards.

In the Proof of Work (PoW) consensus protocol, where block validation is performed by miners with computational power, there is no participation by delegation, and therefore it is not possible to finance projects with this ISPO model. That is why this ISPO model does not exist in Ethereum, the largest DeFi marketplace today, as it has PoW consensus (its migration to PoS consensus is ongoing).

In order to understand the funding power of the ISPO model, we should analyze how much stake pool operators earn for signing a block.

Let’s consider that they are going to finance the project with 100% of what they collect for rewards, i.e. the variable margin will be 100%, plus the fixed cost, usually ₳340. In this format, as I explained, delegators will not receive ADAs but tokens from the development project. Let’s also assume that that stake pool will reach its maximum delegation capacity without reaching saturation, or about ₳65 million, currently.

I will show as a real example, one of Binance’s stake pools, with the maximum possible delegation, at the limit of saturation, to quote epoch rewards.

In this case, BNP has variable margin of 6%, but since we assume that the stake pool, for their ISPO, will be 100% profit, then we must simply add up everything that the SPO and delegators receive (because they will not receive ADAs, and it all goes to the SPO).

Thus we can see an average of ₳730 total rewards per block, approximately (adding the pool and delegator rewards and dividing by the blocks produced).

We then see, that while the number of blocks per epoch varies between 60 and 80, we can take the minimum of 60 blocks to be prudent in our analysis calculations.

Thus we come to conclude that, a stake pool with its maximum delegation capacity, without saturating above 100%, approximately, can sign at least 60 blocks per epoch, collecting a total reward of ₳43,800 minimum average.

If we compare what is budgeted by the different projects in Catalyst, to develop a DEX, we see that the fundraising for funding is much higher in the ISPO model.

MELD, in its proposal, solicits ISPO funds for 32 epochs, and today registers 8 pools, 7 of which register 100% variable margin and 1 of which registers 50%.

Profits from those 7 pools (at 100% rewards), over 32 epochs amount to more than ₳9 million, more than U$12 million at the current price, if we consider that they achieve the ideal delegation in these.

MELD promises to distribute its tokens after those 32 epochs of raising, on December 8, 2021.

MinSwap — Multi-pool DEX, another one of those about to implement this collection model, in its proposal at Catalyst FUND5, requested (only) U$37,500.

A project with great development, such as Liqwid Finance, which won the FUND2, and received funding, requested U$ 38,500.

I leave thus raised the difference in funding, so remarkable, between Catalyst, Cardano’s governance model for funding projects with community votes, and the ISPO model.

We can ask ourselves if this model is illegal, and the answer is no, since it does not violate the network protocol, but uses consensus, with the knowledge and participation of its delegators, who agree to cede their rewards in ADA in exchange for the token of a project, with the exchange rate proposed by the developers. In other words, Ouroboros distributes the rewards as established in the stake pool configuration, and the delegators accept the same.

We can also ask ourselves if this ISPO model is ethical, since using the consensus of a blockchain to fund particular projects is not what the validation protocol was intended for.

The answer to this last question is yours.

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