<p>TL;DR: Centralization in the network is definitely a concern, but I don't think these numbers are scary.</p>
<p>Of course, the goal with staking pools is that they'll decentralize the network and encourage many stake pool adopters. Actually, Cardano has a <a href="https://docs.cardano.org/en/latest/explore-cardano/understanding-pledging-and-rewards.html" rel="noreferrer">formula</a> used to determine block rewards and you'll notice that it reduces rewarding blocks to stake pool operators (SPOs) drastically after a critical value, determined by the number of ADA that will saturate a pool (currently that's ~63.6M ADA). So, there's not a lot of benefit for wallets/users to delegate their stake to a node which is over-saturated since the block rewards will have to be divided among a greater number of people.</p>
<p>However, the stake pool operators have almost no control in the governance/control of the protocol and are only responsible for providing trust/decentralization to the network.</p>
<p>Theoretically, if any single miner controls &gt;51% stake then the security of the blockchain is lost. Practically, though, analysis has determined that with &gt;50% probability a one-block attack can succeed with only 35% control of the network (see <a href="https://arxiv.org/pdf/1904.03487.pdf" rel="noreferrer">page 11</a>). So, centralization is definitely a concern.</p>
<p>Now, if you treat all organizations as &quot;independent stake pool operators&quot; and don't denominate based on corporate structure/private ownership then you'll notice that the largest stake is Binance with 12.36%. I've read the details regarding the <a href="https://docs.google.com/document/d/1bKC6AwAsUMtYS0FqiZgJDgmOMGAeFYD8mbtvHHhLcW4/edit" rel="noreferrer">provenance</a> regarding that chart, I'm not sure how accurate it is. To be sure, there's some uncertainty in these numbers.</p>
<p>However, my guess is that you'll see this distribution swing over 12-month periods as people seek higher returns from smaller SPOs and move funds to/from different exchanges who compete on rates.</p>

CC BY-SA 4.0
2021-04-27T19:14:43.047Z
"So, there's not a lot of benefit for wallets/users to delegate their stake to a node which is over-saturated since the block rewards will have to be divided among a greater number of people.", which is why Binance run multiple (64+) pools, each at the "optimal" (100%) saturation, so they aren't "penalized" by that network formula.
Boyd Stephen Smith Jr.
CC BY-SA 4.0
2021-04-27T19:18:43.063Z
Yeah, and if these nodes all work in concern to achieve some end for Binance then it poses a threat to decentralization given sufficient stake across all pools. One solution is for delegators to select pools from a variety of different SPOs to ensure decentralization. This isn't too hard, since most SPOs have pretty strong branding/online presence.
fuzzybear3965
CC BY-SA 4.0
2021-04-27T18:51:18.550Z
2021-04-27T18:51:18.550Z
fuzzybear3965
<p>I was browsing through the <a href="https://adapools.org/groups" rel="noreferrer">adapools.org groups</a> section to see how decentralized the stake pools were and I noticed that a lot of the central exchanges have a ton of ADA staked and lot of stake pools.</p>
<p><a href="https://i.sstatic.net/Qawon.png" rel="noreferrer"><img src="https://i.sstatic.net/Qawon.png" alt="Biggest groups stake" /></a></p>
<p>Are there any concerns to the network if central exchanges like Binance, etoro, etc gain more stake/create more stake pools that would affect the overall security of the network? Anything from a governance perspective where they would have more voting power for changes to the network in the future?</p>

<stake-pool><decentralization>
Are there any negative effects of having too many stake pools run by central exchanges?
# Are there any negative effects of having too many stake pools run by central exchanges?

(Asked by: username_0 on 2021-04-27)

I was browsing through the [adapools.org groups](https://adapools.org/groups) section to see how decentralized the stake pools were and I noticed that a lot of the central exchanges have a ton of ADA staked and lot of stake pools.

[![Biggest groups stake](https://i.sstatic.net/Qawon.png)](https://i.sstatic.net/Qawon.png)

Are there any concerns to the network if central exchanges like Binance, etoro, etc gain more stake/create more stake pools that would affect the overall security of the network? Anything from a governance perspective where they would have more voting power for changes to the network in the future?

**Tags:** stake-pool, decentralization

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## 1 answers

### Answer by username_1 on 2021-04-27. Score: 10 | Accepted answer

TL;DR: Centralization in the network is definitely a concern, but I don't think these numbers are scary.

Of course, the goal with staking pools is that they'll decentralize the network and encourage many stake pool adopters. Actually, Cardano has a [formula](https://docs.cardano.org/en/latest/explore-cardano/understanding-pledging-and-rewards.html) used to determine block rewards and you'll notice that it reduces rewarding blocks to stake pool operators (SPOs) drastically after a critical value, determined by the number of ADA that will saturate a pool (currently that's ~63.6M ADA). So, there's not a lot of benefit for wallets/users to delegate their stake to a node which is over-saturated since the block rewards will have to be divided among a greater number of people.

However, the stake pool operators have almost no control in the governance/control of the protocol and are only responsible for providing trust/decentralization to the network.

Theoretically, if any single miner controls >51% stake then the security of the blockchain is lost. Practically, though, analysis has determined that with >50% probability a one-block attack can succeed with only 35% control of the network (see [page 11](https://arxiv.org/pdf/1904.03487.pdf)). So, centralization is definitely a concern.

Now, if you treat all organizations as "independent stake pool operators" and don't denominate based on corporate structure/private ownership then you'll notice that the largest stake is Binance with 12.36%. I've read the details regarding the [provenance](https://docs.google.com/document/d/1bKC6AwAsUMtYS0FqiZgJDgmOMGAeFYD8mbtvHHhLcW4/edit) regarding that chart, I'm not sure how accurate it is. To be sure, there's some uncertainty in these numbers.

However, my guess is that you'll see this distribution swing over 12-month periods as people seek higher returns from smaller SPOs and move funds to/from different exchanges who compete on rates.

> **Comments:**
> **username_2**: "So, there's not a lot of benefit for wallets/users to delegate their stake to a node which is over-saturated since the block rewards will have to be divided among a greater number of people.", which is why Binance run multiple (64+) pools, each at the "optimal" (100%) saturation, so they aren't "penalized" by that network formula.  
> **username_1**: Yeah, and if these nodes all work in concern to achieve some end for Binance then it poses a threat to decentralization given sufficient stake across all pools. One solution is for delegators to select pools from a variety of different SPOs to ensure decentralization. This isn't too hard, since most SPOs have pretty strong branding/online presence.  

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