Cardano’s K Parameter to Change in Less Than a Week Could Trigger ADA Price Rally

IOHK, the blockchain development company behind the Cardano blockchain has recently announced that they have successfully implemented a change to the blockchain, raising its k parameter from 150 to 500 on Dec. 6. 

The k parameter on the Cardano blockchain is the reward scheme that sets the “soft-cap” on the pool size. Assuming rational participants and no external factors, at equilibrium, the Cardano stakeholders’ best response behavior converges to k pools of equal size. This would ensure the delivery of the same level of rewards per unit of stake to their delegates.

When Shelley was deployed in Cardano’s mainnet earlier this year, the k parameter was set at k=150. This k parameter limited the pool size to 210 million ADA. This number was already increased from the parameter used in the incentivized testnet (ITN), which was set at the value of k=100. The decision for the slight increase in the value at the time was to ensure that the ITN environment would move smoothly to the mainnet. 

Since the launch of the Shelley mainnet, there was a rise in interest in the community, which led to a larger number of pools. Having observed the trend of the staking pools recently, IOHK decided that the k parameter needed to be adjusted to a higher value.

IOHK also noted that the increase in the k parameter value requires pools and delegators to take action, unlike Cardano’s d-parameter, which stands for decentralization, would become increasingly lowered as the ecosystem gradually gets fully decentralized. Going forward IOHK mentioned that the best strategy for the upwards adjustment of k is to move in “larger and less frequent increments.” 

The change of the k parameter is set to take effect on Dec. 7, at the beginning of epoch 234. IOHK advised delegating to another stake pool if their current stake pool is more than 30% saturated. As of Dec. 6, pools with 64 million ADA will be oversaturated. ADA users who wish to keep their rewards at a maximum have been advised to use the Daedalus wallet to check the statistics of their pool. 

The k parameter would see a new modification in March 2021, and is expected to be raised to 1,000. Tim Harrison, the marketing and communications director at IOHK explained:

“Modeling the long-term viability of stake pools, we found that k values of 1,000 were stable in the long term. As a result, our aim is to move to k=1,000 during March 2021. We recognize the importance of economic factors that also strongly influence pool profitability and will continue to consult widely with the community on the plan; the social dynamics of the network should also not be underestimated.”

IOHK continues to encourage decentralization across a large number of stake pools that are independently operated. IOHK further added that by the end of March 2021, the decentralization parameter will be set to 0, which means that all of Cardano’s blocks will be produced in a decentralized environment.