Edit: I originally published this article with a very boneheaded mistake at 10% fees instead of 1%. The situation is MUCH starker than originally laid out. This has been corrected.
With the recent shut down of Pool Garden, and a very strange thread on ChiaForum.com about Chia pools fudging their numbers (doesn’t look like they were, Chia pool rewards are just complicated), it is probably time to talk about whether or not the pools that are running now will be viable long term businesses.
If your plan is to skip from pool to pool based on who has the thinnest margins then this might not be for you. The pools trying to cut the most corners will always be the most precarious, and it should be obvious to you they might fail. The Chia on-chain pooling protocol was designed to make it easy to move from pool to pool based on who is currently offering the best incentives, so you should feel secure knowing that you’re just a cooldown period away from the next one. In fact, it might even be possible for someone to automate that in the future.
But for people who want to join a pool long term, set it and forget it and have trust that their payments will be regular and fair this question is of utmost importance: are Chia Pools profitable? In order for a service to reliably exist for you, it has to be profitable for the people involved at least to the point where everyone working on it is getting paid. Setting one up might be a labour of love, but running one for years and troubleshooting web issues and offering technical support to farmers is not. That’s a job. And its important that everyone working that job is getting paid or the company won’t exist in the future.
So what does it take to run one profitably? Right now the fee structure seems to have settled around no fees, which is obviously unsustainable and either a foolish decision or the first stage in some sort of scam, or 1% of block rewards. Let’s ignore fee free signup periods and promotions because that’s just marketing investment, perfectly fine if budgeted for. What I want to talk about it is the long term viability of some of these pools.
In order to run one properly you will need a number of servers, preferably in different regions in either AWS or Azure, or something similar. You will need load balancing, as well some separate back-end stuff to handle payments. You will need proper backups. You will need lawyers, at least to some degree. Possibly accountants. There is some overhead is what I am getting at, what that will cost will be highly regional and specific to the decisions made by the pool but its not nothing, and it is primarily monthly recurring cost.
What about revenue? Well that’s where this gets really squirrely. Lets take a smaller pool who wins four blocks per day. That’s 8 Chi…. wait, no its not. Remember, its only the 1.75 that gets claimed by the pool, the other 0.25 XCH gets delivered directly to the farmer that signed the block. So that’s 7XCH per day. For the pool. At 1% that is 0.07 XCH per day. At time of writing that’s about $13.30 USD per day, About $400 USD per month revenue. And that’s at 60 blocks a month. Does your pool do 60 a month? Few will until the consolidations occur.
And let’s talk what it costs. My best guess is about 6 servers in 2 regions with load balancing, as well as a shared database. I threw together a quick Estimate for Azure. AWS might be a little cheaper but this is also a bare bones deployment. My best guess is that the monthly infrastructure costs would be between $1000 and $1500 USD. So more than double the revenue at that size. And there is a need to pay salaries, legal fees, advertising, recoup investment costs (those 0% fee promotions, all the setup time) and any business needs to build cash reserves, especially one with limited ability to access traditional banking.
I think that because of the low returns, relatively high costs and the fact that they all immediately started competing on price instead of features suggests that only a few of the bigger pools will survive, or pools with other revenue streams that are able to loss lead their Chia pool until they are big enough to start making money. According to even hit the 4 blocks per day average discussed here the pool is going to need between 25 and 30 PiB of pool space. According to Miningpoolstats there are only 20 or so pools with that much netspace right now. And that’s for what I consider bare bones break even with very little actual profit for the people involved and without redundant infrastructure. Because of a lot of the costs are fixed regardless of pool size there are great economies of scale here and the bigger the pools the better off they will be long term.
This should absolutely be a consideration for anyone looking to choose a pool to farm with. All the good intentions in the world won’t make running an unsustainable business smart. If any pools want to share their finances with me to some degree, anonymously too is fine, I would love to look at the reality and fix up my assumptions.