Effective Cuts Explained with a Practical Example.
If the indexer has 20 GRT staked, and 80 GRT delegated, his total stake would be 100 GRT, and let’s assume it’s fully allocated, so the full 100 GRT are currently generating rewards.
Let’s also assume that every 1 GRT staked generates 1 GRT in our math (in practice the numbers would be much smaller, but the ratios still match up). With all these assumptions, let’s check the case where our fellow indexer has a 10% reward cut, and how that translates to effective reward cut.
Our total daily rewards generated is 100 GRT (as per assumptions), with 20 GRT generated by the indexers own stake, and 80 GRT generated by the delegated stake.
Our indexer has a 10% reward cut, which means that he gets to keep 10% of the total amount of GRT generated. Since the total rewards were 100 GRT, he keeps 10 GRT, and gives 90 GRT to the delegators (Delegation pool). The delegation pool then distributes the rewards proportionally to every delegator in the pool based on it’s amount of shares of the pool.