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Everything you need to know about Cardano's Shelley incentivized testnet

Testing out game theory with the incentives model

Last week's successful balance check meant that that the incentivized testnet for the Shelley era of the Cardano network is almost ready to go. The balance check has been one of the biggest developments the company has seen in the past few months, as both the company and the Cardano community reported that it was an "overwhelming success."

And now, with just days left before the testnet officially launches, Cardano followed up on its promise and released detailed information about the testnet and the complex incentives model behind it.

In a lengthy blog post on Dec. 5, the company said that one of the key goals for the incentivized testnet is to test the assumptions made in the Ourbouros incentives whitepaper, the company's complex game theory protocol.

When explaining why they implemented game theory into its incentives model, the company said:

"One of the core principles of game theory is that an ideal system is one where a selfish participant, acting in their own best interests, is also, by design, acting in the best interests of the system."

To ensure fair implementation of game theory, the company employs its Ouroboros mechanism. The set of instructions specify how and when rewards are paid out and allows network participants to act in their own self-interest while maintaining the health of the network.

Testnet participants will try out the incentive model

The game theory won't be the only thing put to the test in the incentivized testnet, Cardano said. The company will also test out the technology behind the Cardano blockchain in order to ensure there's a secure and stable baseline for future rewards calculations.

According to the company, the first versions of the incentivized testnet will only have a limited number of factors included in the rewards calculation. The ranking will first be based solely on a stake pool's performance but will transition to a desirability-based ranking as the testnet progresses. That means that a combination of cost, margin, pledged stake, and performance will determine the desirability of a staking pool.

As per the rewards for delegating or operating a stake pool, the company said they will depend upon the percentage of network participation. With approximately 3.8 million ada awarded per epoch, a 50 percent network participation rate will bring the annual return for delegation to 7 or 8 percent. Lower network participation could bring the returns closer to 15 percent.

Cardano said that a rewards calculator is currently in the works and should be released soon, enabling users to get a more accurate prediction of their returns.