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The baking rewards are frozen during the number of preserved cycles, but they are known as soon as the cycle is finished. So what are the downsides of paying delegators immediately ?

The baker needs more capital to pay before their funds are unfrozen, but beyond that, is there any risk ?

Waiting 5 cycles ensures that there will be no chain reorganization. Instantaneous payouts do not have this guarantee. But in case of chain reorg, if the rewards were paid wrongly, it does not really matter since the chain is invalidated anyway ? Am I missing something ?

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If a baker sends rewards out to its delegation prior to the 5 cycle delayed unfreezing, the two primary baker specific downsides are:

  1. The baker needs to have the additional funds available and not needed to pay deposits, for example a baker which is nearing overdelegation would be unable to pay early.

  2. The frozen deposits and rewards are at risk of slashing in the case of double baking.

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