When we consider what it does this formula is not complicated. However, when put together it has many components because it takes many things into consideration when allocating airdrops.The formula aims to
The lower the delegation the lower the likelihood of MAL pool being elected to be slot leader. The pool only earns rewards for successfully producing blocks. Hence, when delegation is small blocks are not produced every epoch or when only one block is produced the minimum (enforced by Cardano protocol) fixed fee eats almost half of the generated profits.
To compensate for this a boost is introduced for total active delegation under 4M ADA to reward the early delegators.
Each project faces the possibility of single actor ending up holding a significant portion of the tokens.
Such an allocation reduces price smoothness (one person selling might significantly impact the current token market price, which happens in a jump, hence not smooth). Price smoothness is very desirable metric for healthy price evolution and avoiding stress mechanics.
What's more, a lot of value in every blockchain project is derived directly from the community, and in turn this is proportionally represented by how decentralised the token itself is (how many entities hold similar amounts).
Token decentralisation directly impacts a tokens perceived value, which can be observed through many examples of NFT projects where scarcity is balanced against enough people having the asset to create a network effect.
In case of highly centralised currency, a whale total holding might increase in absolute value if distributing a portion of the stake among the community. We used this observation and the decentralisation to be the major goal of tokenomics to create whale-balancing mechanism.
Whale-balancing removes some of the rewards from whales and redistributes them to the smallest delegators. We believe, based on performed simulations (using Markov chain Monte Carlo - MCMC) method, in such amount that net value of whale holding is intact, but at the same time, the net value of all holders is increased (due to now higher decentralisation of the token).
Whale-balancing is achieved strictly via scaling factor.
Lottery introduces an element of randomness to token allocation. Each epoch is allocated to a single delegator with delegation ADA.
By the law of large numbers, the majority of delegators will have small stakes, therefore, it is yet another whale-balancing mechanism. However, the sheer unpredictibility of it makes it impossible to control.
Such unpredictability has 2 main advantages - natural escape from local equilibrium toward global one and introduction of surprise that everyone likes.
Airdrops are computed using active stake. Live stake is the current delegation to the pool. Active stake is delegation that is currently contribution to the block production. Initially, when the pool is changed the user's stake remains active with the current pool for 2 more epochs, and only in 3rd epoch starts contributing to the block producton in the new pool. Therefore, it is only logical that in all calculations we take the active stake.