Purpose of This Post: (1) Present and discuss an alternative ADA distribution/capital structure that would expand the pie for all ADA stakeholders and simultaneously return a higher ROI and more total long-run wealth to the team and early investors; (2) fix Cardano’s most significant PR problem, which is virtually guaranteed to get worse over time and it will suppress the long-term market growth of ADA.
Capital Structure Adjustments Are Very Common. As you read this post, please keep this fundamental business principle in mind: If an organization’s capital structure is not aligned with its stated goals, then it doesn’t matter whether existing investors like the status quo or not because a bad capital structure will prevent the company and investors from achieving their goals. For this reason, capital structure adjustments happen every day in the business world; so, there’s no rational reason for anybody to perceive anything I’ve ever described in this community as some kind of crazy, communist plot to harpoon any whales.
What Is the Ideal Capital Structure (aka, ADA Distribution)? I suspect the team chose the current structure because they were afraid of losing control too early before the platform was mature enough to handle real democratic governance. Assuming that’s the case, it’s possible to create a clean separation between the ADA capital structure and the governance process so that the economic wealth and political power over platform development were not controlled by the same benevolent rulers. Respectfully, I’m pretty sure there is no technical reason why the team and whales need to collectively own 65-75% of the entire ADA economy if wealth and governance are separate (at least in the beginning). In fact, this will be a significant PR problem and it will turn off many millions of people once they understand exactly how concentrated ADA actually is because it renders many of Cardano’s most inspiring selling points totally moot. As a result, it doesn’t matter what the current capital structure is if it’s not sustainable in the real world of Political Economy.
Early Investors Will Gain Much More from a Capital Restructuring than They Will Without it. In the proposed ADA capital/distribution restructuring analysis below, we would be asking the whales and founders to restructure a portion of their holdings, but the results would be a much bigger pie for everybody over the long-run. This would result in greater wealth for the whales and early investors than they could achieve under the current capital structure. In fact, it would only require a 1x increase over the expected status quo returns for all the investors to achieve a greater total level of wealth than they would with the status quo. And after the restructuring, all the other ADA stakeholders would have an opportunity to earn much more ADA wealth, too; then all the existing ADA distribution problems would disappear.
The analysis below illustrates how the early investors/team would achieve a 4x increase in ROI more than the status quo capital structure. Recall that the ROI for successful cryptos is already ridiculous (most of the early investors already have at least a 30,000% ROI as of today (in JPY)); so, what I’m describing here is in addition to the expected status quo returns, i.e., 4x the status quo projection (4 x 290,540%), which results in a 1,452,795% ROI. (Only in cryptoland is this realistically possible.)
“Max Future Price ADA.” This represents a possible maximum price of ADA (in Japanese Yen) based on certain conservative assumptions associated with the two capital/distribution structure scenarios. Of course, the actual max price could be more or less.
This Solution is Aligned with the Best Interests of Our Entire Community. Below is the same analysis, which illustrates that it only takes a 1x increase in the price of ADA over the status quo scenario to enable the early investors/team to achieve a higher ROI and more total wealth than they would under the status quo, while simultaneously spreading the wealth throughout the economy much more evenly. And given the expected PR benefits associated with this capital structure adjustment, we can realistically expect much more than a 1x increase, which means this proposal is fully aligned with the long-term best interests of the early investors, the team, and our entire community.
ADA Value & Minting Streams. With the early investors currently owning 65-75% of all ADA in circulation, distributing the ADA based on stake alone is obviously a path to perpetual oligarchy. All the idealistic comments about how they hope the whales will behave (e.g., “Why would the wales crash the market and hurt their own interests?”) reflects a deep misunderstanding of markets and organizational politics in the real world. It also completely defeats the purpose of building a decentralized platform and it ignores all the lessons from the history of Political Economy. So, IMHO, the ADA minting rewards should flow throughout the ADA economy based on the following synergistic principles of equity, accountability, and systemic sustainability.
Based on 100% of total future minted ADA (specific unit quantity defined later) . . .
Stake Value (20%): This portion of total future minted ADA flows to ADA stakeholders on a pro rata basis , which is based on how much ADA they already have. (See caveat for founder’s stake below.)
Humanity Maintenance (20%): This portion of total future minted ADA flows to all ADA stakeholders on a per-human basis (e.g., a basic income), which is based on recognizing their essential value and dignity as human beings. This may seem strange now, but many types of A.I. will also be stakeholders on the network (some probably already are); thus, we should create an ADA economy that places a higher priority on human welfare over the welfare of A.I. stakeholders. (Verifying that a wallet is attached to a human could be based on numerous existing zero-knowledge proofs without leaking any personally identifiable information.)
Network Maintenance Value (20%): This portion of total future minted ADA flows to stake pool operators, which are essential to maintaining the stability and sustainability of the network. (See caveat for founder’s stake pools below.)
Ecosystem Innovation Value (20%): This portion of total future minted ADA flows to stakeholders based on several metrics that measure the value/impact that their technological innovations contribute to the ADA ecosystem. This includes Dapps, Ouroboros protocol improvements, hardware wallets, ADA<->hardware interfaces of all kinds, etc.
Social Value (20%): This portion of total future minted ADA flows to stakeholders based on how many people they bring into the ADA economy.
All the minting reward streams listed above can be substantially automated and crowd-voted through the Cardano treasury system so that we are not concentrating too much human discretion in the hands of a few human CF administrators. Additionally, all five of the minting streams above are valuable and important for Cardano’s long-term success. So, even though I know some relatively hardline libertarians will probably not be completely comfortable with the 2nd and 5th bullets, I hope they will think deeply about how A.I. will affect Cardano and human societies in general and reconsider how humans will survive when A.I. begins to take the vast majority of human jobs. Fiat and Crypto basic incomes can be part of the solution.
How Should Founder’s Stake be Treated? The founder’s and many early investors will be billionaires and mega-millionaires, especially if they execute a strategy that truly inspires worldwide confidence and enthusiasm for the ADA economy. In this context, the founder’s staking rewards (including any founder’s stake pool rewards) should be treated as “unissued ADA” (not burned) and distributed across the five categories above to non-founders throughout the ADA economy as part of the normal minting process. (Note: @Lovelacepool deserves credit for inspiring us to think about this idea.)
The PR Benefits of this Benevolent Approach. Committing to this approach and demonstrating that the founders are not greedy will be inspiring for many people. This will inspire a much larger portion of humanity to join the ADA economy, which will increase the price of everybody’s ADA much faster. This is one of the most significant reasons why I have confidence that the restructuring plan I’ve described above would be a much more profitable and sustainable capital/distribution structure for the entire ADA economy. If the power of this principle is truly understood by the founders and our community, then there’s no rational reason for any of the early investors to reject this idea; nor is there any reason for anybody to complain that this is somehow a communist plot to steal anybody’s ADA (that would be ideological blindness). To the contrary, it’s a big win-win for everybody.
With that in mind, please keep your minds open and consider the following capital structure (ADA distribution) tables, which correspond to the capital/distribution restructuring analysis above.
This Proposed ADA Distribution Resolves the PR Problem, which is the Biggest Problem of All. If our community really wants ADA to become a global currency, then we should pay much more attention to the optics of this ADA distribution problem. Technical superiority is not enough to overcome all the major competitive threats in the world today. So, IMHO, this capital structure will help us eliminate this significant PR time-bomb and help us to maximize the global confidence, adoption rate, and price of ADA.
This Proposed ADA Distribution is Realistic & Achievable. If our community understands the PR and long-term sustainability benefits associated with the proposed capital/distribution structure above, then the next step would be to make a commitment to adjust the existing capital structure accordingly, which is a very common practice in the business world. With a consensus in place, the team could then work with each bloc of early voucher investors to adjust the existing structure (based on well-established capital structure adjustment principles) until the targets illustrated above are achieved.
This is done every day in the investment banking world; so, anybody who thinks this is impossible has never had to deal with hundreds or thousands of shareholders in a public company. In large public companies, delicate issues (including capital structure adjustments) are frequently brought to shareholders; and the shareholders who care about the company’s future usually cooperate as long as the company’s executive leadership understands the issues well enough to make a persuasive case to the shareholder community. This situation is no different.
Distribution of Voting Power. The administrative control of the Cardano project is a separate process and so it should be separated from the ADA distribution process during the first few years until some set of “Platform Milestones” (PM) are achieved. Each accomplished PM would bring the community closer to being fully democratic. Then, once the final PM is achieved, administrative control of the platform could be gradually handed off to the community based on a mixed proportional representation voting system based on the following two primary criteria:
Per-Human: 50% of total voting power could be exercised on a per-human basis using the Single Transferrable Vote method, which is widely regarded as the most efficient and democratic vote counting method ever created. (Again, zero-knowledge proofs can be used to confirm that the wallet address is owned by one and only one human without leaking any of the human’s personally identifiable information. This way, no human would ever be able to vote twice with multiple wallets.)
Per-ADA: 50% of total voting power could be exercised based on ADA stake.
Those two voting components can be merged into a single mixed-proportional voting system that provides a much more democratic experience than what we would have today if voting power was based only on ADA stake.
And implementing the zero-knowledge proof features will open the door for many other interesting forms of accountability, which can reduce currency volatility, fraud, and many other forms of harmful behavior without sacrificing our privacy.
Bottom Line: Fixing the capital structure will simultaneously increase the total pie for everyone, increase the investors’/team’s ROI and total long-term wealth, eliminate the ADA concentration problem, and eliminate the corresponding PR problem. Fixing the capital structure would not require a hard fork, but if the capital structure remains the way it is now, that creates a structural incentive for many groups to exploit this weakness and fork Cardano later. That structural incentive currently exists regardless of whether we talk about it or not; so, closing our eyes and hoping for the best is not a very useful option.
Looking forward to your thoughtful comments.
(NOTE: I put a significant amount of time into this post. So, I would appreciate it if the nasty trolls would ignore this post completely or find a way to be on their best behavior. Thank you.)