Cardano Treasury Bonds

Governance
, , ,
1

Draft: Leveraging Cardano Treasury Through Bond Issuance

Title: “Sustainable Capital Formation via Treasury Bonds: Unlocking Long-Term Growth for the Cardano Ecosystem”

  1. Executive Summary:

This proposal introduces an innovative financial mechanism for Cardano: Treasury Bonds. While the Cardano Treasury has been the primary funding source for ecosystem development, the current outflow rate far exceeds its replenishment, leading to a structural deficit. To ensure long-term financial sustainability and reduce reliance on treasury ADA outflow, we propose leveraging the treasury’s asset base to raise external capital through debt instruments. This would allow for responsible capital formation while tying ecosystem success to institutional and DeFi-aligned stakeholders.

  1. Context & Problem Statement:
  • Treasury currently holds approximately 1.7B ADA, valued at $1.3B (at $0.80/ADA).
  • Annual budget spending (e.g., 2025): ~290M ADA, roughly $145M at current price.
  • Treasury income (excluding reserves): ~2M ADA/year via transaction fees across 73 epochs.
  • Net change limit for 2025 is 350M ADA, creating a growing budgetary gap.
  • ADA in circulation: 35B ADA, yet only <10M ADA is actively used in DeFi.
  • Cardano TVL is around $345M, which is only a fraction of its market cap.

Challenge: ADA outflows are unsustainable long-term. Without increased fee-based revenue or alternate funding mechanisms, the Treasury could face depletion within 5–6 years under current growth assumptions.

Moreover, the broader ADA liquidity remains underutilized. The absence of trustable, yield-generating, and protocol-native financial instruments has kept most of the circulating ADA idle. This stifles DeFi growth and ecosystem adoption.

  1. Proposed Solution: Treasury Bonds as Sustainable Capital Instruments

We propose issuing Cardano Treasury Bonds, where:

  • The Treasury acts as the backer, not just a fund source.
  • Bonds are sold in USD, stablecoins, or major cryptocurrencies (BTC, ETH, etc.).
  • Bonds carry fixed or variable interest rates (6%–10%).
  • Term: 5–10 years.
  • Smart contracts manage issuance, repayment, and oversight.
  • Bonds are issued as NFTs, making them easily tradable, verifiable, and compatible with existing Cardano NFT infrastructure and marketplaces.

This shifts Cardano from being a grant-only system to a capital-efficient, investment-oriented network.

Furthermore, issuing zero-interest treasury bonds to mission-aligned entities like Cardano Foundation and Emurgo can provide strategic capital without introducing repayment pressure. These bonds can act as alignment tools and signal confidence to the broader market.

A bond backed by treasury ADA offers a protocol-native trust layer — encouraging ADA holders to participate, knowing their principal is backed by treasury governance and rules. This trust could trigger a virtuous cycle of ADA utility, where:

  • Bonds unlock capital.
  • Capital funds real ecosystem growth.
  • Growth increases on-chain use and transaction fees.
  • Fees replenish the treasury, completing the cycle.
  1. Complement to Current Treasury Budgeting Framework

This bond model does not replace the current treasury funding cycle. Instead, it:

  • Complements treasury grants by enabling larger-scale, milestone-driven investments.
  • Preserves ADA holdings by reducing direct outflow.
  • Introduces long-term fiscal responsibility.
  1. Treasury Modeling

Assumptions:

  • ADA price = $0.50
  • Treasury = 2.6B ADA = $1.3B
  • Loan Amount = $300M
  • Term = 10 years
  • Interest = 10% annual
  • Annual repayment = $30M

Comparison: Direct Grant vs Bond-Backed Model

Parameter Treasury Grant Model Treasury Bond Model
Immediate ADA Outflow 290M ADA 0 ADA
Annual Cost $145M $30M
Risk to Treasury Value High Medium
Ecosystem Scalability Limited Higher
Reusability of Capital No Yes (via repayments)
  1. Funding Strategy

Raise capital from:

  • Cardano Foundation ($673M) and Emurgo
  • DeFi protocols (bond sale in stablecoins)
  • ETF funds and institutional entities
  • Retail investors via fractional on-chain bonds

Bonds can be:

  • Fully collateralized (ADA reserve)
  • Revenue-backed (via staking or transaction fee commitments)
  • Liquid, tradeable on secondary DeFi markets via NFT platforms
  1. Smart Contract Architecture
  • Bond Issuance Contract: Mint and manage bond NFTs with metadata on terms
  • Escrow/Repayment Contract: Collect fees, interest, and repay
  • Governance Module: dReps vote to authorize issuance terms
  • Triggers & Milestones: Automated repayment schedules
  1. Ecosystem Benefits
  • Reduces ADA outflow pressure
  • Promotes institutional engagement
  • Unlocks stablecoin and multi-chain capital
  • Builds Cardano-native DeFi debt instruments
  • Creates an incentive-aligned growth engine
  • Encourages dormant ADA participation through trustable on-chain tools
  • Enables NFT-based bond trading with wallet-native compatibility
  1. Risk Analysis
Risk Mitigation Strategy
Interest Rate Volatility Fixed-rate bonds or adjustable ceilings
Bond Default Treasury-backed with clear repayment terms
Smart Contract Failure Audited contracts, multisig escrow
Price Fluctuation of ADA Loans in stablecoins, or hedged products

  1. Governance Proposal Pathway

  2. Present concept to Community for feedback

  3. Launch pilot with capped bond issuance ($20M max)

  4. Conduct ecosystem vote via on-chain governance

  5. Build Treasury Bond Subcommittee or Bond DAO

  6. Expand via phased approach based on pilot outcomes

  1. Roadmap
Phase Timeline Milestone
1 Q3 2025 Proposal Review & Governance Motion
2 Q4 2025 Smart Contract Design & Auditing
3 Q1 2026 Pilot Bond Launch ($20M)
4 Q2–Q3 2026 Risk Monitoring & Feedback Loop
5 Q4 2026+ Scaled Rollout (up to $300M)
  1. Conclusion

Cardano’s mission of decentralized, sustainable, and inclusive finance must be matched with forward-looking economic infrastructure. Treasury Bonds will transform the Treasury from a passive grant wallet into an active, capital-efficient economic engine. By tying the growth of the chain to repayment and institutional alignment, we create a virtuous feedback loop that fosters both resilience and scale.

2

Hello @gintama

I traded treasury bonds and T-bills before and I’m very confused about what this is saying.

  1. Who is issuing bonds in this model?
  2. How does borrowing money fix “budgetary gap” ?

This is not how to show annualized cost over 10 years. The correct number in your scenario would be Treasury Grant Model: $14.5M Treasury Bond Model: $45.5M. You can’t claim one year lump sum payment is same as one yearly repayment that repeats 10 times.

What? :backhand_index_pointing_up:

How would that be done with risk of currency/ ₳ spread. One bond maturing at the wrong time in a price cycle can bankrupt the entire treasury.

  1. Who guaranties that Cardano wont be emptied by ₳ vote proposals before bond matures. Also, if ₳ is locked in from the treasury for this bond in a contract, how is this any different then before, except now it costs us interest payment monthly.

How do you enforce this in a real world, since it can’t be done by smart contracts?

Just a few questions, I got more.

2 Likes
3

A: Thank you for raising this important question. In this proposed model, the bonds are not issued by a centralized entity or institution. Instead, they would be deployed and managed by a smart contract activated through a passed on-chain governance action. This mechanism avoids the direct involvement of a legal entity that might otherwise trigger securities regulations in various jurisdictions.

To ensure robustness and technical feasibility, we envision collaborating with trusted Cardano-native DeFi builders (e.g., FluidTokens, Liqwid, or Danogo) to prototype and audit such a smart contract system.

1 Like
4

A: That’s a great point. Borrowing doesn’t “fix” the budgetary gap in the traditional sense. Instead, it offers an alternative complementary funding mechanism. The core idea is to reduce direct ADA issuance from the Treasury, which contributes to inflation, and instead leverage the value of the Treasury’s existing ADA holdings to raise stablecoin or fiat-denominated capital.

This strategy allows us to access funding while preserving ADA’s monetary base and mitigating long-term dilution risk.

A: You’re absolutely right to highlight this distinction. In the refined version, we are now careful to represent annualized costs over a 10-year period for consistency. So yes, under this model:

  • Treasury Grant Model: $145M one-time outflow → effectively $14.5M/year if amortized across 10 years.
  • Bond Repayment Model: ~$30M/year in repayments → ~$300M total over 10 years.

We will ensure future charts clearly reflect this to avoid any confusion between lump-sum and periodic repayment obligations.

A: The idea here is to invite long-standing Cardano entities like the Cardano Foundation and Emurgo—who hold considerable reserves and have a vested interest in the ecosystem—to participate in the pilot bond issuance. This would serve as both a signal of confidence and a source of early capital.

Their participation would not be compulsory but would offer a trust anchor for the broader community and institutional investors who may be observing Cardano’s on-chain funding evolution.

A: This is a valid and serious concern. To address this, the bonds in the pilot stage would not be denominated in ADA, but rather in USD or stable-value terms. This helps mitigate the risk associated with ADA volatility.

In terms of reserve strategy, ADA would not be instantly liquidated or earmarked for bond repayment at issuance, but the Treasury would maintain a dynamic risk buffer. Additionally, mechanisms like tiered repayment scheduling, reserve ratio alerts, and governance-set price thresholds can help contain downside risk.

This is where Net Change Limits and long-term financial modeling embedded in governance can help. Annual caps on spending proposals (already in motion within Intersect and governance tooling) would have to account for long-term bond repayment obligations before approving further outflows.

Yes, locking ADA into smart contracts requires careful planning—but spreading costs over time (via bonds) may be more manageable than large up-front grants, especially in early years of constrained fee revenue.

5

Thank you for taking the time to review the draft.

At this stage, this is an early-stage idea that I’ve put forward with the goal of gathering constructive feedback and insights from knowledgeable members of the community. The intention is to explore whether the concept is feasible and, if so, how it could potentially be put into action in a responsible and effective manner.

I’ve also previously shared a proposal around a potential Cardano Budget 2026 framework, which outlines an alternative approach to long-term ecosystem funding. I would really appreciate your feedback on that as well, especially in the context of broader treasury strategy discussions.

Looking forward to your thoughts and recommendations—thank you again for your reply.
Here is the link Budget 2026

6

Well, considering that most of your responses are just Ai chat bot junk answers (like ChatGPT) I can tell you that it is NOT feasible.

Considering that you just cut and paste this and didn’t even realize that chat bot didn’t understand that treasury is in ₳, since it probably doesn’t know what symbol “₳” means. While anyone reading this that had even a basic understanding of bonds and what we are talking about would instantly know that. None of your response applies at all.

Another cut and paste bot response lacking basic understanding of :cardano:

The offer to sell a bond triggers securities regulation not “involvement of a legal entity”.

But you wouldn’t know this since you are cutting and pasting some AI drivel thinking that it actually make sense.

…and if you understood even a little bit about how it all works you would know that smart contract CAN’T “manage” anything.

@gintama Why do you choose to waste our time like this? You didn’t even put a little bit of effort to understand the basics? Chat bot can’t compensate for that. Are you deliberately misleading people, or just attempting to fake a proposal?

Regurgitating Ai generated text is not gonna get you anywhere. I suggest you spend your time learning instead of faking knowledge.

7

Hello thank you for reply , yes i used chat gpt to write the answers , as english is not my first language , but i have given my answers and asked chat gpt to write it in a proper way , and i am not a dev or a tech expert who knows how smart contract work i am just a user of cardano who want to explore what is possible , and if you feel its too strainful to guide someone or help someone who is not a native speaker of english and a dev , just a normal human users who is not a technical guy and stop people from speaking their mind of share ideas , instead of telling that its chat gpt, ai but not understanding the intention behind it , just focus the front , and guard everthing for dev and tech expert only.

8

well increasing supply of 350M ada in the current budget will lead to a 1% increase in supply in a span of few months which sometime may even take a year or more to be released as a supply , just telling its chat gpt style and stuff would not be helpful, if you can make it so that i can learn and make it more progressing. Than just outright cancel an idea but not explore the possibilities or ways to generate capital we have not looked into yet, but just use the treasury fund and deplete it faster and faster and make it a truth that there can not be another way to raise capital than just take from treasury and use it.

9

well that,s why i shared, to gather feedback, why is it not feasible , what is lacking , just telling not feasible is not an answer i am looking for , and shutting down anyone from expressing the idea or exploring new avenues which can be opened by discussion , and just showing the og role is just stagnation of community and suppresion of thoughtful exchange

10

I am trying to help you. I’m telling you this ChatGPT cut and paste is NOT leading to anything productive. My advice is learn! Don’t waste time with Ai bots, your are jsut copy/pasting nonsense.

You are not sharing ideas. ChatGPT is just spewing nonsense because you don’t know how to ask, because you don’t know the basics. Just take some time to learn the basics first.

11

I gave you a response why is not feasible in my original post.

Not shutting down ideas. I actually took my time letting you know how to get involved into furthering your idea, as well as let you know what is not working. Which is cutting and pasting Ai chat.

12

where is the space to learn , discuss these topics , i have been looking but havent found any , so i try AI

13

if you want my raw answers that i asked ai to write in a proper way i can write that too , and discuss but the raw ideas no one wants to discuss , what can i do . but thanks for taking time and replying and reading though appreciate the effort.

14

Then just use Ai and ask it: “What are the best resources to learn the basic functioning of Cardano?” “How do bonds work?” “How do smart contracts work?”

You know how to use Ai chat bot so start there.

1 Like