CF should abstain from delegating "their" Ada

English General Discussions
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CF Should not be permitted to delegate “their” Ada and here is why:

  1. CF is a not for profit organisation tasked with representing the Cardano community.
  2. Ada held by CF is not owned by its employees, it is community Ada.
  3. CF employees are making the delegation decisions. These are human decisions and there will always be opaqueness surrounding any backroom deals and friendships creating undue influence. This type of human influence is exactly what Cardano is trying to design out of the financial operating system of the future.
  4. Rewards are a finite pot. Rewards taken by CF are thus not available for the remainder of the community. IE: If CF stopped taking rewards then this would allow more to be paid out to the community of real user Ada owners.
  5. Parameters can be changed so that the reward depletion rate remains constant even as removing CF delegation results in a lower overall delegation rate. Sure this would make Cardano’s “delegated Ada percentage” reduce, but this is simply a vanity metric. If you really want to assess this type of vanity metric then it would be better to look at the “percentage of real user Ada delegated”. Including Ada held by CF, that was gifted to CF by the community, is artificially inflating the vanity metric.
  6. There would be less potential for manipulation of the consensus mechanism, and less ability for human influence over viability of individual stake pools, if CF did not stake their Ada. Note that how many blocks a stake pool produces depends on their stake and if CF is influencing this with their enormous Ada wallets then they are directly influencing the block production, and the consensus mechanism.
  7. The ongoing funding needs of CF would be better managed by a small percentage of all transaction fees being paid to CF reserves.

Allowing CF to delegate their Ada is only providing an avenue for manipulation which is something Cardano is trying to design out. Real human user stakers can earn higher rewards directly if CF didn’t delegate. Real human user stakers can make their own decisions about which pools to delegate to based on their own personal values. These values could be quite different to those held by any particular individual employee of CF.

Moreover the influence of each individual Ada owner over the staking and consensus mechanisms should be proportional to the amount of Ada that individual user owns. CF is perverting this Cardano fundamental design objective by delegating the CF held, but community owned, Ada.

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Ada (and Bitcoin) held by CF doesn’t belong to community. It was donated to Swiss CF by 3 original founding entities. Swiss CF is not delegating Cardano treasury nor reserve Ada (which does belong to the community). They are free to invest their funds/ endowments any way they think will keep them properly funded. This includes delegating to any Cardano pool.

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Cardano treasury Ada and reserve Ada is not delegated and both pools of Ada are irrelevant to this discussion. What I am trying to discuss is whether CF should have the right to delegate the CF held Ada.

It is true that the CF held Ada (and Bitcoin) was gifted to CF by the original entities that created Cardano. But these gifts to CF were for the benefit of the Cardano community and on behalf of the future Cardano community.

“The Cardano Foundation is an independent, Swiss-based not-for-profit organization tasked with advancing Cardano”…

So how does Cardano Foundation determine what is the best interests of the Cardano community when seeking to advance Cardano? Now that we have on-chain governance, then the best way to determine what the community values is through voting I guess.

Nevertheless, the CF held Ada is to be used for advancing Cardano. IE: The CF Ada is held on benefit for the Cardano community.

I am arguing that having a group of employees at CF determine how to manipulate the profitability of various chosen stake pools, and also influence the consensus of the blockchain as a byproduct, is probably not in the best interests of the Cadano community. Especially considering that Cardano is trying to build a financial operating system that removes this sort of human manipulation. If CF needs a certain amount of extra Ada funding to assure their long term sustainability then it would be less open to manipulation to obtain this Ada through direct taxation rather than by taking some of the reward pot Ada.

As a non-controversial thought experiment: Say the Cardano community decided to have a vote to determine what colour the Cardano flag should be. Do you think it would be OK for the CF employees to vote the CF Ada in this poll? Or do you think the CF Ada should abstain from such a vote? I would argue that CF should abstain from such a vote because it should be left entirely to the will of the Cardano community. IE: The CF employees should vote their own personal Ada but not the CF held Ada.

I am making a similar argument about manipulating the viability of various stake pools and manipulating the consensus mechanism by ensuring that certain chosen pools get to make more blocks than others. The Ouroboros protocol was designed so that the community of Ada holders would determine such things by voting their stake keys representing the Ada they individually own.

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In essence:

Why should CF employees get more voting, consensus, or staking power than any other individual Ada holder?

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No.
These gifts were for the benefit of Swiss CF itself.
If you actually read the quote that you posted:

“The Cardano Foundation is an independent, Swiss-based not-for-profit organization tasked with advancing Cardano as a public infrastructure across a wide range of industries.”

You can see that Swiss CF is tasked with advancing Cardano protocol and is independent from Cardano community. While it is obvious that supporting Cardano protocol benefits Cardano community, it is also very clear that protocol is distinct from a community.

I see that you make a logical leap here and assume that just because Swiss CF mission is to advance Cardano protocol that it somehow makes them subordinate to Cardano community. This is just not the case. Swiss CF is just tasked with protocol advancement and is independent from community.

It is completely expected that CF may from time to time take actions that may be beneficial for Cardano protocol while those actions may negatively impact Cardano community. That’s part of being independent and protocol focused.

Swiss CF can engage with Cardano community and work together, but CFs reason for existence is to advance Cardano protocol as a digital utility.

They don’t.
Swiss CF is Ada holder and it gets 1 Ada = 1 Vote as any other Ada holder. Suggesting ‘tiers’ of holders is very dangerous slippery slope.

You may, as a community member, engage with Swiss CF and present a better way to fund pools with their Ada. They may or may not listen to such advice. However, Swiss CF must stay independent, self-reliant, internally managed entity that is only concerned with protocol health as it’s main priority.

As for “manipulating” and viability of stake pools. Swiss CF as an Ada holder has the same right as all other Ada holders. Their choice is theirs to make.

I appreciate that Swiss CF chose to tell us in a first place, so community can know who they delegated to. This way other delegates have better info about the source and permanence of delegating power of those pools.

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The CF not for profit organisation is not analogous to a private company. In the case of a private company, such as IOG, the ultimate owners of the company are its shareholders. And, the shareholders have voting rights to ultimately control how the company employees vote the company Ada. However CF is a not for profit organisation without shareholders that is tasked with advancing the Cardano protocol.

So yes, the CF employees do get more voting, consensus and staking power than other ordinary Ada owners because these individual employees are effectively controlling Ada that they don’t personally own.

If you disagree, then who (ie: which individual humans) would you say ultimately has governance control over how the CF employees choose to vote the CF Ada?

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Swiss CF owns all those assets.
As you pointed out, non-profits have no members nor shareholders. So, the only decision makers for non-profit are the foundation board. Think of it as brains of the organization.
The board is responsible for foundation assets and all decisions foundation makes.
Also, any income is not given to board members, it is retained by Swiss CF itself.

So foundation board chooses how foundation uses it’s own voting and earning power. Actions of the board are actions of the foundation, not actions of individual employees.

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OK. So now we are at the crux of the problem.

The CF board paid employees, and under their direction the other CF employees appointed to work for CF organisation, have increased voting, consensus, and staking power because they are controlling more Ada than they individually own.

This extra Ada they are controlling is being controlled on behalf of the Cardano community. Unless legally the Swiss Govt has some say over how these board members and CF employees act, then ultimately all these people should be acting on behalf of, and in the interests of, the Cardano community. If the Swiss Govt has some say then that doesn’t improve the situation of this disproportionate Ada control. On the contrary, it is even more reason that CF should not be voting their Ada because doing so will alter the Cardano community vote and it will alter the community block production and community consensus. Such action is contrary to the design objectives of the Ouroboros protocol as outlined in the design papers.

There is a group of humans at CF that have increased Ada voting power which can be influenced to manipulate the outcome of Cardano community consensus. And they are already influencing the viability of chosen stake pools and potentially they will change the outcome of community governance votes.

I think it is worth discussing whether we (the Cardano community) think that should happen.

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That’s just not how foundations work. There is no “on behalf of”.

A foundation has a purpose, an objective laid down in its bylaws and pursues it independently. If they crassly fail at that, the jurisdiction they are operating in – Switzerland in this case – can do something and only them can do so, not some alleged will of a “community”.

Nope, not really. The design papers say nothing about how an entity controlling the keys to a bag of ADA came to control it.

There are many other entities controlling ADA that they arguably didn’t “earn” or buy as other holders did – Emurgo, IOG, exchanges, centralised as well as decentralised ones, the pools of DeFi protocols, …

You can want to claw back the genesis ADA. I personally would first claw back Emurgo’s ADA, then IOG’s ADA, and only then CF’s in order of how bad I perceive the genesis entities to be at the moment.

But in all cases, such an action would probably hurt the trust in the immutability promise of crypto more than it would reach any benefits one might hope for.

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@HeptaSean: I don’t want to get sidetracked into debating about the Ada that is owned by private companies like IOG and Emurgo. These entities have shareholders who ultimately own the company assets and control the voting of that Ada.

On the other hand, CF is a different class of Ada holder in that it is a Swiss not-for-profit organisation which has no controlling shareholders and thus no controlling owners. The CF office bearers have a fiduciary duty to act in the best interests of the organisation which by implication means the best interests of the Cardano community.

Now stop me there if anyone wishes to argue that the best interests of the CF organisation should differ from the best interests of the Cardano community. Otherwise let’s keep following that thread.

Turning to Ouroboros consensus: The design outlines how the community of Ada owners can point their staking keys at pools they prefer and by doing so this controls the block production which in turn controls the chain consensus. IE: The community is voting for which pools should make the blocks.

Now, CF office bearers have a duty to act in the best interests of the Cardano community. And the community has already told them which stake pools they want to make the blocks. CF can see how the community is voting for stake pools by looking at the stake key transactions on-chain. If the CF office bearers vote the CF held Ada in different weighting to the community decided distribution then they are by definition altering community consensus.

Cardano is trying to build a financial operating system where 1 Ada = 1 vote and which has designed out instances where individual humans do backroom deals to shift public resources to favour one person, or pool, over another. CF’s Ada holdings may not be simply defined as public resources, but the Cardano community does have some right to benefit from this Ada because the CF office bearers do have a duty to act for the Cardano community.

If the Cardano community has voted certain pools to produce blocks, and then CF overrules this community consensus by sloshing massive amounts of CF Ada, then such action would seem to conflict with discharging their fiduciary duty.

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They have a board instead that decides what is the best way to achieve its stated goal: bringing Cardano as a whole forward. And that board can and does delegate parts of these decisions to its executives and employees. I fail to see the big difference to any other company holding ADA. If at all, it’s rather less suspicious than even larger chunks of genesis ADA given to private companies acting purely in self-interest.

Not possible to answer this since it is way to subjective what “best interests” are. You have an opinion here, but it’s only an opinion.

Yep, and CF (and the two other beneficiaries of genesis ADA) is one of these ADA owners, one organisation in this community. They are part of this community and not subordinate to it.

You can ask them to consider different actions, but they are totally free to decline or ignore this ask just like any other individual or organisation owning ADA.

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A company has shareholders which ultimately own the assets. A company can be wound up and the assets distributed to its shareholders. With CF being a not-for-profit organisation there is instead this somewhat circular argument about who ultimately controls the CF Ada: IE: CF the organisation owns the Ada but it needs to act in the best interests of the Cardano community. So the community controls how the CF Ada is voted - well no, not really… And around we go.

I don’t see any issue with CF board members or employees voting their own personally owned Ada anyway they desire. I also don’t see any issue with a private company voting their Ada whatever way the company shareholders choose. However the Ada that was gifted to CF needs to be voted in the best interests of the Cardano community because the CF office bearers have a duty to do so.

The CF not-for-profit organisation is in a rather unique position which is even different from other not-for-profit organisations. A traditional not-for-profit organisation is set up to advance the interests of a particular community within the population. The surf lifesaving community is an example. The board for such an organisation will have members which have been deeply involved in that community for many years and are known to be widely respected by the community. These members provide advice about what is the best interests of the community so that other board members, appointed for particular skills, can be sure that they are making decisions in the best interests of the community. On thinking through the policy behind the appointment of these board members, it is clear that it is difficult to know every member of the surf lifesaving community and how they might vote on a particular issue. This is why the board needs to have such widely known, respected, and trusted members. The board needs to fulfil their duty of care to act in the best interests of the surf lifesaving community and they want public support from the surf lifesaving community so there can be no question they are acting in good faith. The surf lifesaving community needs to trust that these members will act in their best interests. This is the best we can do in the real world because it is impossible to identify every member of the surf lifesaving community within the wider public, and even if we could, some are more heavily involved, or invested, than others. In the real world, we can’t simply ask all these members to vote and weight their votes based upon how involved or invested they are.

But this situation is different in relation to Cardano and CF, especially as it relates to staking and voting:

  • We can identify all wallet addresses of Cardano members and conveniently their wallets also display their level of “investment” measured in Ada.
  • In Cardano we have decided through the protocol design and also in the proposed constitution that 1 Ada = 1 vote.
  • The Ouroboros paper has outlined the mathematical proof to show that if we adhere to the design principle of 1 Ada = 1 vote then the security of the blockchain will be protected.
  • It also is a widely held Cardano community view that the collective mind of the community is wiser and more intelligent than any one individual, or even group of individuals. In fact, I would argue that this view is an underlying assumption built into the design of Cardano and is at the heart of Cardano’s reason to exist.
  • With staking, CF can see how every other Ada holder has voted because the stake pool votes are recorded on the blockchain.

So if CF chooses to vote the CF Ada differently from how the general Cardano user community has voted, then they must have good reasons for doing so since they have a duty to act in the best interests of the Cardano community. After all, the Cardano community has already shown them how they voted for stake pools.

Do the CF board members and employees believe they have more intelligence or wisdom than the collective mind of the Cardano community? Is this the justification for CF to overrule the community vote?

It seems to me that the Cardano community has already decided what they collectively believe is in their best interests regarding stake pools and the details of this vote is recorded in the blockchain.

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You are the only one making this argument.
Swiss CF doesn’t have any obligation to act in the best interest of Cardano community. This is not their mandate. They are only acting to advance the Cardano protocol as a public utility. This may or may not always align with “best interest” of Cardano community.

Also, you are using the terms “Cardano community” and “best interest” like it’s a coherent standard. I, for example, own Ada, helped and worked with a few Cardano projects to get them of the ground, on-board people to Cardano, use Cardano and Cardano dApps almost daily. So, I feel that I’m part of Cardano community. As a member of Cardano community I think there is no problems with the way Swiss CF handles their Ada and voting power.

I actually think that CF needs to get more involved in staking and create an armada of inactive but ready-to-go pools themselves as a back up in a case we need to fight of economical attacks in the future. This way they can deploy pools and pledge for community to rally towards, if needed.

As you can see the term “in the best interest” is very subjective and claiming that your view is what’s in the best interest of the whole community is not an argument at all.

1 Ada = 1 Vote means that you get 1 vote for each Ada you control.
So trying to take away controlling (or voting) power from CF for Ada they control goes counter to basic principles of Cardano. If community becomes capable of removing the right to delegate or vote from ANY Ada holder, then Cardano ends. It would just be over. It sounds harsh, but it is one of the basic principles of this protocol. Even a scammer who only owns stolen Ada in their wallet has these rights protected by Cardano protocol.

Absolutely agree. :+1:
I wish more community members would follow your lead and voice their concerns in this forum (or Discord). I find this forum went a bit too quiet, while Cardano Twitter got louder. Unfortunately, Twitter is a horrible place to have discussions. The format is very short and chaotic, so discussions just degenerate in to accusing each other of pumping or fudding, or name calling each other Commies or Nazis.

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No, they don’t. You invented that they are bound to such a badly defined concept as the “best interests of the Cardano community”.

Their purpose that they cite on most occasions is “advancing Cardano as a public infrastructure” and they can do that however they see fit.

The ADA given to them is not different than the ADA given to private companies at the same time. It can be freely used by the organisations that it was given to – doesn’t matter if it’s a foundation or a private company.

Even if we wanted to, there is no technical and no judicial way to force them to behave in a certain way, they are now just an ADA holder like everybody else.

Not really. There is a plethora of foundations in all jurisdictions with subtle differences world-wide. But it’s not an exotic setup at all. They all have in common that they are a trust, an estate, an endowment that is owned by itself and governed by some kind of board. And in most cases, this board rather perpetuates itself, decides on new members itself than that they are elected by some large electorate.

Not really what is proven there. Proof of stake always has to assume that bad actors cannot get control of a majority of the stake. That’s not something you can “mathematically prove”. And the paper doesn’t care how the participants got their ADA. For the purposes of that, there is no difference between you, me, and the CF.

Is it? I don’t believe that at all. Not even for the purposes of society as a whole – one of the things that make democracy so exhausting – but even less for crypto communities.

Would be unwise for them to formulate it in such an insulting way, but I’m not CF, so I can say that they would probably be very right with that.

Just to get that straight: You want CF to stake predominantly to Binance, Avengers, and 1PCT? Because it is the wisdom of “the community” that it’s good to keep your ADA on a CEX (after all a large part just wants to gamble on numbers going up and doesn’t care about actual usage) and the others just look for the pool group with the least pool cost and margin?

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I think you will find that they do when you read in totality the CF articles of association, founding documents, and the wider Swiss law that impacts the interpretation of these documents.

No, I am arguing that this duty is implied in the law. But now that you mention it, I am somewhat surprised that others haven’t pursued this line of argument before. No doubt there are a lot of people fearful to speak up because they fear losing favour with CF.

I agree these are not coherent standards. However, Cardano is rather unique compared to other communities supported by not-for-profit organisations, because we have a very clear and well defined voting system for stake pool operation. CF knows exactly how the community voted every epoch for the stake pools they wanted to be allocated blocks.

I have never claimed that my view is in the best interests of the whole community. I am but one person. What I am saying is that the community has already voted and CF should respect the community collective decision.

Nobody is suggesting that any Ada owner should have their right to vote removed.

However CF is in this unique situation where it can only vote its Ada if its office bearers take the decision but these office bearers aren’t directly controlled in any way by the owners of the CF Ada because the CF organisation has no owners or shareholders. The CF office bearers have a duty to act in the best interests of the Cardano protocol (which in essence implies the best interests of the community). So indeed CF has a right to vote, but in order to properly discharge their duty in good faith I argue that they should be voting in the best interests of the Cardano community; and the community has already showed CF what they have determined is in their best interests.

Every member of the Cardano community is unique and has a unique set of values and preferences. Each individual is in the best position to determine what is best for them. The advantage that CF has in relation to staking is that the community informs CF what is in the Community’s best interests every epoch and the details of this vote is recorded on-chain.

As for trying to draw a distinction between the Cardano protocol and the Cardano community: These appear so intertwined to me that it seems like splitting hairs. However in thinking which might have a superior duty claim with CF, I would argue that Cardano community values are more important. After all we update the protocol whenever there is a hard fork and this gets decided by the community. It seems pretty clear that the community can and will vote to mould the protocol over time. Consequently, I believe most users of Cardano would expect CF to honour such community decisions rather than seek to overturn them.

That argument simply exposes your biases @HeptaSean. I don’t think Cardano land people would appreciate some elite leaders who think they are smarter telling them how they should think or vote.

Even though it is also my current personal view that it is a bad idea for people to leave Ada on exchanges, I respect that some people may find more utility in doing this, and I respect their decisions. However, I point out that is not what the collective Cardano community agrees is the best place for their Ada at present since the vast majority of Ada holders are not leaving their Ada on Binance exchange, nor are the vast majority staked with Binance.

Just to hammer that point a bit further, I can actually envision some rare scenarios where it might be better for many more Cardano users to stake with Binance. Binance might prove to be a very honourable member of the Cardano community even though they don’t have a strong legally implied duty to act in the best interests of the Cardano community, as CF does.

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Quite the opposite.
No need for me to make any arguments for this part since you can easily check on-line Swiss CF corporate purpose and Swiss law which directly forbids any other purpose implied or otherwise then the registered corporate purpose.

Here is the “Corporate Purpose” section of Swiss CF:

ArticlesOfAssociationCF
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Here is the Swiss law and link to Swiss government website:

SwissLaw
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Link to this section of Swiss government law: Fedlex

Explanation of this law in respect to use of foundation assets and capital:

SwissLawCapital
SwissLawCapital1134×415 91.8 KB

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I apologise but I still don’t accept that CF doesn’t have a duty to act in the interests of the Cardano community.

As you are no doubt aware, the complexity of the legal system is mind boggling and lawyers can argue for months about seemingly simple definitions. In order to properly understand CF office bearer duties will require extensive research. Though it would seem pretty bizarre to me if the Cardano Foundation not-for-profit organisation office bearers were not required to act in good faith in the best interests of the Cardano community.

Thanks for the links to Swiss law code. Would you please also supply links to CF founding documents: articles of association and other documents that constituted the CF legal entity creation?

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Cardano Foundation Swiss business register info:
https://www.zefix.ch/en/search/entity/list/firm/1276832

English translation of Article of Association purpose.

EnglishTranslationofArticlesofAssociationCF
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I clicked on all the other links that appeared on that page you linked (not being able to read German) and these all seemed to be names. I put text at the bottom of the page into google translate and received the same output as in that picture you provided.

Is that the entirety of the Article of Association? What other documents are there that form part of the CF creation apart from Swiss legal code?

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Yes.
Plus there are business numbers, names and signatures, address and canton jurisdiction, form numbers, etc…

It takes just two people, one paragraph and some funds to start a foundation. Everything else is just legal forms and bureaucratic file keeping.

Not sure what you are asking here.
Foundation is a type of legal entity in Switzerland. It is solely governed by Swiss legal code. If Swiss jurisdictional requirements are met by having it based in Switzerland, then all that is needed is Swiss law. In this case, this article of the law from the link above (English version):

FormingAFoundation
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