CF should abstain from delegating "their" Ada

English General Discussions
21

I know that ChatGPT can hallucinate but when I asked it about this issue its response seemed logical, reasonable, and more or less in line with what I would expect to be the case in a common law jurisdiction.

This was what I asked ChatGPT:

Is there anywhere in Swiss legal code specifying that the board members of a Foundation must act in the best interests of the community that the foundation represents?

And here is what ChatGPT said:

Yes, in Swiss law, the principles of good governance and the duty of care for board members of foundations are outlined, although not always in exact terms like “acting in the best interests of the community.” However, several provisions imply this duty to act in the best interests of the foundation’s purpose, including its community or beneficiaries.

Here are some key points from Swiss legal code and related regulations:

  1. Swiss Civil Code (ZGB) - Foundation Law
    The Swiss Civil Code (Zivilgesetzbuch, ZGB) regulates foundations, including their creation, purpose, and management. Specifically, Article 80 of the Swiss Civil Code governs the purpose of a foundation, stating that the foundation must fulfill its intended charitable or public purpose and that its board must adhere to these objectives.

Article 80 ZGB (Purpose of the Foundation): This article states that the foundation must be created for a specific purpose, which can be of a private or public nature. The board members are entrusted with the responsibility to ensure the foundation serves this purpose. While the specific wording does not explicitly mention “acting in the best interests of the community,” it implies a duty to serve the purpose effectively, which often aligns with the community’s interests, especially in the case of charitable foundations.
2. Article 82 ZGB (Board’s Duties and Management):
Board members of a foundation have a duty to manage the foundation responsibly. Article 82 ZGB emphasizes that the foundation’s board should ensure the proper management and use of its assets and execute its tasks in accordance with the foundation’s purpose. This is a fiduciary duty, which inherently requires acting in the foundation’s and its beneficiaries’ best interests.

Duty of Care: The board must act diligently and responsibly in overseeing the foundation’s assets and operations. This includes ensuring that the foundation operates in line with its mission and the interests of its beneficiaries or the community it serves.
3. Corporate Governance Principles:
While the Swiss Civil Code does not explicitly include the phrase “best interests of the community,” Swiss governance principles require that board members act in the interests of the foundation’s purpose, which indirectly means considering the community or public interest, especially for charitable foundations.

  1. Case Law and Interpretation:
    In practice, Swiss courts have interpreted the duties of foundation board members as including the responsibility to act in a way that ensures the foundation’s purpose is achieved, which often involves prioritizing the welfare of the foundation’s community or beneficiaries. This legal interpretation reinforces the notion that acting in the best interests of the community (or the beneficiaries) aligns with Swiss legal requirements for foundations.

  2. Supervision and Compliance:
    Foundations in Switzerland are subject to supervision by cantonal authorities. These authorities monitor whether foundations comply with their stated purposes and the proper use of assets. If board members fail to act in the foundation’s best interests or misuse the foundation’s assets, they could be subject to legal consequences or sanctions.

In conclusion, while the Swiss legal code may not explicitly phrase it as “acting in the best interests of the community,” there are clear obligations for foundation board members to manage the foundation in accordance with its stated purpose, which implicitly includes acting in the best interests of the foundation’s community or beneficiaries.

It would seem pretty clear that CF’s purpose is to advance the “Cardano protocol”. But who are the beneficiaries of this - well I guess that would be the Cardano community. After all is said and done, the Cardano protocol is just an abstract concept that can’t do anything without a community. The Cardano community is integral to the concept of how the protocol even works. The entire Cardano protocol is meaningless without the community that runs it and uses it.

Consequently i still believe that CF has a duty to act in the best interests of the Cardano community.

The Cardano community votes every epoch for the pools they want to make blocks. Each member of the Cardano community is voting based on their own individual values which are subjective and unique to them. We have the sum total of these votes recorded in a weighted fashion right there on the blockchain. This is the collective best interests of the Cardano community. No individual board member, no matter how intelligent, could possibly know the best interests of the Cardano community with such accuracy but for the fact that they can see this detail recorded right there on the blockchain. How many real world Foundations can claim to know so much about their beneficiaries? How wonderful is that?

22

It’s obviously revers of that. “In the best interest” of Cardano community is an abstract concept as proven by two of us both being community members and still having very different opinions.
Cardano protocol is specifically defined by design and implementation of code.

Also, everything that ChatGPT said seems to support that CF duty is to protocol and not community. It literally states right here that it must fulfill it’s corporate purpose which (as you can see from the posts above) is to protocol ONLY. :point_down:

This part quotes the same Article I posted for you with almost the same translation.
All the rest just reinforce that it legally has to follow declared purpose.

You can feel free to believe what every you like. You have your own way of understanding the world you are in, just like the rest of us.

As for myself, I can clearly see that CF purpose, legal obligation and reason for existing is for the benefit of Cardano protocol. As well as the fact that CF is independent entity from Cardano community and must always stay independent.
At any point if CF ever decides to act for “benefit of the community” (what ever that means) at a cost to Cardano protocol I’ll personally start a process to file a complain with Canton of Zug for non-compliance.

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23

The community decides how the protocol works and how it will be upgraded in the future. We are moving into the age of Voltaire where the community will literally vote about such changes and record these votes on-chain. The community determines the protocol.

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24

OK.

If you want to change the topic from legal status and obligations of Swiss CF just start another thread.

25

I don’t want to change the topic. I want to follow the logic to conclusion regarding voting and whether CF should vote against the Cardano community. The staking mechanism is already recording community stake weighted votes every epoch on-chain for CF to see. Most Foundations could only dream of such recorded detail about what their beneficiary community subjectively values.

Here is something else that is interesting:

I suspect that some people in CF might be sensitive about this issue. When we had that on-chain vote for the community to select community members for the constitutional committee, CF did vote. But when challenged by community members CF people were quite defensive about the fact that they had voted CF Ada and were at pains to explain that their voting hadn’t altered the community vote outcome.

As the value of Ada increases, I suspect there could be legal challenges if CF chooses to override community consensus on a valuable or important enough issue.

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26

You did change the topic in previous post and started talking about Voltaire and upgrades. That’s more to do with IntersectMB and hard forks. Really nothing to do with CF legal obligations and Swiss law.

I’m still at 1 Ada = 1 Vote as we spoke before. CF controls x Ada, there for they get x Votes.

CF is not governed by community consensus. It’s governed by the board.

I think the big difference in our views is that you see CF as an employee or subordinate of the community.

I see CF as independent entity, that has to be there to counter balance whims of the crowds and just focus on protocol itself. As that is what it’s main purpose is. If it’s purpose was to just listen to Cardano community votes, then we wouldn’t need IntersectMB.

Another difference is that you seem to see “Cardano community” as some unified group with a well defined plan or a strategy.

I see “Cardano community” as a diverse group of competing interests. So, saying “in the best interest of” could mean absolutely anything. Some people want the price to go up, some down. Some people want SPO to give non Ada rewards, some want only Ada. Some want to integrate with other ecosystems, some want Cardano to stay untouched by other chains. Some want quick technical updates, some are to scared to touching anything in fear it will ruin Cardano, etc…

The one thing we seem to have in common is that we both want Cardano to persevere in a long run. So, let me try to reframe this topic a bit in a that light.

I will now try to rephrase my point and use “in the best interest of Cardano community” angle, which you seem to base your point on, in hopes I can get you to consider this argument from different perspective. :point_down:

Cardano community will have voting power through IntersectMB. It will be a consensus of many voices, but it will be slow and the progress will be muted by community pull in all directions.
In order to be more reactive to threats as well as opportunities that arise we need a quick moving team that has enough funding and autonomy to react, but no power to affect the change in protocol by itself. CF is that team. CF, if they stick with their mission (as stated in Articles of Incorporation), will make Cardano stronger. So, there is no benefit to slow CF down and mute it especially since it already has funding, team, legal set up and recognition in legal world. Thus, trying to change what CF is and trying impose any community consensus on CF would be a non-recoverable step backward for the whole Cardano ecosystem.

So protecting CF and making sure it retains it’s current status and function should be a priority for anyone that wants Cardano to persevere.
:blue_heart: :cardano:

There is nothing wrong with keeping an eye on actions of CF and if you see anything you deem illegal it’s fine to call it out. However, if you accuse individuals, than you need a strong proof. Otherwise, it turns into a witch hunt that only drives away good people that don’t want to deal with such headaches. Also, makes it harder to get good people to join since position doesn’t offer stability.

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27

I appreciate the way you re-framed the discussion and I also don’t seek to slow down CF or mute it because we do need a strong CF acting in Cardano’s best interests.

However, I do take issue with how CF is discharging its duty in relation to the staking mechanism.

I understand, and am sympathetic, with the need to support tool builders, community educators, youtube content producers, etc. However, the way they are going about this by altering community consensus of block production is not a satisfactory way to achieve this support.

CF is throwing around its weight as a clear display of centralised force to override community consensus when there has been no articulated reason that doing so is addressing an issue regarding decentralisation of block production. Rather they are altering block production consensus in order to achieve the byproduct of donating funding to people that need support to build tools etc. In fact they are even altering the community consensus in the direction of some multi-pool operators which has particularly upset many people, since decentralisation is such a core value in the community.

I don’t believe such action by CF complies with their legal obligations. Such a display of centralisation doesn’t seem to be a good way to “advance the interests of the Cardano protocol”, which was founded on the core principle of decentralisation.

There is a much better way that CF can support these tool builders, and I have stated this previously on this forum. They can simply set up a fund and donate rewards to developers directly. This would remove the centralised overpowering of community consensus that is currently happening and would seem to comply better with CF’s fiduciary duties. I don’t know why they don’t use this approach for funding and only seek to manipulate block production if there is a clearly stated need to improve decentralisation of block production.

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This is an interesting discussion…

… CF duty is to protocol and not community.

These are decentralized blockchains which are based on network effects; you fundamentally cannot have a blockchain protocol separate from a community. The protocol and its community are a package deal. If this wasn’t true, then someone could just as easily copy/paste the protocol code and compete with Cardano. So I have to agree with @Terminada, what is in the best interest of the “Protocol” is fundamentally the same thing as what is in the best interest of the “Community”.

That being said, the community may not always know what is in its best interest… I have to agree with @HeptaSean that the “wisdom of the crowd” is fallible. All democracies devolve towards short-term incentives; giving organizations a voice can help compensate for when the crowd goes astray.

I am personally okay with the way the CF is currently handling the delegation. But I think this is a slippery slope. As FEC v Citizens United shows, organizations can easily overpower the will of the individual. The US now needs a constitutional convention to reverse this ruling since the incentives are such that it won’t happen otherwise. AFAIK the CF only has about 3 billion ADA which is a drop in the bucket compared to what is in circulation. I don’t think the CF currently has the ability to over-rule the community if the community was actually serious about something.

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29

I think you should refer to this viewpoint

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You guys do realise that you argue opposite viewpoints, don’t you? You just agree in that you somehow don’t like what CF does and have the urge to make it as scandalous at possible – not merely a different opinion, but a grave legal risk and an attack on the very foundations of what this thing stands for.

But @Terminada says that we have to believe in the “hive mind” and shouldn’t be so “elitist” to question it. That has as a direct consequence that small pools having too low stake to ever be successful are a decision of the community. The community has made the collective decision that it wants these pools to fail.

You argue that the pools that CF chose are too big, that CF has not acted enough against what the other delegators chose, that it should choose even smaller pools to help them. That goes even more against the (supposedly superior) decision of the wisdom of the masses who “already told us” which pools they want to produce blocks.

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The wisdom of the masses - there is currently over 64 Million ADA sitting in 2 retired pools by another founding entity - Emurgo - mobility of stake is near impossible and so the early adopters often have mostly benefited from the current setup - so the idea that the masses actively choose who should produce blocks is somewhat nebulous at best.

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I do not believe in “wisdom of the masses” or “hive mind” at all. Nor do I believe that you have to believe in it for proof of stake to work okay enough. It is totally enough that attackers have a hard time getting a relevant amount of stake, no matter how suboptimal the people in reality do their thing.

Heck, it doesn’t necessarily have to be stupidity of the masses (although there are often indications for that). There can also be people who do delegate to a minimal margin multi-pool with their own stake to maximise their own profits, but would welcome other entities, CF in this case, counter-acting that. A bit like the legions of people who would optimise their own taxes and are very angry about the rest that they still have to pay, but who are very happy when other people pay taxes and all the public infrastructure and welfare is properly funded.

But I also don’t believe that it has any value trying to lift up any and all small pools no matter what. There is a sweet spot where more pools don’t make sense, can’t get the attention and the stake of enough holders anymore.

Consequently, I’m totally okay with CF’s current approach of delegating to medium-sized pools of people who have demonstrably done a lot of good things for the community. Their team clearly is involved enough to exercise good enough judgement on that.

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What you say may be valid and everyone may have different opinions but everybody has the right to challenge the processes of the CF - it is perfectly ok for people to want the CF to be more accountable and transparent with the process - this is not a critisism of what the CF may or may not be doing but to ask for more transparancy including how such things are audited is a perfectly rationale thing that people can expect - or do you think otherwise?

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@HeptaSean I am interested to hear all ideas including from people who might disagree with me. I am just one individual with my own views and biases. That is the beauty of Cardano, we all have a voice and can collectively decide, except when community consensus gets trodden on by a centralised force for dubious reasons.

Note: I am not trying to bring CF down or make their actions sound as scandalous as possible. I want CF to be strong but to act in the best interests of the Cardano community. (Yes I said it, and I acknowledge the technical argument about duty to the protocol, but the protocol has no interests, and is nothing without the community.)

To be clear, I have never asked CF to support my pool and I won’t ask either. Having said that I didn’t take issue with CF’s previous staking strategy which was directed at improving decentralisation. Under that policy they only staked with single pool operators. This goal at least was consistent with the policy objectives of the Ouroboros staking mechanism design.

However, CF subsequently changed their staking strategy to be aimed at supporting the architects of the future.

I argue that CF should not seek to override community consensus of block production through the staking mechanism for the purpose of donating rewards to chosen architects, because:

  1. They have not explained any deficiency in pool stake distribution their actions are trying to correct for decentralisation benefits.
  2. They are acting to alter the community consensus over which pools get to make blocks. Such action is a display of centralised force. I contend that this action is not consistent with discharging their duty to advance the “Cardano protocol”, since Cardano was founded on the principle of decentralisation. Their actions are undermining the decentralised ethos and this is contributing to a community feeling that CF has undue influence over block production. (And, see point 1: They have not articulated any deficiency of decentralised block production their actions are addressing.)
  3. There are better ways to donate rewards to architects or tool builders which don’t involve unnecessarily overriding community consensus. Eg. Setting up a fund and paying some of their rewards directly to architects for the work they want to incentivise.
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Interesting. But, do you agree that one of the core principles Cardano is founded upon is placing trust in the wisdom of the community? This principle seems integral to the staking design and the voting system.

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36

It is not merely a “technical argument”. It is not possible to define a coherent community with aligned “best interests”. There are many different subgroups from traders without particular interest in Cardano, just waiting for numbers to go up, but still potentially holding lots of ADA, via NFT and memecoin gamblers to ideologues waiting, even hoping for the downfall of all of traditional society.

Stating the advancement of the protocol and not the interests of this diverse “comnunity” as the purpose is very wise in this context. It enables to say: “Nope, we won’t shill your silly JPGs, no matter how many loudly screaming ‘community members’ you mobilise. It’s just not our purpose. We might help building a trustworthy marketplace for them, though. That is in purpose.”

Why was it okay “to override community consensus of block production” in that case?

Why would they? It is the other way round: The decision to stake their ADA comes first. Could be argued they even have to because that is what foundations/trusts do – invest to get capital gains and then do something for their intended purpose with those gains. And the delegation strategy is then “just” the decision how to delegate with the most benefit to Cardano.

This relies on your belief that CF is somehow different from other ADA holders. Otherwise anyone’s staking would be a “centralised force” and this argument would lose all meaning.

I still don’t see them being that different from other organisations – companies, exchanges, DeFi pools – holding ADA. They hold ADA, they have a body that can make decisions, they can decide to stake their ADA. Simple as that.

Moreover, this is grossly overstated for drama. The delegations of CF are not that huge to completely change the game, just a medium boost to three dozen pools.

Again, the decision to stake the ADA probably comes first – because it’s the fiduciary dutiful thing to do.
Are you really saying that they should sell their ADA (creating a huge sell pressure that harms all parts of the community who want or have to sell at the same time) and invest in a traditional fund?
Or do you want them to invest inside Cardano, in ADA? Are there already “funds” in Cardano that would be compatible with the duties of a foundation to preserve its capital?

I hope not. Democracy has told us that we probably have no alternative, but should not have too high expectations in collective decision making.

Not because its results are so extraordinary, but because the alternatives are even worse.

We already had that: How are https://forum.cardano.org/t/cardano-foundations-new-delegation-methodology-supporting-the-architects-of-the-future/79594, https://forum.cardano.org/t/cardano-foundation-updates-delegation-strategy/122773 and the yearly announcements https://forum.cardano.org/t/announcing-the-stake-pools-chosen-for-november-2024/139205 not transparent? What do they lack?

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Ok here are some suggestions:

The Cardano Foundation’s delegation strategy, as outlined in the documents, lacks sufficient transparancy and a robust rational. The criterea for assessing “considerable contribution” or “building ecosystem value” are not clearly defined or quantifiable, leaving room for subjective interpritation. Additionally, while steps like publishing a shortlist and randomizing pool selection are mentioned, there is insufficent transparancy in how final decisions are made, particularly regarding the qualitative review phase. The rationale for excluding certain pools is also not explained thoroughly, which could lead to perceptions of favoritism or bias. Furthermore, the Foundation has not articulated specific measurable goals for its strategy, such as increasing network activity or supporting underrepresented regions, and there is limited detail on how they monitor or mitigate the issue of stake pool saturation over time. Another notable gap is the absence of active mechanisms for gathering or incorporating feedback from the broader community or pool operators regarding the delegation strategy.

To adress these weaknesses, the Foundation should establish and publish specific, measurable criterea for delegation, such as metrics for active community engagement, contributions to ecosystem tools, and diversity representation. Transparancy could be improved by making scoring and evaluation metrics publicly available and providing detailed rationales for pool selections or exclusions. Additionally, the Foundation could release periodic reports that detail the impact of the delegation strategy, such as metrics on increased adoption, development activities, or network decentralisation. Gathering input from the community through forums or surveys could further enhance alignment with stakeholders’ priorities, and a weighted voting mechanism could be introduced to complement the existing selection process. Promoting diversity by actively targeting pools in underrepresented regions or run by smaller operators would also support decentralisation and inclusivity. Dynamic monitoring tools should be used to prevent over-concentration in specific pools, and the Foundation should commit to an annual review of there delegation strategy to evaluate its effectiveness, incorporating data and feedback from the previous period. By implementing these improvements, the Cardano Foundation could build greater trust within the community and better align its delegation practices with its stated goals of ecosystem growth and decentralisation. Generally speaking I think that the community and SPOs would appreciate a little more than a couple of one page documents that are somewhat lacking in substance.

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38

It is not necessary to define a coherent community. The community has already voted and recorded its stake weighted decision on chain by voting their stake keys. CF know how the community has voted for stake pools to make blocks because they can read the blockchain.

I only said that I didn’t take issue with their previous policy which was explicitly focused on improving decentralisation, and they only staked with single pool operators.

Although, I can imagine rare scenarios where the decentralisation of block production could get threatened. However, I would expect CF to detail their reasons to the community if they intended to override community consensus of block production, because otherwise they wouldn’t be fulfilling their fiduciary duties.

Who said anything about CF selling Ada? Currently CF are effectively donating Ada to chosen pool operators by advantaging them with extra stake so they earn additional rewards. I am suggesting that instead of doing it this way, why don’t they take some of their staking rewards (Ada) they will otherwise earn and send it directly to the developers they want to support? That even gives them more flexibility because now they can use the same funding mechanism to support “architects” that don’t happen to run a pool.

Then there are all the issues of transparency concerns that @GrahamsNumberPlus1 has listed in his post. And, CF does have a duty to act with transparency. (And they owe this transparency not to the protocol but rather to the community since the protocol can’t read or see anything.)

The whole thing is a mess which creates community anger as can be seen in the numerous discussions about the CF staking policy on this forum. Thus the current CF staking policy does not appear to be a good way to advance the interests of the “protocol”. As you can see, people (small single pool operators) are complaining that there is this centralised force within Cardano that is not treating them fairly.

Why-O-why doesn’t CF simply pay the equivalent Ada directly to developers they want to support rather than mutating the staking purpose and overriding community consensus? It is a simple fix to remove the contention.

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39

Here is another option which I have mentioned before in other threads on this general topic:

Maybe CF should just run their own private pools which are fully pledge saturated. The advantages would be:

  • They would maximise their return on Ada with pledge saturation. This which would give them more capacity to fund worthy architects (with Ada - ie no need for selling by CF).
  • They can be certain that their staked Ada is supporting pools which are guaranteed to implement the protocol faithfully since they are running their own pools.
  • It would remove all the bickering surrounding their pool selection policy.
  • They wouldn’t be providing a competitive market advantage to selected community pools. Instead every community pool can then compete on a more even playing field.

But, one disadvantage would be:

  • The decentralisation measurements (EDI) scores would look worse. But these are vanity metrics and the reality wouldn’t be any different since CF could spin up its own pools and move its Ada to them at any time already.

Maybe CF and the community should consider that option? At least that option doesn’t tip the scales for one community pool against another which leads to bickering, undermines the decentralised ethos, and fosters a community feeling that CF exerts undue influence.

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It only induces anger because this effing community consists of a bunch of entitled morons.