Holding Only ADA In the Treasury

Governance Constitution
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Much thanks to Charles and Congratulations to all in the Cardano community for our new constitution.

In the video linked here Charles asks the community to discuss the pros and cons of holding other assets besides ADA in the treasury.

I am opposed to the idea of holding anything but ADA in the treasury and my reasons can be found at the this link here and are listed below for convenience.

  • ADA To Be The Only Form Of Currency Accepted Into The Treasury

    • No receipt money shall be accepted into the treasury:

      • Receipt money means you get a receipt for a commodity being held somewhere presumed to be safe.
      • History shows that all banks will eventually succumb to the temptation of lending out the commodity backing the receipt, either in secret or publicly as fractional reserve banking.
      • This started in the middle ages when goldsmiths would hold gold in their safe for customers and provide a receipt which could be redeemed for the gold. Eventually the receipt became accepted as payment for commodities. But the goldsmiths would always lend out the gold to gain interest without telling the owners and would eventually default when the community discovered, leaving the customers with nothing. The most recent example of commodity-backed money was the US dollar which up until 1933 could be redeemed for gold at $20.67 per troy ounce. Then it transitioned to fractional money when the price was changed to $35 per ounce in 1934, effectively reducing the value of the dollar by almost 41%. Then it transitioned to fiat money in 1971 - not redeemable for anything, but which citizens are required by law to accept. This is not the exception, this is the absolute rule. All commodity-backed money is a commodity in transition to fiat money. My understanding is that history has no exceptions to this rule. This information comes from The Creature From Jekyll Island.pdf. The transition may take several years but history shows that commodity-backed money always transitions to fiat money eventually. This has been going on since the middle ages and we now stand in a place where we can stop it.

    • No Stable Coins shall be accepted into the treasury

      • Stablecoins are just commodity or fiat backed overcollateralized receipt money in a new slick package. We have all seen what happens to stablecoins. Worse, all stablecoins that I know of are centralized money and require an oracle to function. So if spending requires using a stablecoin then the exchange must occur at the point of sale. Forbidding centralized currency forbids stablecoins and receipt money and commodity-backed and overcollateralized money. But we should forbid these explicitly. One thing we can not do is accept commodity-backed and overcollateralized money and stablecoins and then forbid centralized money because this is a contradiction - these are all centralized money.

    • No Algorithmic Stable Coins shall be accepted into the treasury

      • With Djed for example, we hear from Shahaf Bar-Geffen who is the COTI CEO that Djed may be collateralized with a basket of different coins not just ADA. Another coin called Shen is already used in the process. I can’t find much out about Shen - I don’t know if it is a blockchain or a DAG like COTI. Furthermore, Djed is pegged to the dollar. So if you put $20 ADA in to the contract then you get $20 of Djed minus a fee for the exchange. When you want to cash out then you give your Djed back and get your $20 dollars worth of ADA back minus fees again. But what about inflation? Your $20 minus the fees is worth less because of inflation. So you suffer a loss because the dollar will be worth less when you go to get your ADA back. And if the dollar tanks then you are really in bad shape. Another concern is that Coti was associated with Ardana, and we all know how that went. Seems like the only reason to hold Djed in the Cardano treasury is if you think the price of ADA is going to fall. Does Cardano want to bet against itself? Reminds me of The Big Short. With all these questions about Djed and with all the bad history we have with stable coins it seems we should explicitly forbid holding them in the treasury.

    • Nothing that has physical existence such as buildings, land, equipment, timber, or gold shall be accepted into the treasury

      • Physical things can be confiscated or associated with a country or a government.
      • Right now in the news we are seeing that Binance is surviving Choke Point 2 because Binance has no physical offices.

    • No Central Bank Digital Currencies shall be accepted into the treasury as these can be disappeared by the issuing authority.

    • No digital commodities other than ADA will be accepted into the treasury

      • Receipt money, commodity-backed money, overcollateralized money, fiat money, fractional money, stable coins, algorithmic stable coins and CBDCs. That leaves only digital commodities like Bitcoin and ADA. But holding Bitcoin is betting that it will surpass ADA in value. It’s betting against our own project.

    • No digital commodities from within the Cardano ecosystem other than ADA will be accepted into the treasury - No other tokens and no NFTs

      • So the only money left standing is ADA, NFTs and perhaps Midnight when that arrives. ADA is preferable to Midnight because ADA is completely transparent which is very good for governance.
      • History has shown that when a treasury holds more than one commodity (gold and silver) in the treasury it is difficult to establish a fixed price ratio between the two metals. This problem is known as the bimetallic standard problem. The problem arose because the relative values of gold and silver fluctuated over time, depending on supply and demand factors. The problem with the bimetallic standard was eventually resolved with the adoption of the gold standard, which established gold as the sole standard for currency. This made it easier to maintain a stable value for the currency and reduced the risk of currency fluctuations. We should remember this lesson from history and only accept ADA into the treasury - not NFTs nor anything else except ADA.

    • There are times when Cardano governance will need to handle currencies other than ADA. For instance, we are required by law to accept fiat money like US dollars. But all currencies must be converted to ADA immediately upon receipt before going into the treasury. If spending requires using anything other than ADA then the exchange must occur at the point of sale. The whole point of ADA is to end slavery to the central banks. We must not give the banks a backdoor into our economy. We must not allow any form of money into the Cardano treasury except ADA.

    • Why so explicit on only allowing ADA into the treasury:

      • If we are not explicit that only ADA is to be accepted into the treasury and if we don’t explain why then future generations who have forgotten the horrors caused by other forms of money will allow them into the Cardano treasury.
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