How the Cardano reward mechanism works

Cardano uses ADA coins to reward pool operators and stakers, but also to fund Catalyst projects. In the future, coins from the project treasury will be used to reward DReps and the team that maintains the source code and implements protocol changes. Where does Cardano get these coins? Let’s study the project’s monetary policy and reward mechanism.

TLDR

  • Unlike Bitcoin, Cardano has a project treasury so that development and governance can remain independent of VC funding.
  • From the total epoch reward, 20% of the ADA coins will be moved to the project treasury and the rest will be used for staking rewards.
  • Part of the incentive mechanism is to promote decentralization. If the protocol requirements for pools are not met, a portion of the staking reward is returned to the reserve.
  • Cardano may find itself in a situation where the block production group is fighting for resources with the governance group.
  • ADA coins are being used up from the reserve at a slower rate than originally anticipated.
  • Decentralization is dependent on the project treasury.

This article was prepared by Cardanians with support from Cexplorer.

Read the article: https://cexplorer.io/article/how-the-cardano-reward-mechanism-works

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