The decentralised network is a complex mechanism, of which the economic model is a key component. Sufficiently large revenues are a prerequisite for long-term economic sustainability. Most blockchain networks, including Cardano, have a small user base shortly after launch, so economic incentives are based on issuing new coins. This may work well for a few years, but long-term sustainability must be based on utility, not the inflation of coins. In this article, we will focus on staking from the perspective of long-term economic sustainability.
TLDR:
- Up to 99% of the funds for economic incentives come from monetary expansion. This is true not only for Cardano but also for Bitcoin and other networks.
- Many external factors affect long-term economic sustainability.
- Coins in the reserve are a finite resource. The network must have a revenue stream that stems from the utility. This resource might be infinite.
- Staking will be sustainable in the long term if the Cardano network is useful enough and attracts enough paying users. This will provide revenue for economic incentives that ensures decentralization and security.
Where do ADA coins for economic incentives come from?
Economic incentives are the reason for operating a staking pool. Pool operators voluntarily choose to operate their own staking pool because they can calculate costs and revenues. The business must be profitable. One of the reasons for staking ADA coins is economic incentives. People see staking as passive income. In both cases, the Cardano network rewards all participants with ADA coins. For the Cardano network, the rewards represent an expense. The Cardano network pays participants for security and decentralisation.
This article was prepared by Cardanians with support from Cexplorer.
Read the article: Is Cardano economically sustainable in the long term? | Cardano Explorer