Net Change Limit

Governance Budgets 2025
1

Draft - Net Change Limit Info Action

Introduction

Cardano’s first Net-Change-Limit

To maintain the sustainability and stability of Cardano’s treasury, a Net-Change-Limit has been suggested, which would, if approved, set the constitutional and democratic mandate for the amount of ada that can be withdrawn from the Treasury over the 2025 period.

Between January and December 2025, spanning approximately 73 epochs, the total indicative withdrawal limit has been suggested at 350 million ADA. This figure aligns with the projected treasury growth for 2025, estimated at approximately 350 million ADA, positioning it as a balanced budget framework - funding the ecosystem for 2025 and leaving net Treasury resources unchanged from 2024 levels.

The intent is to ensure that expenditures remain sustainable while enabling strategic investment in ecosystem growth. This figure remains subject to further review and on-chain approval as the ecosystem seeks to balance prudence with a forward-looking approach to treasury allocation.

This approach aims to:
Balance ecosystem growth with responsible treasury management
Ensure funds remain available for ongoing and future initiatives
Provide clarity and predictability for all stakeholders

The Budget Committee has prepared the draft Net-Change-Limit metadata, which can be found below for review and here for feedback. In the coming days, we will publish it on GovTool.

Metadata

Abstract

As part of the budget approval process, it is necessary to establish a Net Change Limit. This serves as an opportunity for all governance stakeholders to formally express their positions regarding the proposed Net Change Limit, ensuring transparency, accountability, and alignment with organizational objectives.

The Net Change Limit will start at the beginning of Epoch 532 and progress for 72 epochs, concluding at the end of Epoch 604, December 2025. The Net Change Limit shall be 350,000,000,000,000 lovelaces (350M ada).

The Net Change Limit will be used when reviewing both budget actions and treasury withdrawal actions to ensure constitutionality as required by Article IV of the Constitution and the Treasury Withdrawal Guardrails outlined in Appendix I.

Motivation

Prior to the submission of any budget request, a Net Change Limit must be formally agreed upon. Failure to establish a Net Change Limit shall render any such budget request unconstitutional and, therefore, inapplicable.

The Net Change Limit shall be effective for the period specified in this action. In the event that a mutually agreed Net Change Limit is not established for subsequent periods, the most recently approved Net Change Limit shall remain in force by default.

The Net Change Limit shall remain in effect until such time as a new Net Change Limit is formally approved in accordance with the applicable governance procedures.

Rationale

The Net Change Limit will start at the beginning of Epoch 532 and progress for 72 epochs, concluding at the end of Epoch 604, December 2025.

The Net Change Limit for this period shall be set at 350,000,000,000,000 lovelaces (350M ADA). This limit shall be applied in the assessment of both budget actions and treasury withdrawal actions to ensure compliance with Article IV of the Constitution and the Treasury Withdrawal Guardrails specified in Appendix I of the Constitution.

The Net Change Limit of 350,000,000,000,000 lovelaces (350M ADA) shall automatically apply to each 73-epoch period unless modified through formal approval. For example:

  • 2025 Net Change Limit of 350,000,000,000,000 lovelaces (350M ADA)

  • 2026 Net Change Limit of 350,000,000,000,000 lovelaces (350M ADA)

  • Until a new Net Change Limit has been approved

A vote in favor of this proposal shall indicate agreement with the proposed Net Change Limit, allowing the process to advance to a Governance Action at the earliest permissible opportunity.

In accordance with governance procedures, this action shall be ratified if more than 67% of the delegated ADA to DReps vote in favor. This is in alignment with TREASURY-01a (x), which requires that a Net Change Limit for the Cardano treasury’s balance per period must be agreed upon by the DReps through an on-chain governance action with a threshold of greater than 67% of the active voting stake.

References

Supporting links

Delegate Approved Constitution up for vote

https://ipfs.io/ipfs/bafkreiazhhawe7sjwuthcfgl3mmv2swec7sukvclu3oli7qdyz4uhhuvmy

Definitions for the Delegate Approved Constitution

https://ipfs.io/ipfs/bafkreiewp5bgrdiesq6ft3qypykgcjhvfgpp4s5o4yrjrvko4wuhi4iecu

3 Likes
2

If the current Constitution Proposal by Intersect (accidentally the same organization proposing budget and net change limit) passes, the threshold for the net change limit will be lowered to 50% in the process.

Tadaa.

(not sure where the 67% come from or if this is an error in the current Constitution tbh)

References

6 Likes
3

FYI. There is no limit on how many times the NCL can be changed in a period. It just be set to one. If the intention is pass a budget that adheres to an NCL, without a time limit that adheres to both budget and NCL, it will be easy to submit a lower than budget NCL in the coming months making the budgets a violation of it.

Example:

  • June 2025 - NCL 350M, BUDGET 250M
  • Aug 2025 - NCL set to 150M, BUDGET STILL AT 250M - CONFLICT

NCL is not defined in the constitution has having to be 73 epochs, max or minimum, just that one exists for a stated period of time.

4

I asked about this scenario in one of the online meetings and I think the answer was once a budget has passed, a new NCL can’t undo this.

1 Like
5

Since it’s not in code, but executed by humans, this is not clear-cut. The CC can very well decide to not let any treasury withdrawal pass that would violate the new net change limit even if it is in the old budget.

2 Likes
6

They should not let the new net change limit pass if it violates an already approved budget.

7

The net change limit is only referenced three times in the Intersect Constitution proposal:

“Withdrawals from the Cardano Blockchain treasury that would cause the Cardano Blockchain treasury balance to violate the then applicable net change limit shall not be permitted.”

(Source: cGov - Cardano Governance)

“A net change limit for the Cardano treasury’s balance per period of time must be agreed by the DReps via an on-chain governance action with a threshold of greater than 50% of the active voting stake”

(Source: cGov - Cardano Governance)

“Withdrawals from the Cardano Blockchain treasury made pursuant to an approved Cardano Blockchain ecosystem budget must not exceed the net change limit for the Cardano Treasury’s balance per period of time”

(Source: cGov - Cardano Governance)

And this is all that should or should not be done in terms of the net change limit.

2 Likes
8

These lines clearly suggests that once we pass this NCL proposal, the entire community has signed a mutual consent agreement that would prevent subsequent submission of any new NCL for the entirety of 2025.

The questions we should ask ourselves is:

  1. What would be the balance between the Intersect budget and the NCL?
  2. Is the balance enough to fund community-led initiative requests?
  3. How does the proposed figure affect the sustainability of the Treasury itself in the long run?

If we are not happy about the answers, we should go back to the tables while being inclusive to draft a proper NCL. Directly, it would have a reform impact on the Intersect budget too. Else, we know what to do, I think.

1 Like
9

I don’t think that is true.

10

Happy to learn the truth.

1 Like
11

In the message directly above yours, @MadOrkestra has quoted all occurrences of the net change limit in the constitution.

None of those prohibit a new net change limit to be voted in at any time.

And they say explicitly that withdrawals have to comply to the net change limit.

So, if the new net change limit is lower than the previous one, the CC would have to stop all withdrawals after the net change limit is reached – even if that withdrawal is according to an item in an approved budget. The direct net change limit guardrails leave no room for interpretation.

But: If Intersect gets its will and withdraws their whole budgets immediately (and thereby disempowers the dReps and makes the Intersect bureaucracy king of the castle), this won’t change that much in practice. The ADA then are already out of the treasury and a change to the net change limit cannot will them back in.

1 Like
12

This is all up to the lawyers now - Cardano opted out of “can’t be evil, won’t be evil” a while ago and so none of this is actually enforce-able on chain and the fuzzy wording of the Constitution allows some wiggle room for interpretations. The community clearly wanted this by passing this Constitution proposal.

In my mind “the then applicable net change limit” means that any net change limit submitted after a budget is passed, has no implications on that budget, so the NCL can not be used to stop treasury withdrawals under a passed budget within that budgets lifetime. This is in line with Intersects / Charles argumentation about operational continuity.

1 Like
14

Just realized that my suggestion was in there :wink:

15

I agree with HeptaSean’s assessment.

The community has the right to adopt a new Net Change Limit at any time so long as the governance action passes the required thresholds. The only things that cannot be changed are set down in the Constitution and even the Constitution can be changed by the appropriate governance action.

16

If they consciously wanted it, is up for debate. But they believed the powers that be that it is a good constitution and have to live with the consequences for sure.

I can’t see that interpretation at all:

This rule does not even mention the “budget”. “Then” has to be the point in time of the withdrawal. So, a new net change limit could stop withdrawals even if they are in a budget.

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Yes they do because nowhere is said that a new net change limit with an overlapping period to a previous one invalidates that previous one.

18

Whats your take as far as implications for an already passed budget goes? Does a new (lower) NCL possibly void further treasury withdrawals of an already passed budget? That seems odd to me tbh.

19

Though in the above, that the constitution is not clear in this case, is true; we have to be realistic here, this hypothetical case is unlikely to happen.

There are more edge cases that one can hypothetically construct that are clear bad cases on which, I hope, DReps will not vote “yes”. And even if this would the case; the CC can also block us from checkmating ourselves into a situation where the path forward is not clear.

1 Like
20

I heard @intertreeJK speaking about this in an X space this week. The constitution doesn’t tie treasury withdrawal limits to the budget, only to the net change limit. We can approve any budget we want, now or in the past or in the future, if the net change limit is reached, no more treasury withdrawals for that period or until a new net change limit has been approved.

This doesn’t say anything about what happens if two net change limits that overlap in period are approved though. I think this only will get resolved if it wil happen in reality and then we’ll have to see how the CC interprets this ambiguity… From then on, we’ll have a precedent; I think this is how it works IRL too if a law isn’t clear about something.

21

Some thoughts on maybe a constitutional guardrail update needed in regard to NCL:

67% vote on NCL

NCL Denomination - ADA (ADA is assumed because of how the Constitution requires everything to be denominated in ADA - but spell it out).

Minimum Time Period - 18 epochs (quarterly/90 days)?

Maximum Time Period - Not needed or 146 epochs/2YR?)

Additional Stuff:
I think if a new NCL is being proposed to overwrite an existing one, new thresholds need to be introduced:

  • Higher voter threshold (say 75% ?), or keep the same. Not sure. It can remain 67% if it’s a continuation or new budget time period. The raising of the threshold is to discourage frequent changes

  • Cooling off period - If an NCL is set, maybe 6 epochs/30 days needs to pass before another one can be proposed.

  • Introduce time-lock penalty on change NCLs (modification of an existing NCL cannot exceed the original time frame proposed?)

  • Solidify only a single NCL can exist within the same time period (no overlaps - only replacements/changes if it’s within same time period).

Important thing above being there’s a difference between modifying an existing NCL and putting forth an NCL for the next time period, whatever that is.