Cardano launched the first phase of on-chain governance, but the founding entities still exist and have a significant influence on the project. These entities received ADA coins at the inception of the Cardano project, referred to as Genesis coins. These coins enable them to employ individuals to work for Cardano, thereby maintaining control over the project. There are two parallel budgets: Genesis coins managed by the founding entities and the Cardano treasury overseen by DReps. How will these entities collaborate moving forward?
Who Is Responsible For What
At the inception of the Cardano project, the three founding entities divided their roles. The IOG team focuses on research and development, handling the protocol’s implementation along with all related technologies. The Cardano Foundation, besides other things, owns the project’s brand, engages with businesses and regulators, oversees the network, organizes the Cardano Summit, and supports the community. EMURGO promotes the project’s adoption through various commercial avenues. Genesis coins enable these entities to fulfill their respective roles.
How does on-chain governance integrate into this framework?
On-chain governance refers to a system where decisions about a blockchain network are made directly on the blockchain itself. This typically involves a voting mechanism where token holders can propose and vote on changes to the network’s rules or parameters. On-chain governance also encompasses the Cardano treasury. All registered DReps will have a significant influence in deciding on protocol parameter changes and the withdrawal of ADA coins from the treasury.
From a decentralization perspective, the community truly controls the protocol through the ADA coin. Founding entities can also play a significant role in governance by registering as DReps or by delegating their stake, although they have not done so yet. Additionally, the Cardano constitution and the constitutional commission play crucial roles in ensuring that all approved governance actions are constitutional.
It’s important to note that the founding entities maintain control over the project without needing to use their ADA coins, a situation rooted in the project’s history. These entities will continue to exist despite the introduction of on-chain governance, and that’s perfectly fine. Below we will describe what founding entities actually control.
The founding entities employ hundreds of individuals who are compensated with Genesis coins. These employees perform tasks that DReps cannot. They include programmers and other IT experts, researchers, lawyers, former businesspeople, venture capital funding specialists, executives, educators, and more. The primary role of DReps is voting; they often lack the time and expertise to carry out the same functions as the employees of the founding entities.
The community sometimes has unrealistic expectations of DReps. For instance, they might expect DReps to facilitate the deployment of USDC on Cardano. This task is significantly more complex for DReps compared to members of the Cardano Foundation or EMURGO. While any DRep or group of DReps can initiate communication with Circle, their bargaining power is limited. If Circle demands a higher USD amount for USDC deployment, DReps can only propose a governance action and cannot make any binding promises.
DReps, alongside the members of the constitutional committee (CC), represent a new entity within the power structure of the Cardano ecosystem. As individuals continue to register for the DRep position, established relationships and communication channels between DReps and the founding entities are currently lacking. However, this is likely to evolve in the future.
Cardano Power Structures
Once on-chain governance is fully developed, the power structures within the Cardano ecosystem will look as described in the figure. Founding entities and SPOs will be joined by DReps and CC members. Previously, ADA holders only influenced block production through SPOs, but now they also control network parameters, triggering hard-forks, and the treasury. After the Genesis keys are invalidated, founding entities will no longer impact the protocol or the treasury. However, the IOG team will remain responsible for implementing the Cardano node.
Some of the Genesis coins have likely already been spent, as the founding entities have been financing their operations for about seven years. Cardano should increasingly rely on the treasury. Founding entities might seek funding from the treasury for certain projects. For example, if Circle offers to deploy USDC on Cardano for $50 million in the future, there are two ways to finance it: either a founding entity pays from Genesis coins, or it is decided through governance actions. In the latter case, DReps will vote on it, and CC members must ensure the action is constitutional. USDC deployment would be financed from the treasury.
Building communication channels and fostering effective interaction between DReps and founding entities will be essential.
The question of whether DReps should be compensated for their voting work remains unresolved. When Intersect was preparing the DRep pioneer program, this issue was one of the four key modules. The governance team, which has been preparing the on-chain governance for years, anticipated this option. However, if ADA holders oppose it, DReps will not receive compensation. For DReps who wish to engage in more than just voting, they may need to seek positions within the founding entities or become SPOs if they are not already running a pool.
Integrating DReps into founding entities could benefit the ecosystem. DReps would gain firsthand information and deeper insights into the Cardano ecosystem’s needs. Those who lack the time to address complex issues or access certain information might not have the relevant data for their votes. DReps can share community views with founding entities and bring new perspectives.
The discussion about the ideal DRep is still forthcoming. Some believe that Cardano should be entirely independent of the founding entities, making DReps independent as well. However, founding entities have an obligation to spend Genesis coins before exiting the ecosystem. Alternatively, they could deposit the remaining Genesis coins into the treasury, though this may not be ideal. Founding entities have contributed significantly and are crucial to the ecosystem. Therefore, a close connection or integration of DReps into these entities seems more advantageous.
Some ADA holders prefer that DReps not be SPOs due to potential conflicts of interest. It is not technically possible to prevent SPO from becoming DRep (and vice versa). It depends on the ADA holders’ choices to whom they delegate voting power. However, if a DRep wants to engage in more than just voting, such as deeply understanding complex governance actions and community debates, it will require significant time and effort. In this context, it seems fair for active DReps to start running a staking pool. There are likely delegators who would want to delegate both voting and staking power to such DReps.
Many topics need to be addressed, and we will need to find answers. Money is always linked to power. Founding entities will need DReps as they require ADA from the treasury. DReps will seek more information about the Cardano ecosystem’s needs, which they can obtain from the founding entities.
It will be fascinating to see how the relationships between DReps and founding entities evolve.
Conclusion
It’s important to note that the Cardano power structure may seem complex at first glance due to the involvement of many entities. However, the key decision-making power lies with ADA holders. While founding entities can significantly influence adoption, the ecosystem, infrastructure, and protocol, their control over the protocol itself is very limited. A significant portion of SPOs must voluntarily install the new version of the Cardano node. Following this, all three new governance bodies must approve the governance action to trigger a hard fork. This process is no longer under the control of the founding entities.