When Cardano transitions into the Voltaire era, all ADA holders can register as a Delegated Representative (DRep). This opportunity is not exclusive to them. Staking Pool Operators (SPOs) can also register as a DRep. In a new governance structure, they are not restricted from becoming DReps. In the article, we will explain how it will work.
The Role of SPOs in the New Governance Structure
The new governance structure will include 3 governance bodies: Constitutional Committee (CC), DReps and SPOs.
During the Voltaire era, the decision-making power for governance actions will be shifted from the three founding entities to the aforementioned governance bodies. The original Genesis (governance) keys from the Shelley phase will become non-functional.
For a governance action to be approved, it must receive ratification from at least two of the three governance bodies. Certain governance actions require approval from all three bodies. This includes actions related to triggering a hard fork and Info.
A comprehensive list of all governance actions can be found in the table below. Please take note of which governance bodies are expected to vote on each respective governance action.
DReps hold the most influential role within the governance structure, given their ability to vote on all governance actions. These actions include dissolving the committee (putting the committee in a no-confidence state), initiating a hard fork, modifying protocol parameters, and making ADA withdrawals from the Treasury.
On the other hand, SPOs hold a less powerful position in comparison to DReps. They are not entitled to vote on key governance actions such as modifying protocol parameters, amending the Constitution, and withdrawing ADA from the Treasury.
The image below illustrates a vote on increasing the block size. Only DReps and CCs have the authority to ratify this governance action, excluding SPOs. This might seem unexpected considering SPOs have the best understanding of how rapidly their blocks spread across the Cardano network. However, they are not permitted to vote on such a significant change.
Interestingly, SPOs do have the opportunity to vote on all governance actions, much like DReps. SPOs can register themselves as DReps, allowing a single entity to assume dual roles in governance.
It’s crucial to understand that these roles are distinct at the stake level.
ADA holders have the option to delegate their block production power to SPOs and their voting power to DReps. These delegations are separate and independent from each other.
However, ADA holders have the option to delegate both their block production power and voting power to the same entity, that is, the same SPO. SPOs who also register as DReps hold two distinct stakes. The first stake is delegated to the role of SPO (representing the stake of the staking pool), and the second stake is delegated to the role of DRep. These stakes are separate and independent of each other.
ADA holders utilize identical staking credentials for two distinct delegations. The same quantity of ADA coins can be delegated twice, each for a different purpose.
The functionality of governance mirrors the mechanisms employed for staking. Certificates akin to those used for the registration and retirement of pools are utilized for similar purposes in the context of Dreps. The same applies to delegation. ADA holders employ a delegation certificate to delegate coins to the pool (for block production power). A comparable certificate is used to delegate voting power to the DRep.
The image depicts an SPO who has chosen to register as a DRep. This individual holds two stakes and plays two roles in governance, with the ability to vote both as an SPO and a DRep. It’s important to note that ADA holders delegate both block production power and voting power. ADA holder 1 delegates both types of power to the DRep. ADA holder 2 only delegates block production power to him (either not delegating voting power or delegating it to a different DRep). ADA holder 3 only delegates voting power to him (having delegated block production power to another SPO).
The magnitude of the pool stake and the DRep stake will vary (and fluctuate) based on the delegations received from ADA holders. SPOs who opt to register as DReps need to solicit delegations from ADA holders. Their new role as DReps is independent of their pool stakes. Essentially, they are starting anew, much like when they first established a pool. However, they do have the option to delegate their own ADA coins to themselves in the role of DReps.
The image below illustrates a vote on increasing the block size. The bottom left is SPO registered as DRep. He can vote on governance action with his DRep stake, but not with his pool stake.
All SPOs who are registered as DReps can vote on all governance actions.
The decision to delegate coins to SPOs acting as DReps, and thereby empowering them with a significant role in governance, rests solely with ADA holders. It’s anticipated that some ADA holders may favor DReps who are also SPOs, while others may prefer DReps who do not hold the role of SPOs.
Conclusion
Certain SPOs may aspire to become influential DReps, while others may choose not to pursue this path. The roles of both SPOs and DReps can be demanding, with DReps expected to actively communicate and participate in governance affairs. Excelling in both roles can pose a challenge. While there are no restrictions on SPOs becoming DReps, the decision to do so ultimately lies with the SPOs themselves.
The question of financial compensation for the role of DReps is still a topic of discussion. While the prospect may seem appealing to SPOs, they should be aware of the responsibilities that come with the DRep role. Taking on both roles can carry a certain degree of risk. If an SPO performing as a DRep fails to fulfill their duties effectively, there’s a chance that ADA holders might not only delegate their voting power to another DRep, but also potentially their block production power to a different SPO. This could lead to an unfavorable outcome. Therefore, SPOs contemplating the DRep role should give this careful consideration.