Introduction
The Treasury is a decentralized bank account funded through the system. There will be a democratic participation process connected to the system that allows the stakeholders to start having discussions about priorities, namely - which ballots ought to be funded.
"The Treasury System aims at solving two things: Where the funds come from and how the decision is made as to how they are used. It’s based on a modular design and can be configured with many parameters for any crypto currency.”
Content
1. Known funding systems
2. Deciding how the funds are to be used
- What is liquid democracy?
- Pre-voting phase
- Voting phase
- Post-voting phase
3. Where do the funds come from?
4. What’s possible in the future?
1. Known funding systems
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A popular funding arrangement is the patronage model. It consists of voluntary donations from users via a non-profit organization like the Bitcoin or Ethereum Foundations. They take charge of developing and maintaining the underlying system on a voluntary basis.
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Another system is the Initial Coin Offering (ICO). By selling your own premined coin it’s possible to generate a lot of capital at the very start of your project.
These funding strategies are not sustainable because what will happen if no more donations are made or the capital generated from the ICO is used up? You don’t have the money to hire developers - the software will stop being maintained and the system will die out because fewer and fewer users will use the software.
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A step in the right direction for instance is ZCash where part of the block reward goes to the company which will be in charge of development and maintance.
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All these systems will lead to centralization because a very small group of people decide how the money is going to used.
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DASH for example takes a sightly different approach. They also take part of the block reward from the miners but put it in a Treasury-Account. So supposedly every user can decide how to use it later.
Disadvantages of DASH: no freedom of choice because the voting process isn’t private. The election result may be distorted by votes sold or by intimidation of individuals. This doesn‘t represent true democracy.
Ways to solve these problems:
A private voting process, to prevent coercion, and using liquid democracy for decision making, so everybody has the chance to vote directly or delegate his vote.
2. Deciding how the funds are to be used
What is liquid democracy?
Liquid democracy is a mix of direct and representative democracy. Everybody has the chance to vote directly or delegate his vote to a person who trusts them.
Direct democracy:
Every voter will directly vote on the issue but not everybody can be familiar with all issues.
Representative democracy:
The number of delegates is fixed, the voters have to delegate, and the experts have to vote regardless of their own knowledge of the issue.
Liquid democracy:
Any voter can vote directly on the issue or if they are not familiar with it they can delegate their voting power to someone they trust (expert), and those experts can also delegate to another expert who knows more.
Pre-voting phase
In the pre-voting phase anybody can propose a project. E.g. if a marketer wanted to promote Cardano in his area with a concrete advertising strategy, he would need to describe his project and say: „I need 5000 ADA to realize it.“
The users can register themselves if they want to be a voter, an expert, or if they want to participate in the election committee.
- Voter: only needs to lock a certain amount of money and the voting power will be proportional to the locked stake.
- Expert: voters with the option to receive delegation. They also need to lock a certain amount of money and must register themselves as an expert. The voting power is proportional to the locked stake and the sum of voting delegations.
- Committee: committee members are determined by a cryptographic process with the probability being proportional to the amount of their stake. They have to participate in the election, take charge of the process, make sure it terminates, calculate the result, announce it and enforce execution of it.
Voting phase
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Election of committee: uses a cryptographic algorithm to generate a seed for selecting a subset of the committee members who registered. The probability a member getting elected is proportional to the amount of their stake.
“With the assumption that if the majority of the stake is good than the majority of committee members are good.” -
After election of committee: they have to setup election parameters (key setup) so voters and experts can submit their ballots for the projects.
Post-voting phase
Committee members: Have to make the tally and consider the proposals based on the sum of the „yes“ and „no“. votes The most popular proposal gets first pay out, than the secound, the third and so on until funds run out. This will be the cutoff of the list of proposals, every other proposal doesn‘t matter and will not recieve ADA. Finally the committee members have to execute the payout to the projects.
Incentives for participation in the voting process:
- Voter: proportional to delegation
- Expert: proportional to delegations
- Committee: ?
3. Where the funds come from
There are three sources of income to fund the treasury:
- Taxation: percentage from block reward*
- Donation: not sustainable but make it more transparent by using the treasury
- Mint: it’s also possible to mint a certain number of coins for the Treasury for each block
A rough description about the taxation at Cardano from Vantuz Subhuman:
- User sends some coins, or executes some other transaction* For each transaction user pays a fee of ~ 0.17 ADA (for now)* Slot leader puts the transaction into a block, with let’s say 1000 total transactions* Slot-leader pays himself a bonus out of nowhere, for example, 500 ADA* Additionally, he adds all the transaction fees to this bonus:
500 + (1000 * 0.17) ADA = 670 ADA - this is thetotal block reward* Now slot-leader gets two addresses - one is predefined (treasury) and one is any address he wants (usually his own)* He sends 75% to himself, and 25% to the treasury.
So treasury gets(670 * 25%) = 167.5 ADA, and he gets 502.5 ADA* As other nodes receive and validate this block – they verify that he sends proper amount of tax to the treasury, and if everything is ok – they include this block in their chains.* If a leader sends a block where there’s no 25% going to the specific address - then other nodes will notice this and just ignore this block as being invalid.* All of this happens every 20 seconds
4. What’s possible in the future?
- Upgrade system to handle soft-/hardforks.
- Governance system on top of Treasury.
- Quantitative easing: a form of expansion of the monetary base (inflationary monetary policy) like a central bank. (especially for crypto currencies that have unlimited supply)
This summary is not complete in all respects. Please feel free to post improvements and additions below.