The biggest problem I have with the Cardano network is its use of ADA for transaction fees. You don’t know from 1 minute to the next what your actual transaction fee will be in FIAT terms. Why was ADA not created as a Stable Coin say pegged to the USD so that you can set a transaction fee at say 5 cents and it remains stable?
I understand you move the variability onto variations with the USD on the currency markets. But, I do think most people would prefer this as they know how much FIAT their transactions will cost. Thanks.
Interesting concern, I’ll attempt to address it.
I suppose it’s because Cardano isn’t really a currency. The network fees on Cardano are quite low however, I believe you’re concern would apply more towards the ethereum network. The price of Ada is determined by the market, similar to the price of oil. Pegging oil to the dollar won’t keep your gas price from fluctuating. Also this seems like a general cryptocurrency question, not specific to Cardano. Why would a decentralized network put its monetary policy in the hands of a centralized entity (Like the US government) ?
I would add that if in the future the price of Ada rises astronomically (keep in mind the 45 billion supply of Ada coins) and the transaction price becomes “too expensive” we can use the Voltaire governance system to get community consensus to lower the transaction costs. It’s a pretty straightforward update that has been designed well from the beginning to avoid the type of problems ethereum is having.
You can also pay transaction fees with other tokens on cardano, you don’t have to use Ada
I agree, the price of Ada is similar to the price of oil. But why would you want to tie transaction fees to the price of oil?
It makes no business sense.
It makes more sense to tie the fee to the dollar USD or another FIAT currency e.g. GBP.
The decentralised network is currently embedded with certralized entities like Central Banks, and is happy to do so, as this is the only current means of exchanging coins for FIAT.
Now, it is mentioned that the Voltaire governance system could be used - why add an unnecessary layer of complexity?
All that does is adjust the fee price of ADA to be a certain amount of FIAT e.g. 5 cents USD.
Why not have the fee fixed at a fixed FIAT amount from the outset by having ADA operate as a stable coin?
The Voltaire governance could be used to set and vary fee amount in FIAT terms - if necessary - and I see this only needing to be done 1 time per year if at all.
If ADA is used as anything other than a stable coin then the Voltaire governance would be needed on a DAILY basis to set a fixed FIAT transaction fee e.g. 5 cents. I am not a fan of variable transaction fees.
It is a general blockchain currency issue - I think the price of gas on Ethereum highlights my concern - someone sent me a screenshot of a fast transaction fee of $406 for sending some Ethereum - ridiculous. Now, in business, transaction fees are an overhead that businesses like to reduce or preferably eliminate. No network appears to offer low fees other than Stellar - it would be 0 on that network were it not set to prevent distributed denial of service attacks. But ultimately users want to know what a transaction will cost at a fixed price - so they can determine the cost of doing business. Instead with current networks - transaction fees vary per the volatility of a coin which for e.g. on Binance can typically vary 10% to 20% per day - this is unviable for any business in the long term. Thanks.
The big issue I see is that it would require Cardano to rely on external information. Sure, everything ties to outside input eventually because transactions are all initialized by people, but it’s different. You would either have to create a reliable Oracle service that you KNEW you could count on forever. Even if you could say for certain that the service would remain active indefinitely, it would make the network inherently centralized.
“Why not make it like DAI? That’s decentralised!”
True, sort of. The MakerDAO system still uses oracles. While it would be something of a black-swan event, the oracles could be compromised or fail. Even if we were ok with that, Cardano didn’t start with infrastructure required for that (I think? Someone correct me if I’m wrong). From a development and security standpoint, Cardano’s price doesn’t matter. It’s a mechanism more than a true store of value in my opinion. Its value comes from the fact that people know they will need it to operate on the network, and also that it may become more valuable in the future. It’s not worth the centralization or security complications.
The fees are also an important part of the self sustaining decentralized system. Transaction fees are used to minimize spam and attacks, reward stake pool operators, delegators, and fund the treasury system. It is designed to function without any dependency on outside (fiat) currencies.
Cardano is not attempting to be a central bank digital currency, or a fiat backed stable coin.
Another way to think of it is that the fees are stable, it’s the relationship to fiat that is volatile. 1 Btc will always be worth 1 Btc, and 1 Ada will always be worth 1 Ada. Changing the transaction fees should be voted on and agreed on by the community, as it would affect the treasury funds, and stake pool operators income. Having the fees be pegged to a fiat currency makes the system dependent on that currency to function as designed. A new and better decentralized currency should not be dependent on and old centrally controlled fiat currency.
I disagree with that statement. Transaction costs mater a great deal to businesses. There are a lot of Blockchain Apps springing up and the network with the cheapest and stable transaction costs will win the business.
W.r.t. the use of Oracle services - I don’t see a problem with that. There are already blockchains that provide Oracle services like Chainlink ($LINK).
Given that entry to Cardano network for many people is buying ADA via FIAT then the cost of doing business is volatile - as you never know what you will need to pay for more ADA to continue doing business on the network.
Stellar appears to manage its Treasury and Stake Pools with extremely low fees - perhaps Cardano can learn something from that blockchain. I don’t think businesses are in business to make Stake Pool operators or the Treasury rich. Indeed I’ve read that miners on Ethereum have resisted a Voltaire governance like request to reduce fees as it would lower their income - no-one votes to take a pay cut!
I like the proposed tech of the cardano network but unless it gets a grip on fees then I think it will be largely abandoned by commercial apps.
The point about voting to take a pay cut is generally valid - I mean, ever seen a politician do that? There is, however, a difference between a board member or politician refusing a pay cut, and a pool owner refusing. In a company or government, the position you hold is more or less guaranteed to exist indefinitely. Sure, you might not hold the position forever, but no one is going to remove you for refusing a pay cut. You can just pay your workers less, have fewer workers, offer less benefits, or put less money into other areas of the budget.
In the case of a system like Cardano, there’s nowhere to shift the burden to. It comes directly out of transaction fees (that is correct, right? Someone tell me if I’m wrong). So if fees are starting to drive people away from the system, you lose money. At a certain point, the math becomes obvious, and the only long-term option to retain a profitable model is to decrease fees, or rather, to effectively return them to what they were some time in the past based on how much Cardano’s price has risen. It’s supply and demand. Neither are inelastic in this situation. If demand for a product (in this case the use of Cardano in general) isn’t high enough, fees will be forced down.
It’s more like deciding to lower the price of the main product you sell than taking a pay cut. They seem like the same idea - after all, if your product costs less, you’ll make less money, right? Except that if you lower the price, more people will buy. And if you keep the price too high almost no one will, netting you a greater loss than if you’d just lowered the price.
with all due respect, I think the large group of PhD’s that designed Cardano network have a very solid grip on the fees…
I understand your concern, but I think you under estimate the amount of research that has gone into designing cardano, and the deep thought put into the fee structure. Cheap or free is not always the best way forward, there are always tradeoffs, and someone has to pay for that.
If you don’t like the (low) fees, and want to run a business on cardano with your own fee structure, then just do that. Create your own token for your business and charge fees in your token.
Ok, let’s think about it this way. Ada has a fixed supply, literally every FIAT currency doesn’t. The price will fluctuate regardless, based on the market value of Ada (Supply/ demand) and how much FIAT currency is printed. You can build a stable coin on Cardano. If people use etherium, there will sure as hell be a market for Cardano.
Let’s also keep in mind that SPO’s are not all whales controlling the voting. Many stake pool operators only hold relatively small amounts of Ada, and there are many stakers/holders who will vote on fee structure and other issues that are not stake pool operators.
There is a balance between a strong network, with a well funded treasury that will insure the long term viability of the network, and making stake pool operators and the treasury rich. (the treasury is a non-profit organization, and the treasury funds are spent according to the community voting)
If a fortune 500 company wants to make a long term play with blockchain, do they want to spend millions developing a use case around a network that may not exist in 5 years time? Having a well funded (but not over funded) treasury helps to ensure long term financial sustainability of the network. Having an attractive and competitive business model for stake pool operators provides financial incentive for people to continue supporting the decentralized network.
If you think in ADA alone, tx fees are very low and stable. However, when adoption increase and fiat prices fall much more then adjustment may be reasonable, no problem as everybody wants to have low fees. BTW I would love to pay and be payed in ADA alone. I’m sure one day that will happen.
Yes, but it’s up to SPO to decide and under the surface there’s a mechanism that exchange native tokens to ada. All rewards to stakers are paid in ada.
That made me laugh. Having a PhD doesn’t mean you can’t come up with a poorly designed fee model - which I think Cardano has. If you look at Ethereum’s EIP 1599 - no doubt designed by the odd PhD participant is also a badly designed fee proposal that won’t fix Ethereum’s fee problems. You mention Babel fees - that is not a solution - that is just another layer of abstraction - SPO’s just become Liquidity Providers and set an exchange rate for your token against the ADA price - so you are still effectively paying in ADA.
Now, just for reference if you take a look at the Stellar network with a current Lumen price of 40c (USD) - each transaction costs 0.00001 Lumens so 4/10000 of a cent. Now that is value. Compare that to the minimum on Cardano - 0.17 ADA - with ADA at 1.20 this is 20 cents (USD). Hopefully, now you can understand why I’m not impressed with the PhDs who worked on the Cardano fee model. Thanks.
Totally disagree. Cardano’s tx fees are anything but low - where is your evidence for such a statement? Please see my other reply which compares the fee level of Cardano to Stellar. Thanks.
I’m sure the Fortune 500 company would do a Cost/Benefit analysis of using several blockchains - and on a cost basis I don’t think ADA would be selected - over say Stellar. If a company was going to be making tens of millions of transactions - then I’d suggest it would be cheaper to clone an Open Source blockchain and create their own CeDeFi blockchain - a bit like Ripple.
The fee structure is something we are actively reviewing, both internally and in conjunction with an external consulting group. The focus is on making them stable and predictable.