Cardano: IOHK reveals treasury and liquid democracy in the Catalyst project

  • IOHK is implementing new mechanisms to finance Cardano development in the long term.
  • “Democratic culture” in the Cardano community will play a key role in its sustainability as a platform.
  • A system based on “liquid democracy” will be central for the future funding of Cardano.

In a post for the IOHK blog, researcher Bingsheng Zhang explained how Cardano‘s project Catalyst will operate. Launched as part of the fifth and final phase of Cardano, Voltaire, the project aims to make the future development of the platform decentralized, democratic and sustainable. Therefore, community participation is key:

Voltaire is IOHK’s way of establishing this capability, allowing the community to maintain the Cardano blockchain while continuing to develop it by proposing and implementing system improvements. This puts the power to make decisions in the hands of ada holders.

As reported by CNF, Catalyst also aims to introduce a voting and treasury system. Zhang reported that the IOHK has succeeded in applying the latter mechanism to Catalyst to use research, “community consensus” social experiments, and other capabilities to enable the Cardano community to create a democratic culture aimed at maintaining the sustainability of the platform. In that sense, Zhang explained the following:

A democratic approach is an integral part of the blockchain ecosystem because it allows sustainability decisions to be made collaboratively, without relying on a central governing entity. Thus, the governing and decision-making process must be collective. This will allow users to understand how improvements are made, who makes decisions, and ultimately where the funding comes from to make these choices.

Cardano’s treasury system and liquid democracy

The researcher pointed out that Cardano will implement a mechanism with a transparent voting process. That way, ADA holders will be able to vote in a fair decision-making process. This system will be based on “liquid democracy” which, as the researcher explains, is a hybrid model that applies the best of direct democracy and representative democracy.

Therefore, users will be able to vote directly for the treasury and decision-making system, while still being able to “benefit from expert knowledge”. This is achieved by giving the user the option to vote directly or to delegate their vote to a member of the community that they consider to be an expert or capable of making the most informed and beneficial decision, according to their criteria.

In the system that Zhang highlights there will be funds, controlled by the community, that will be accumulated constantly. The funds will come from a number of coins minted for the fund, a portion of the stake pool reward fees, as well as transaction fees. In addition, the fund may receive additional donations or contributions.

Zhang then explains that the funding process will be made up of “treasure periods” divided into pre-voting, voting, and post-voting. Each stage is designed for the community to submit proposals that will then be discussed and voted on, ultimately. Although users may submit any proposal, only those with “importance and desirability for the development of the network” will be considered.

The researcher further informed that the latter will be determined in the voting process. There, the projects will be discarded depending on the number of affirmative or negative votes they receive. Such votes, as mentioned above, may be executed or delegated to another by the users. The researcher states that the privacy of users will be guaranteed with a “zero-knowledge proof honest verifier for encryption of unit vectors with logarithmic size communication”.

Although the governance model of Project Catalyst has been designed for Cardano, the analyst clarifies that it can be implemented in other blockchains. It has already been proposed implementing it for Ethereum Classic.

About Author

Reynaldo Marquez has closely followed the growth of Bitcoin and blockchain technology since 2016. He has since worked as a columnist on crypto coins covering advances, falls and rises in the market, bifurcations and developments. He believes that crypto coins and blockchain technology will have a great positive impact on people's lives.

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