The Importance of Governance
A blockchain must have the means to evolve as it grows and matures. Without a mechanism in place, it will become obsolete as better blockchains emerge. Of course, as the first blockchain, Bitcoin debuted the first mechanism for a simplified version of governance through Bitcoin Improvement Proposals (BIPs). “Second-generation” blockchains followed suit as they enhanced and altered the process, tailoring not only the name but the scope and structure of the process to their network. The famous Ethereum Improvement Proposal EIP-20, created on Nov 19, 2015, brought about the ERC-20 token standard. Cardano’s approach is different, leading many to say they are not only pioneers but leaders in the realm of on-chain decentralized governance.
A balance during the implementation of a blockchain must be struck between control and decentralization. Most are nearly entirely centralized at launch, and slowly transfer ownership of the protocol to the community begins as the blockchain develops. After meeting certain milestones the protocol becomes more decentralized, like on Cardano's D=0 day when block production shifted entirely to community-run nodes. Over time, Cardano aims to be completely decentralized, with on-chain governance being the final step. Once fully matured, on-chain governance will signal the completion of the founders’ initial vision for Cardano. After this is fully executed, further control and evolution of the Cardano blockchain will be entirely in the community’s hands.
Cardano's roadmap is split into five eras - Byron, Shelly, Goguen, Basho, and Voltaire. Each of these serves a purpose, focusing on different stages of the blockchain’s development. Having completed the first three, Cardano is concurrently in the Basho and Voltaire eras. Basho aims to bring Cardano to nation-states and operate globally, focusing on scaling and adoption. The focus of the Voltaire era is to establish a complete, decentralized, and self-sustaining on-chain governance.
The scope of Cardano’s Voltaire era is unique with respect to the governance models of other blockchains. The Voltaire era is built upon two pillars, Cardano Improvement Proposals (CIPs) and Catalyst, focusing on software updates and technical improvements and establishing a treasury and funding model. As iterative processes for improvement, the core values and goals that guide these tools include transparency, fairness, durability, usability, and adoption. For a governance model to be successful, the system needs to evolve, handle conflict resolution without forking, provide incentivization for participation, establish a positive feedback loop, and be open to all without needing technical aptitude.
As a participant in the Cardano network, you can submit a Cardano Improvement Proposal (CIP). A CIP allows users to request new features, technical improvements, or update the network parameters such as block size, the minimum pool fee, or the optimal number of stake pools. These proposals are reviewed by knowledgeable CIP editors and the Cardano Foundation. MELD will implement a similar governance structure in which MELD participants will submit MELD Improvement Proposals (MIPs), which the MELD DAO will review. Implementation of this DAO is split into three phases, each with increased decentralization. In the final stage, voting power will be based on a user’s quantity of tokens and the duration that they’ve staked them. Just by HODLing your MELD, your ability to shape the future of the MELD protocol increases with time!
What is Catalyst?
On Aug 3rd, 2020, the Cardano Treasury was established with a goal to develop Cardano activities through an iterative voting process. Catalyst is Cardano's instrument for decentralized funding and was first introduced in the Cardano Summit 2020. This gives a voice to the community, letting the ecosystem collectively support and develop itself. Cardano’s ‘war chest’, as Charles Hoskinson calls it, provides the community with the power to build the ecosystem, providing a positive feedback loop of value and utility.
Catalyst consists of three main parts, the Jormungandr blockchain, the Catalyst protocol, and the Catalyst app. The blockchain’s name is a reference to the Midgard Serpent (Norse mythology). It is a hat tip to Ouroboros (ancient Egypt), a snake eating its tail, the symbol for Cardano’s proof of stake consensus mechanism. The Catalyst protocol is what controls the parameters such as voting power and incentives. The Catalyst App is used to cast a private decentralized for the proposals of that round.
Catalyst uses a cyclic process for voting on proposals, each with its stages. There are three ways you can participate in the governance process - as a proposer, community advisor, or voter. A Fund cycle starts with proposal submissions posted to Cardano IdeaScale and discussed by community members. As a community advisor, you can review proposals, provide assessments to assist voters, and mentor the proposers in refining their proposals. The last and most common way to participate is by voting on the proposals during the second stage of a cycle. A voter first registers, connecting their Cardano Wallet to the Catalyst App and calculating their voting power. The proposals are split into categories with a predetermined budget. As a voter, you have the option to thumbs-up or thumbs-down each proposal. The top proposals will win the funds, allocated at the close of the fund, and then the next cycle begins after the distribution of the incentivized voting reward. All of the voting results are displayed publicly after each fund cycle has concluded.
The next fund in Catalyst is Fund7, with the voting window being between Jan 13th, 2022, and Jan 27th, 2022. Fund 7 will have $8 million (USD) spread across 24 different challenges, with 80% for funding and 20% for incentives to voters and advisors. To name just a few categories in this cycle: DeFi, regulation lobbying, DAOs, multilingual resources, decentralized identity, and even nation-building dApps. Additionally, the registration process is getting streamlined - after registering for Fund7, you will be registered for all future cycles. Something else introduced with Fund7 is the Catalyst Natives program, piloted by COTI. This program allows companies outside of Cardano to utilize the framework that the Cardano community has established. They can incentivize decentralized governance, cultivate and kickstart new ideas, and crowdsource problem resolution. This is the first step in unlocking the universal potential of on-chain governance and a significant milestone in the Voltaire era!
Harness the Power of your ADA
Because of Catalyst, a person staking their ADA in Cardano has a unique opportunity not granted to other individuals who leave their ADA on an exchange or hold some other cryptocurrency. A HODLer staking their ADA accrues more ADA over time with each epoch, generating a decent passive income. The value of these passive returns fluctuates with the market; however, the HODLer is not entirely helpless. With Catalyst, you can vote on proposals that bring more utility and value to Cardano. This, in turn, elevates the utility and value of your ADA in a positive feedback loop. As the value of ADA increases, more projects can be funded as the strength of Cardano’s treasury increases! The benefits of this return on investment take time to observe but are undoubtedly worthwhile to an individual. To the community at large, the price of ADA is not the focus. The main goal of Catalyst, and the entire Voltaire era, is to establish genuine improvement of the ecosystem through iterative, decentralized on-chain governance that is fair, private, and transparent.
So what can you do now? Register on Catalyst to participate in this incredible process! Submit a Catalyst proposal today! Unlock the potential of your ADA by reviewing the current proposals and voting! Mold the future of Cardano and make the world a better place!
The opinions shared within this article are those solely of the MELD Ambassador. Note that the content within should not be considered financial, legal, or tax advice. Neither the author nor MELD Labs PTE Ltd. are financial, legal or tax advisors. None of this content should be used to make any form of financial, tax, or legal decisions. Do your own research and consult professionals as needed for official policies, restrictions, and requirements in your jurisdiction.
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