Governance Thoughts for 2021

A neurofeedback headband called URGOnight, worn for a three month training program, gets a personal shoutout before the governance talk starts.

From 2015 to 2020, Cardano grew from a handful of people into a huge community, and the plan was to move from a static, federated consensus system to a dynamic, decentralized one using training wheels so operators could learn to run the network.

The Incentivized Testnet trained over a thousand stake pool operators for six months before the Shelley hard fork launched in July, the most successful proof of stake transition in the industry's history, and 68 percent of blocks are already made by the 1200 registered pools with full handover expected by March.

The lesson from Shelley is that a gradual handover with an education component is needed, since running the network is what lets people form real opinions on its economic parameters.

There are already divergent community opinions on Ouroboros parameters like k and the reward function, including CIP-7's proposal for a pledge benefit curve.

Project Catalyst began formal work in April 2020 as training wheels for community participation, and by December Fund2 is underway with the first ever community vote, still kludgy and beta but real.

The Q1 2021 goal is to maximize participation by getting as many ada holders as possible to register, vote, and submit proposals on IdeaScale.

Voting tools will keep improving, with a dedicated voting centre planned inside Daedalus and, after talks with the Emurgo team, likely inside Yoroi too, while the mobile app stays in place; around 64 percent of ada in circulation is already staked, making Cardano the second largest cryptocurrency by stake.

The growth target is 50 percent of Catalyst-eligible ada holders voting by the end of March, matching US presidential election turnout.

Democratic systems usually resolve complex ideas through institutions like the Hoover Institution, the American Enterprise Institute, the Council on Foreign Relations, and the RAND Corporation, or through thought leaders spanning Ben Shapiro and Rush Limbaugh to Noam Chomsky.

Crypto still lacks the right institutions since existing ones are biased or nonexistent, and any emerging thought leaders risk becoming a cult of personality; a working governance system instead needs a systematic process, like the scientific method, to dissect complex ideas, with the Cardano Foundation, IOHK, and the CIP process already serving as Cardano's institutions.

A hallmark of good governance is the ability to actually converge on decisions, something Bitcoin struggles with, splintering into Bitcoin Cash and Bitcoin SV instead of resolving disputes.

Legitimate governance means accepting a decision's outcome even when you personally lose, the same way citizens accept an election result under a system they trust.

Beyond return on investment, Cardano needs a return on intention framework, since token price is a rigged, macro correlated vanity metric that nobody can control.

Return on intention should be judged through utility, growth, adoption, sustainability, and competitive fitness, the way government funders like the National Science Foundation and DARPA judge scientific investment.

Decisions converge either toward changing the system, through a hard fork, soft fork, or CIP, or toward funding something, whether a global initiative or a small community project.

Ideally a decision-making mechanic sifts through all of these submissions, with thought leadership and institutional domain expertise analyzing the claims, before ada holders, each a unique expert in their own right, get a god's eye view of the whole system to vote on.

The Q2 goal is to solidify a community-accepted definition of return on intention, possibly proposed formally as a request for comment style CIP, drawing on precedent from the EU Horizons grant, DARPA, and Bell Labs.

There are two voting systems: an off-chain treasury system built on a Rust codebase for the Catalyst funds, and an on-chain system that is not yet activated.

The on-chain voting work grew out of a European Union grant for decentralized software updates aimed at the Hard Fork Combinator event, with the Haskell firm Obsidian Systems now helping build it.

The plan is a bicameral model: ada holders vote on treasury funding off chain, while stake pool operators vote on protocol changing hard forks on chain with a high approval threshold.

Cardano is exploring adding a third, voting key alongside the existing value and staking keys, so delegating to a stake pool operator could hand over voting rights separately from stake.

The bicameral model mirrors how many representative democracies work, giving stake pool operators an expert class constituency alongside ordinary ada holder voters, with a private vote for registration and a public vote for delegated choices.

The Allegra hard fork introduced a token locking mechanism specifically to keep exchanges, which hold funds on demand, from voting, the same way certificates of deposit require locked terms at banks.

More Rust and Haskell engineers have been added to both the on-chain and off-chain governance teams to scale up the treasury system.

Funds2 is the first real test of whether the community can converge on funding decisions, and its results will show how many proposals actually get funded.

Institutions form organically whether invited or not, as shown by the Single Pool Alliance, which emerged from stake pool operators wanting better representation.

The biggest community decision for 2021 is Cardano 2025, deciding where the project goes once smart contracts, evolved governance, interoperability, and sidechains complete the first generation of the system.

The personal metric for Cardano 2025 is a decentralized system that can sustainably serve a billion users at the scale of Facebook, Google, or Amazon, built by growing from a handful of core entities into a diverse set of executing entities under a concept called the Decentralized Consortium Fund, DCF, that a full time team is already defining.

Once the DCF's core entities are seeded, any proposal to join will itself be judged as a complex idea with its own return on intention: does it improve utility, growth and adoption, competitiveness, and long term sustainability of the system.

Whether the community embraces the Cardano 2025 vision is genuinely uncertain, and if it works it becomes a reusable model for decentralized upgrades across the whole cryptocurrency industry.

Governance is the most complex topic in the industry and one that Ethereum, XRP, and Bitcoin have entirely ignored, making it one of Cardano's key differentiators.

Governance is only one pillar alongside smart contracts, with more than a hundred IOHK staff and over a dozen partner companies working across all of Cardano's moving parts, and the goal for next year is for Cardano to become truly self-governing and more decentralized than every other cryptocurrency combined.

Success means building a system that no longer needs him personally to function, since the project is already independent of its founders.

Now that independence is achieved, the next challenge is executing toward a billion users and bringing in thousands of companies, made harder by an existential regulatory wave that prefers easy to regulate leaders and custodial companies over a self-governing ecosystem with no one in charge.

Good governance can meet that regulatory wave with tools like legal DSLs to encode regulation, blockchain based identity such as Atala PRISM, and smart contracts that capture the intent behind consumer protection rules.

Exiting 2021 well should bring clarity on Cardano's direction for the next five years and make it the best governed cryptocurrency in the world, its strongest competitive advantage for decades to come.

The closing vision ties governance to building a pan-African currency, a global regulatory system, and personal liberty, with everyone at the table getting a say and Hoskinson calling himself just one of many people on that road.