The Shelley Hybrid Era and the d parameter

The Shelley hybrid era began on July 29th with a hard fork, and it runs until the d parameter falls to zero and the network is fully decentralized.

The d parameter sets the share of blocks made by stake pool operators versus by OBFT; before the Shelley hard fork Cardano ran in a static, federated OBFT mode, and now Ouroboros Praos turns on as d drops below one.

There are three phases set by the d value: majority OBFT with a minority of Praos blocks between d of one and 0.5, majority Praos with a minority OBFT between 0.5 and zero, and at d equals zero the OBFT nodes are turned off forever.

This period validates network health, with stake pool operators actually making blocks and active stake climbing toward an asymptote of around 45 to 50 percent, since most healthy networks settle between 25 and 60 percent due to lost coins, cold storage, and regulatory friction.

The ITN and Pioneer testnets on Haskell should make this hybrid transition go quickly, and Cardano now calls hard forks HFC events since the hard fork combinator lets old and new ledger rules run side by side, with the next HFC event bringing Goguen style features like native assets and Plutus foundations.

Marcin Szamotulski's team is turning on the peer to peer networking governor that was pre installed in Shelley, running performance profiling and policy work to enable full peer to peer capabilities.

In the majority Praos phase a minority of OBFT blocks remain for disaster recovery, and a fully decentralized update system paired with Voltaire's treasury will bookend what he calls the Cardano 2020 project, spanning 2015 to 2020.

At full decentralization, one hundred percent of blocks are made by Praos, the update system sits entirely in community hands, and Cardano is running smart contracts and native assets.

The pace of decrementing d follows a constant decay parameter called alpha, to be announced in an upcoming blog post, guaranteeing a minimum decrease every epoch and so a maximum time to reach d equals zero.

A green, amber, and red network health signal, based on active stake and the share of blocks made by stake pool operators, can pause or slow the decay in bad conditions or speed it up when the network is healthy.

A straw man alpha of .0025 would take about 200 days to reach d equals zero, and the coming blog post will explain network health and how two HFC events bookend the hybrid phase.

After recapping the three phases, he addresses this week's back and forth on lowering d next epoch, reversing an initial business as usual message after further talks about exchange problems.

The team built a custom version of Cardano for three or four of the fifteen exchanges to gather extra logs, since bugs from their unusual virtual environment setups have been hard to replicate, while Binance and Bitfinex have no such issues and already have liquidity.

He delays the d decrement by one epoch for fairness, since a presentation bug had misrepresented a third of the stake pools and a large amount of ADA is still stuck on exchanges waiting for liquidity.

The Daedalus bug is resolved and most exchanges are on the path to full liquidity, cooperation with exchanges ranges from full log sharing to silence, and these teething pains from exotic exchange setups are exactly what the Adrestia project aims to prevent going forward.

Sebastien Guillemot's team is working overtime to get Yoroi fully online through Byron and soon Shelley, and firmware updates now let Ledger and Trezor hardware wallets work with AdaLite.

The d decrement will not happen this window but the next epoch instead, with a blog post on February 14th setting the alpha value, followed by an HFC event for part of Goguen and a final HFC event near d equals zero to pull in Voltaire, after which disaster recovery is no longer possible.

The d parameter can technically move up as well as down, but only for a catastrophic flaw in Ouroboros Praos or an entirely new protocol, which is exactly why OBFT exists as a disaster recovery backup until the update system is fully decentralized.

This disciplined, ever widening process of trust is what got Cardano to d equals one in the first place, and at an alpha of .025 it points to d equals zero around February to March, though staking rewards stay exactly the same whether d is one or zero.

He calls this a humbling training wheels moment, since Ouroboros Praos was designed over multiple years and validated with rigorous mathematical proofs and engineering standards, and is now moving from the lab into the hands of people IOHK has no relationship with.

He compares the moment to watching SpaceX and NASA launch astronauts on Crew Dragon after years of collaboration and testing, recalling the Columbia and Challenger disasters as proof that risk is never zero.

Just as a rocket launch gets delayed when the weather is not right, this d decrement is being held back an epoch, and the hard fork combinator itself is now proven at scale after the network worked perfectly through the hard fork.

Someone outside Emurgo, IOHK, and the Cardano Foundation will make the first Cardano block under Praos, a historic moment for which he offers to arrange custom merchandise and personally sign items for that stake pool operator.

By the time d reaches zero, making Cardano blocks will be as routine as running a Bitcoin mining pool, with at least two more HFC events still ahead covering peer to peer networking and Voltaire experiments.

The Catalyst fund will be the first Voltaire fund to actually distribute money, sooner than people expect, and once its capabilities move from a sandbox into a permanent feature of the Cardano blockchain they can only be changed by a full system vote.

He downplays worries about exchanges and other infrastructure, noting some exchanges compressed four to eight weeks of hard fork preparation into under two weeks, though a few have been less communicative and helpful than others.

No ADA has actually been lost, only temporarily inaccessible in some cases, and Binance came online yesterday with Bitfinex following today, both joining the Cardano ecosystem.

Yoroi, node, and wallet backend improvements are coming next week, alongside the alpha value blog post on the 15th, closing out this update.