Cardano founder Charles Hoskinson recently floated a radical change to the project’s funding model. The proposal is to allow the funding of 5–10% of Cardano’s enormous treasury, currently worth around $1.2 billion. This would be accomplished by investing in other assets, like Bitcoin (BTC), or even stablecoins. This Solidity support is another strategic move towards enriching the treasury with various sources, while filling up more activity into Cardano’s dApp ecosystem. We anticipate converting up to 140 million ADA during that week. In order to do this, we plan to leverage OTC desks and use a TWAP (time-weighted average price) strategy. As it stands now, Cardano’s blockchain performance is far from being on par with top blockchains such as Solana.
Cardano has been building amazing momentum as it moves towards the end stages of its development roadmap. It is moving from the Basho scaling phase into the Voltaire governance era. The current circulating supply of ADA is 35.36 billion ADA, with a maximum supply cap of 45 billion ADA. With an annual inflation rate close to 2%, like that of the Federal Reserve’s target, the treasury diversification looks to be a boon for the Cardano ecosystem.
Strategic Diversification of Cardano's Treasury
The proposal to convert a portion of Cardano's treasury into Bitcoin and stablecoins marks a significant step in the project's financial management. Charles Hoskinson, the co-founder of Ethereum, is a believer in the power of diversification. He believes this will improve Cardano’s liquidity and encourage more long-term holding. This decision is intended to shelter from the instability of the cryptocurrency market. It tries to leverage the opportunities of stablecoins, which are on their way to becoming a regulated, safe asset class.
The team ultimately approved allocating 5-10% of the treasury, around $1.2 billion total, into Bitcoin and stablecoins. This transition is a great example of their intentional strategy to perpetually leverage risk. By diversifying into more established and liquid assets, Cardano aims to reduce its exposure to the fluctuations of ADA's price. This tactic would help create a more robust financial plan for the project. This will help make sure the resources are there to keep developing and growing the ecosystem.
The suggested conversion process would sell the 140 million ADA through OTC desks across the week using a TWAP strategy. This approach attempts to distribute trades through time to minimize market impact. Through the mechanism of averaging out the price, it avoids the immediate price crash that often happens with large, concentrated sales.
Impact on Cardano's dApp Ecosystem
The arrival of stablecoins to the Cardano ecosystem is expect to bring more activity to its dApp ecosystem. As it stands, stablecoins make up a tiny 21.61% of Cardano’s total value locked (TVL), which sits at $145.09 million. This means that an influx of stablecoin liquidity in the ballpark of $100 million would significantly improve the functionality and attractiveness of Cardano’s dApps. This improvement would further attract new users and developers to the blossoming platform.
Cardano’s leading dApp by unique active wallets (UAW) is DexHunter, a decentralized exchange (DEX) aggregator. Right now, the biggest dApp by far on Cardano is Lenfi – a borrowing and lending dApp – with a TVL of $11.62 million. Integrating with stablecoins however offers these dApps much more stable and predictable trading pairs. This is an important change because it will protect users from the many dangers associated with unpredictable cryptocurrencies.
Providing more stablecoin liquidity can further accelerate the development of some cool and innovative new financial applications on Cardano. That goes for lending platforms, payment systems, and decentralized finance (DeFi) protocols. This can greatly increase the use cases for ADA. Fourth, it will bring a more diverse set of participants to the Cardano ecosystem, driving continued growth and innovation.
Cardano's Development Stage and Future Prospects
Cardano is now in the Basho scaling phase, prioritizing the network’s performance and efficiency. Although Cardano is three years older than Solana, in terms of actual blockchain performance Cardano is far behind the top tier and even lower tiered platforms. Moving into the Voltaire governance era will be a historic moment for Cardano. Most importantly, it will enliven ADA holders to become more deeply involved in the decision-making processes that will chart the future of the network.
Cardano achieved full smart contract functionality in the Goguen era. This milestone was accompanied by the successful implementation of Allegra, Mary and Alonzo hard forks in September 2021. Developers can today create and launch dApps on the Cardano blockchain. This expansion boosts its capabilities and continues to lure in new innovative projects to the ever-growing software ecosystem. For comparison, Cardano only allocates 80% of staking rewards to validators, with the other 20% going to the treasury.
This treasury diversification proposal is fully in line with Cardano’s long-term vision of building a sustainable, self-governed, decentralized ecosystem. By strategically managing its financial resources, Cardano aims to ensure its continued growth and development, positioning itself as a leading blockchain platform for the future.
