How Cardano Looks to Incentivize Contributors on Governance Actions

Cardano looks to foster an incentivized and decentralized ecosystem free from bad actors with governance action fees.

Technology code face looking at Cardano chip-1694.
Created by Kornelija Poderskytė from DailyCoin
  • Cardano is moving towards its final stage, Voltaire, with unwavering determination. 
  • Voltaire will allow anyone on Cardano to vote and submit governance actions. 
  • The fate of Voltaire is dependent on how the CIP-1694 proposal vote goes. 

Cardano is approaching its final stage, Voltaire, with full steam ahead. The update looks to provide the final pieces required to reshape the Proof-of-Stake chain into a government, and it all depends on CIP-1694, a crucial proposal that holds the fate of Cardano’s governance. 

CIP-1694 will help Cardano become the first decentralized blockchain protocol controlled and run by its community, and unironically, its fate is in the hands of the community, who will soon vote for its integration. So, to further strengthen the case for CIP-1694, Cardano is looking to sway voters with exciting incentives that will convince them to embrace the vision.  

How Cardano Incentivizes Contributors 

Cardano’s on-chain governance is on track for a major overhaul, as it looks to allow anyone to submit governance actions. However, in its current form, the proposed system is at risk of manipulation and spam, presenting significant challenges. 

So, to address these issues, Cardano Foundation’s technical director Matthias “KtorZ” Benkort has proposed a solution that could foster an incentivized and decentralized ecosystem free from bad actors called the governance action fee or the “KtorZ tax.”

In a recent interim proposal on GitHub, Benkort suggested introducing an optional tax for submitting governance actions, requiring users to pay a minimum fee to validate and submit their proposals. This fee serves multiple purposes, which are discussed later; however, it ensures that creators genuinely support their proposals, filtering out spam.

Once the governance action is approved or expires, any surplus fee collected during the process will be fairly distributed among registered participants proportional to their stakes, regardless of their voting preference. This prevents opportunistic attacks where users might attempt to register at the last minute solely to collect fees. It also fosters inclusivity, allowing participants to contribute at a lower expense. 

This new governance action holds significant promise for the success of CIP-1694. It can redefine Cardano’s on-chain governance, making it more secure, transparent, and incentivizing.  

How Does the Governance Action Fee Impact Cardano?

By introducing this fee on every governance action, Cardano empowers its users to shape the incentives for DReps, who vote on behalf of ADA holders. It also ensures that users will truly support the proposals they submit, filtering out spam and malicious actors from plaguing the governance process. 

Additionally, it creates a fee market for governance actions that will push users to prioritize governance actions based on their value and impact and incentivize active participation in Cardano’s governance. Ultimately, the fee market will also determine how DReps allocate their time and resources, further encouraging them to perform their duties diligently. 

On the Flipside

  • Charles Hoskinson believes that by the summer of 2023, once CIP-1694 is complete, Cardano could surpass Bitcoin, Ethereum, and every other cryptocurrency in decentralization. 
  • Cardano Foundation recently tested its on-chain voting mechanism and proposed to change two of the most critical parameters in the network’s ecosystem. 

Why This Matters

The governance action fee proposal could enhance Cardano’s governance infrastructure’s integrity, efficiency, and decentralization while fostering a robust ecosystem driven by genuine contributions and active participation.

Read more about CIP-1694:

Cardano and the SEC Problem: How CIP-1694 Could Provide Solutions

Read more on Cardano: 

Cardano Eyes Summer Breakout as DeFi Ecosystem Revs Up: The $1 Target

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Insha Zia

Insha Zia is a senior journalist at DailyCoin covering crypto developments, especially in the Cardano ecosystem. With a Bachelor of Science in Computer Systems Engineering, he delivers high-quality articles with his technical background and expertise in data analysis and programming languages, aiming to educate and inform readers accurately, transparently, and engagingly. Insha believes education can drive mass adoption of the crypto space, and he is committed to giving DailyCoin readers a better understanding of the technology.