User @SmaugPool, who identifies as a Cardano builder and developer, has introduced a proposal to reduce the current Cardano treasury tax from 20% to its initial rate of 5%. The proposal’s fate lies in the hands of the Cardano community, pending a vote. Currently, the effective treasury tax hovers at nearly 33%.
According to the developer’s estimates, the treasury accumulates approximately 30 million ADA per month, leading to a total of approximately 1.39 billion ADA as of November 7th.
ADA in Cardano Treasury | Source: Smaug Pool on X
Cardano Treasury: Funding Ecosystem and Community Projects
The Cardano treasury serves as a critical funding source for the development and maintenance of the wider Cardano ecosystem, while also supporting community-driven initiatives through programs like Project Catalyst. Overseeing the treasury is the Cardano Foundation, a non-profit entity.
In late October, Earn Coin Pool, a stake pool operator (SPO) within the Cardano network, put forth a Protocol Change Proposal (PCP) to reduce the treasury rate by 25%, bringing it down to 5%. PCPs allow for the adjustment of various Cardano network parameters, including the treasury rate, but they require approval due to the blockchain’s public nature.
The primary objective of this PCP is to lower the treasury tax rate to 5% or potentially even lower. Simultaneously, the proposal aims to gain insight into the factors influencing the “tau” parameter and the frequency of its adjustments.
This proposal could incentivize more SPOs to participate. Cardano, a proof-of-stake blockchain, relies on SPOs to validate and secure the network.
Stake Pool Operators and Cardano’s Treasury
Stake Pool Operators (SPOs) play a pivotal role by utilizing specialized software to validate transactions and append them to the blockchain. They are rewarded for their efforts in ADA, which can come from the pool’s fixed fee, typically set at 340 ADA, and an additional variable fee representing a percentage of the block rewards the pool earns.
With more than 3,100 SPOs in the Cardano network, they are randomly assigned to validate transaction blocks and receive corresponding block rewards. Notably, Cardano’s inclusive nature allows anyone to become an SPO, as there are no stringent minimum stake requirements.
Currently, the Cardano treasury tax stands at 20%, channeling 20% of transaction fees into the treasury, while the remaining 80% is distributed among SPOs involved in transaction validation during a given epoch.
As of Epoch 446, the Cardano treasury holds over 1.39 billion ADA, and this number continues to grow as the network processes additional transactions. From Epoch 431 to 443, the treasury consistently added 5 million ADA each epoch.
Source: ADAUSDT on Binance, TradingView
At the time of writing, ADA remains sturdy, trading near its July 2023 highs but below the $0.40 mark. While the uptrend persists, the true impact of a potential reduction in the treasury rate, pending community approval, on ADA’s demand and on-chain transactions remains to be seen.
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