Cardano treasury
Introduction to Cardano's treasury system
A treasury system is a community controlled and decentralized collaborative decision-making mechanism for sustainable funding of the underlying blockchain development and maintenance. The Cardano treasury system was outlined in the initial Cardano White Paper and latterly in the monetary policy, which can be found in the Cardano Docs repository. In addition, back in 2019, a research paper was published exploring the concept and mechanics in much more detail.
Maintaining, developing, and improving a blockchain project requires ongoing monetary support. The treasury was outlined to perform this function and provide funding for new features, improvements, and other adoption/utility/innovation initiatives which will be allocated through a community-approved decentralized process (aka on-chain voting as described in CIP-1694).
Treasury Funding Methods
Cardano's treasury is funded through two methods {source}:
Monetary expansion from the Cardano reserves - the Cardano reserve is a fixed amount of ADA put aside when blockchain created which is gradually being burnt down to expand the treasury.
Blockchain fees to process transactions - the proportion of the treasury funded from blockchain fees rather than from Cardano reserves will increase over time. There is also the unspent treasury carried forward from the previous period. The temporal units in Cardano are Epochs. Which means the treasury gets topped up every Epoch by expansion from the reserves and fees.
{Source CEX explorer}; Every 5 days, 0.3% is taken from the reserve together with collected fees and both are used for the epoch reward. From this amount, 20% is taken and put into the treasury. That's roughly 5.5M ADA every epoch. As the reserve declines, so do the contributions to the treasury. It is expected that in the future the income from the reserve will be gradually replaced by the income from fees, and subsequently network growth.
This method has been outlined, in more detail at the previous Catalyst Town Hall Presentation on April 20th 2022.
The reserves are a fixed amount of ADA that is expanded into the Treasury and will gradually burn down. The increased ADA available in the Treasury is then circulated into the market, allowing for more transactions.
As the Cardano economy develops, the proportion of the treasury funded from blockchain fees rather than from Cardano reserves will increase.
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