Decrease Treasury Tax from 20% to 10%
On-chain changes
- EconomicTreasury Cut20%→10%
Abstract
This governance proposal seeks to reduce the treasury cut from 20% to 10% to enhance staking incentives, improve decentralization, and align economic sustainability with the Cardano ecosystem's long term growth. The adjustment aims to optimize staking rewards without compromising the financial health of the treasury, ensuring a balanced economic model that incentivizes participation and network security.
Motivation & rationale
The initial 20% treasury cut was set arbitrarily at the launch of Shelley and has never been reassessed. With Cardano's ecosystem maturing and a more structured governance framework in place, it is now possible to refine economic parameters to better align with network incentives. A lower treasury cut increases staking rewards, encourages broader participation, and strengthens security while maintaining a sustainable treasury. This adjustment ensures that governance decisions support long term ecosystem growth.
Rationale
The proposal seeks to reduce the treasury cut from 20% to 10%, increasing staking rewards and incentivizing greater participation in governance. This adjustment strengthens decentralization and network security while maintaining a sustainable treasury.
Precedent: Plutus V3 Cost Model Update
The Plutus V3 cost model update demonstrates how governance-driven parameter adjustments can optimize Cardano's economic and technical framework. That update enabled new cryptographic primitives without disrupting existing functionality. This proposal follows a similar structured approach to fine-tune economic incentives while adhering to governance protocols.
Rather than equating this action with the Plutus cost model update, it should be framed as a governance-driven economic refinement. The similarity lies in their procedural approach. Both actions modify key parameters through structured governance processes to optimize Cardano's functionality and incentive structures.
Mathematical Justification
Cardano's staking reward system is governed by the formula:
$$ R_{\text{epoch}} = M \times (\text{monetaryExpansion}) + T $$
where $R_{\text{epoch}}$ is the total rewards distributed per epoch, $M$ represents the remaining ADA reserves, and $T$ is the total transaction fees collected in that epoch. The treasury cut is applied before distribution:
$$ R_{\text{stakers}} = (1 - \text{treasuryCut}) \times R_{\text{epoch}} $$
Under the current 20% tax:
$$ R_{\text{stakers}} = 0.80 \times R_{\text{epoch}} $$
Reducing the tax to 10% results in:
$$ R_{\text{stakers}} = 0.90 \times R_{\text{epoch}} $$
This equates to a 12.5% increase in staking rewards across the network. Assuming a baseline staking APY of 4.0%, the reduction would increase APY to approximately 4.5%.
Constitutional Alignment
The new constitution explicitly permits treasury cuts between 10% and 30% (Appendix I, Section 2.1: TC-01, TC-02). The interim constitution also establishes governance guidelines that align with maintaining financial stability (Article III, Section 3). This governance action remains within those limits and upholds fiscal sustainability principles. It does not alter governance structures but optimizes staking incentives.
Justification Based on Cardano's Economic Landscape
This proposal should be justified by Cardano's staking participation rates, treasury utilization, and historical transaction volume. Rather than relying on direct comparisons to external blockchains, the focus should be on positioning Cardano as a highly competitive ecosystem that maximizes staking incentives and treasury efficiency. Ensuring an optimal balance between treasury funding and staking rewards will attract users and developers, particularly during the most competitive phases of market cycles, reinforcing Cardano's long-term adoption and growth.
Governance Transition Considerations
The new constitution introduces improved treasury oversight and decentralized decision-making (Article IV, Sections 1-3). This proposal aligns with those mechanisms. It acknowledges the strengthened governance framework and ensures compliance with voting requirements for economic parameter changes.
Referencing Constitutional Guardrails
The original 20% treasury cut was an arbitrary level set at the beginning of Shelley and has never been reassessed. It was not based on economic modeling or sustainability projections but rather as a starting point in the early phases of the network. Now, with a more mature ecosystem, this governance action proposes an adjustment to align with long-term realities.
The primary mechanism that ensures treasury sustainability is ADA price appreciation rather than relying solely on transaction volume growth. At significantly higher ADA valuations, the treasury will remain well-funded even with a lower tax rate. This can be expressed as:
$$ T_{\text{future}} = T_{\text{current}} \times \frac{P_{\text{future}}}{P_{\text{current}}} $$
where $T_{\text{future}}$ represents the future treasury value, $T_{\text{current}}$ is the current treasury balance, and $P_{\text{future}}$ and $P_{\text{current}}$ represent the future and current price of ADA, respectively.
At higher ADA valuations, treasury reserves will remain sufficient to fund governance, development, and long-term initiatives without over-relying on a high tax rate. This adjustment strikes a balance between incentivizing participation and ensuring treasury sustainability.
Benefits to the Ecosystem
Reducing the treasury cut increases direct staking incentives, strengthening security by encouraging wider participation in staking. Higher staking rewards improve decentralization, as more ADA holders are motivated to delegate, reducing centralization risks among stake pools.
This change strengthens staking incentives and decentralization while ensuring the treasury remains well-funded under a sustainable long-term model. The original 20% treasury cut was set arbitrarily at the start of Shelley and has never been adjusted. Now that Cardano has matured, a lower treasury cut realigns incentives with network security and participant rewards.
At higher ADA prices, the treasury retains substantial purchasing power even with a reduced cut. This can be expressed as:
$$ T_{\text{future}} = T_{\text{current}} \times \frac{P_{\text{future}}}{P_{\text{current}}} + \sum_{i=1}^{n} \alpha \cdot T_0 \cdot (1 + g)^i $$
where $T_{{future}}$ represents the future treasury value, $T_{\text{current}}$ is the current treasury balance, $P_{\text{future}}$ and $P_{\text{current}}$ represent the future and current price of ADA, and the second term accounts for treasury inflows from transaction fees, where $\alpha$ is the proportion allocated to the treasury, $T_0$ is the initial transaction revenue, and $g$ is the growth rate of transaction volume.
A lower treasury cut not only increases staking rewards but also shifts economic incentives toward sustainable growth. Developers and projects will be encouraged to build products that drive real transaction activity rather than focusing on treasury allocations as a primary funding source. While increased transaction volume contributes to treasury inflows, the most significant long-term driver of treasury sustainability remains ADA price appreciation.
This adjustment enhances network security, incentivizes ecosystem participation, and promotes a more organic and sustainable approach to funding, ensuring that Cardano remains competitive while maintaining financial stability.
Governance Efficiency and Competitive Resource Allocation
A leaner treasury encourages competitive grant proposals and more strategic allocation of resources. With a more dynamic and utility-driven economic model, Cardano strengthens its position as an attractive environment for developers and enterprises looking to build scalable blockchain applications.
Ensuring Continuity and Preventing Disruptions
To prevent conflicts with the governance transition, this proposal recognizes the role of DReps, SPOs, and the Constitutional Committee in treasury management (Article III, Section 2). It remains within the guardrails and economic sustainability principles of both the interim and new constitutional frameworks. A structured review mechanism can be introduced to assess its impact over time and make future adjustments if needed.
Review and Governance Compliance
This proposal follows past governance action formats, incorporates economic impact analysis, and ensures alignment with constitutional parameters. It prioritizes Cardano's staking and treasury ecosystem without introducing unnecessary external references. The focus remains on sustainable network incentives and broad economic viability.
Rationale highlights
Why some of the largest DReps voted for and against, in their own words.
I plan to vote NO to the GA of the 10% tax change. I will provide my rationale and disclosure of conflicts of interest and bias. I am accepting feedback. Rationale 1) My pledge as a DRep and the following, which have been listed in the metadata since I...
I plan to vote NO to the GA of the 10% tax change. I will provide my rationale and disclosure of conflicts of interest and bias. I am accepting feedback.
Rationale 1) My pledge as a DRep and the following, which have been listed in the metadata since I registered my DRep.
"I vote to help Cardano grow into a platform that supports the economic identities of billions of people."
Currently, there is a lot of fundamental research and development that needs to be done to help Cardano grow into a platform that supports the identities of billions of people. These include, but are not limited to, scalability, Babel Fee, partner chains, Hydra, Mithril, Amaru, governance tools, and research to reduce node memory requirements.
While a 10% tax may be sufficient for these, such developments are not necessarily all predictable and may take a long time. These may become clearer as the Cardano Budget discussion progresses, but this discussion has just begun.
Therefore, at this stage, I have decided that a No vote is appropriate to defend research and development to realize the vision of Cardano.Rationale 2) It is true that the issue of staking incentives should be emphasized. However, slightly increasing staking rewards is a temporary solution, and will eventually decline quickly if transaction volume does not increase. This will also lead to faster release of ADA into the market and faster ADA inflation.
Rather, additional development support will pave the way for cost savings due to a significant reduction in memory requirements, accelerated development of alternative nodes, and the possibility of staking incentives not limited to ADA tokens through partner chains, etc.
By seriously working on scalability development, more people will be able to use the chain, and Tx fee income will increase.
Therefore, from the perspective of staking incentives, I believe that keeping the tax as it is could be advantageous in the medium to long term.Disclosure of conflict of interest/bias
If voting YES: As an SPO, I have a conflict of interest here, as there is a possibility that my income will increase by supporting this proposal.
If voting NO: As an MCC member of Intersect, I am watching the Intersect budget process. Although there is no financial benefit to me from the potential increase/decrease in the MCC Budget due to the impact of this GA, there may be some bias at work. Passage of the Cardano Budget could potentially result in me receiving DRep rewards, CC rewards, and community hub activity fees, so voting NO could potentially create a conflict of interest that would decrease the likelihood of that happening. However, I expect the likelihood and amount of funds I receive if I vote NO to be less than if I vote YES.
In this regard, I was considering voting NO, and I provided as detailed reasons as possible to show that there is no financial benefit to voting NO and that I am not too caught up in bias. Therefore, I did not think it was necessary to abstain from this vote.Note: The actual tax rate may be higher than 20% due to the return of unclaimed staking rewards to the reserve.
TAX10%変更のGAにNOと投票する予定です。根拠と利益相反・バイアスの開示を行います。フィードバックを受け付けております。
根拠1) 私のDRepとしての公約や次のようなもので、それは私のDRep登録時からメタデータに記載されています。
「Cardanoが数十億人の経済アイデンティティを支えるプラットフォームへ成長していくための投票を行います。」
現在、Cardanoが数十億人のアイデンティティを支えるプラットフォームへ成長するためには、多くの基礎研究及び開発が不足しています。スケーラビリティ、 Babel Fee、パートナーチェーン、Hydra、Mithril、Amaru、ガバナンスツール、ノードのメモリ要件削減のための研究などが挙げられますがこれに限られません。
これらは10%のTaxで十分である可能性もあるかもしれませんが、このような開発は必ずしも全て予測可能ではなく、長期にわたる可能性があります。これらはCardano Budgetの議論が進むにつれて、これらはより明確になる可能性がありますが、この議論は始まったばかりです。
よって現段階では、Cardanoのビジョンを実現するための研究開発を擁護するためにNoが妥当であると判断しました。根拠2) 確かにステーキングのインセンティブの問題は重視されるべきです。ただし、ステーキング報酬を僅かに増やすことは、一時的な解決策であり、トランザクション量が増えなければ結局のところはすぐに低下します。またこれはADAのマーケットへの放出が早まり、ADAのインフレが早まることにつながります。
むしろ、追加の開発支援により、メモリ要件の大幅な削減によるコスト削減、代替ノードの開発の加速、パートナーチェーン等によりADAトークンに限らないステーキングへのインセンティブの可能性も生まれる道が開かれます。
スケーラビリティの開発に真剣に取り組むことによってより多くの人がチェーンを利用し、Txの手数料収入が増加する可能性があります。
よってステーキングのインセンティブの観点から見ても、Taxを現状に保つことが中長期的には有利に作用する可能性があると考えています。利益相反・バイアスの開示
YESの投票の場合：私はSPOであるため、この提案を賛成することで収入が増加する可能性があり、ここには利益相反があります。
NOの投票の場合：私はIntersectのMCCメンバーとして、IntersectのBudgetプロセスを見守っています。このGAの影響によって潜在的にMCC Budgetが増加・減少することで私に金銭的なメリットはありませんが、何らかのバイアスが作用している可能性があるかもしれません。Cardano 予算が可決されると、DRep 報酬、CC 報酬、コミュニティ ハブ アクティビティ料金を受け取れる可能性があります。そのため、反対票を投じると、利益相反が生じ、その可能性が低くなる可能性があります。ただし、反対票を投じた場合に受け取る可能性と資金の額は、賛成票を投じた場合よりも少なくなると予想しています。
この点、私はNOの投票の実施を考えており、NOによって金銭的なメリットはなくバイアスに囚われすぎていないことを示すために可能な限り詳細に根拠を記載しました。よってこの投票を棄権しなくても良いと考えました。補足事項：実際の税率は未請求のステーキング報酬のリザーブ返還を加味すると、20%より高いと考えることも可能です。
Initially my gut was saying this wasn't a good idea as we dont yet have a firm plan in place for how the treasury will be used, for what, expenses associated with it, etc. However, thinking more about it, we have a substantial treasury already and improving...
Initially my gut was saying this wasn't a good idea as we dont yet have a firm plan in place for how the treasury will be used, for what, expenses associated with it, etc. However, thinking more about it, we have a substantial treasury already and improving staking rewards would help offset expenses in a bear market and thus expand on the number of nodes being launched spreading the decentralization of Cardano overall.
The more attention we can draw to Cardano as a viable solution for passive revenue, that in and of itself would help grow the ecosystem.
Beyond that, if we play our cards right with the existing treasury, with BTCOS and IOHK's coming version in May, with Midnight and everything else coming to the ecosystem, we should start seeing dramatic use growth which will likely end up with as much or more entering the treasury over time post cut anyway. Add Hydra, etc and the growth will just continue to rise.
I also didn't want to jump right into voting for the cut because I am a node operator with the CROW node and my initial instinct was to not be self serving in my vote as this would essentially earn more ADA for me, however, its a universal decision that would help everyone ultimately. So I vote yes.
TLDR; Being able to tax rewards of large entities (like Binance, Coinbase, CF, IOG etc.) and putting it to work for the betterment of Cardano is more important than a small percentage gain for each individual ADA holder.
SIPOs Justification for Voting Yes SIPO supports the proposal to reduce the Treasury tax from 20 percent to 10 percent as it enhances staking rewards, decentralization, and long-term sustainability within the Cardano ecosystem. Here are the key reasons...
SIPOs Justification for Voting Yes
SIPO supports the proposal to reduce the Treasury tax from 20 percent to 10 percent as it enhances staking rewards, decentralization, and long-term sustainability within the Cardano ecosystem. Here are the key reasons behind our Yes vote:
Increased Staking Rewards and Network Participation
• Lowering the tax will increase staking rewards by approximately 12.5 percent, boosting APY from approximately 4.0 percent to approximately 4.5 percent.
• Higher rewards will encourage more ADA holders to delegate and participate in staking, strengthening network security and decentralization.Treasury Optimization and Sustainability
• The 20 percent Treasury tax was arbitrarily set during the Shelley era and has never been reassessed.
• Treasury funding is not solely dependent on tax rates but also on ADA price appreciation and transaction growth.
• A leaner Treasury allocation will drive more efficient spending and reduce unnecessary bureaucracy.Strengthening Cardanos Market Competitiveness
• Higher staking incentives make Cardano more attractive for investors and developers.
• Lowering the tax encourages a more dynamic and utility-driven economy, reducing reliance on Treasury grants.Preventing Bureaucratic Overreach and Misallocation
• Excessive Treasury allocation can lead to inefficient fund distribution and bureaucratic delays.
• A sustainable, incentive-driven model will promote self-sufficient projects rather than reliance on large Treasury subsidies.Governance Alignment and Strategic Growth
• The new Cardano Constitution allows a Treasury tax range of 10 percent to 30 percent, making this adjustment compliant with governance guidelines.
• The proposal ensures that network incentives remain balanced while maintaining financial stability.
Conclusion
A lower Treasury tax will enhance staking rewards, drive decentralization, and support long-term ecosystem sustainability without compromising Treasury health. Given that Cardanos financial sustainability depends on ADA price appreciation and transaction activity, reducing the tax is a strategic move to support network growth while maintaining economic balance.For these reasons, SIPO votes YES on this proposal.
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