Reforming the NCL Framework

I would like to open a discussion on reforming how Cardano approaches the Net Change Limit.

The recent treasury cycle has made something clear to me: the issue is not simply whether individual proposals are good or bad. Many proposals have merit. The deeper issue is that very different types of spending are being forced to compete inside one long NCL window and one largely undifferentiated budget pot.

The NCL is a constitutional treasury guardrail. It caps how far the treasury balance may fall over a defined period and must be agreed by DReps under the Constitution. It is not a protocol parameter; it is a governance safeguard designed to bound treasury withdrawals and force prioritisation.

In my view, the current approach needs reform.

The Current Problem

We are still relatively early in the current NCL window, yet the remaining budget is already under significant pressure.

That suggests the structure may be wrong.

When an NCL window runs for a long period, it creates the appearance of a large available budget. Proposals then naturally arrive early, and DReps are forced to make decisions about a year or more of future treasury capacity before knowing what other proposals, market conditions, ecosystem needs, or strategic priorities may emerge.

The NCL should be treated as a maximum ceiling, not a spending target.

If the limit is raised whenever demand exceeds supply, the NCL risks becoming a formality rather than a fiscal discipline mechanism.

My position is that we should reform the NCL framework before simply expanding future ceilings.

1. Shorter NCL Windows

I think Cardano should move toward shorter NCL windows, likely somewhere between 3 and 6 months, with appropriately sized limits.

Quarterly or half-yearly windows would force DReps to reassess treasury priorities more regularly.

Market conditions change. ADA price conditions change. Proposal quality changes. Ecosystem needs change. Governance priorities change.

A shorter cadence would make treasury governance more responsive and reduce the risk of over-allocating too much spending capacity too early in a long window.

This does not mean Cardano should spend less forever.

It means we should decide more frequently, with better context.

2. Bucketised Budgets

Before setting or raising an NCL, DReps should debate and agree broad category-level budget buckets.

For example:

• Core infrastructure
• Wallets, custody and security
• Developer tooling
• Governance operations
• Growth and adoption
• Marketing
• DeFi / liquidity / treasury investment
• Reserves and contingency

These buckets do not need to be perfect, but they would force the real conversation:

How much should Cardano spend on each strategic priority?

Right now, every proposal competes against every other proposal. That creates poor comparisons.

A wallet-security proposal should not be judged against the same implicit budget as a commercial adoption proposal.

A DeFi liquidity proposal should not be judged against the same implicit budget as core infrastructure maintenance.

A BTC bridge proposal should not be judged against the same implicit budget as governance operations.

Different categories need different standards:

• Critical infrastructure needs continuity and resilience.
• Growth proposals need adoption targets and ecosystem return.
• DeFi or treasury-investment proposals need risk frameworks, concentration limits, and accountability for losses.

One pot does not capture that.

3. Market-Aware Spending

Cardano also needs to become more market-aware.

In weak ADA markets, every ADA spent has a higher long-term opportunity cost.

That does not mean “spend nothing.”

Critical infrastructure, security, self-custody, developer tooling and essential public goods may still justify spending.

But discretionary growth bets should face a higher bar when ADA is weak.

The NCL should not only ask:

How much ADA can we spend?

It should also ask:

Is this the right market environment to spend this ADA?

4. Build a Sovereign Reserve in Stronger Markets

In future strong ADA markets, Cardano should consider converting a defined, governance-approved portion of treasury ADA into stable reserves and potentially other approved non-ADA reserve assets.

This should be debated carefully and governed transparently.

It should not be ad hoc.

The objective would be simple:

• Spend less ADA when ADA is weak.
• Use reserves to fund essential operations, public goods and strategic opportunities during weaker market conditions.
• Avoid being forced to spend the native asset at the worst point in the cycle.

Longer term, the Cardano Treasury could evolve into something more sophisticated:

• Part operating budget.
• Part sovereign reserve.
• Part ecosystem investment function.

But that requires clear rules.

5. VC-Style Allocation, But Only Within Rules

I am not opposed to the Cardano Treasury eventually acting more like a sovereign wealth fund or VC-style ecosystem allocator.

In fact, I think that may eventually be necessary.

But it should happen inside a properly agreed framework, not through one-off decisions from an undifferentiated NCL pot.

Any treasury investment function should have:

• Risk limits
• Stablecoin and non-ADA asset policy
• Concentration limits
• Conflict controls
• Independent due diligence
• Clear reporting
• Defined return/loss accountability
• Category budget constraints
• A clear governance mandate

The treasury can support growth, DeFi, BTC liquidity, commercial adoption and investment-style proposals.

But those categories should be debated and budgeted in advance.

My Suggested Direction

My current view is:

Reform the NCL framework before expanding the ceiling.

Specifically, I think Cardano should:

• Move toward 3–6 month NCL windows
• Agree category-level budgets before each NCL period
• Build stable reserves in stronger markets
• Use ADA more carefully in weak markets
• Allow treasury investment only within clear bucket, risk and reporting constraints

This would not remove DRep judgement.

It would improve it.

DReps would still decide proposal by proposal, but those decisions would happen inside a clearer treasury strategy rather than inside one large undifferentiated pot.

Questions for DReps

I would welcome views from other DReps and community members:

• Should NCL windows be quarterly, half-yearly, annual, or something else?
• Should DReps agree category-level budgets before each NCL period?
• What categories should exist?
• How much should be reserved for core infrastructure versus growth/adoption?
• Should Cardano build stable reserves in stronger ADA markets?
• Should the treasury eventually act as a sovereign reserve or VC-style ecosystem investment function?
• If so, what risk controls should exist first?

My view is not fixed, but I do believe the current NCL approach needs to mature.

The NCL should remain a real fiscal guardrail, not just a ceiling that gets expanded whenever the proposal pipeline exceeds capacity.

Thank you for sharing, Will.

The "category-level budget buckets" piece is the part where I woud push hardest for, arguably more than the ceiling debate. In one undifferentiated pot, the biggest and most "existential-sounding" line items (core infra, dev tooling) absorb the NCL by default, and everything harder to justify line by line (growth, adoption, community) lives on what's left. (quite some proposals experienced this now)

That's not about any single submitter, it's how any shared pool behaves without allocation discipline. Pre-agreed buckets like you suggested turn a reactive "first-come"-contest into one explicit up-front trade-off, with proposals competing inside their category instead of against the whole treasury.

The open questions for me are sizing (who sets the split, how often do we re-argue about it) and under/over-spend (carry over, reallocate, or lapse). But those are design details, not objections.

Buckets are the most important of course.

But window length is also very important. If the window is long then proposers will have a string motive to front run.

keeping the windows shorter (3-4 months) means that teams will not feel the pressure to front run so we will get more fully baked proposals rather then speculative ask for fear of missing the chance.

DReps need this framework too.

I am 100% ready to hear these conversations. Thank you for opening this thread.

CAP-3 is active in the Constitution Amendment Portal:

https://cap.intersectmbo.org/#/detail/3

I have added my additional comments there but posting here too:

I strongly support the central objective of CAP-3: Cardano should agree its strategic priorities and high-level funding categories before individual Treasury Withdrawal actions compete for funding.

The present system gives us a spending ceiling without a sufficiently clear spending strategy. This encourages proposals to compete reactively for an undifferentiated pool of capacity, allows early proposals to consume funding before the full portfolio can be considered, and risks turning the NCL ceiling into an implied spending target.

However, I believe CAP-3 should distinguish more clearly between:

1. The Net Change Limit: what may prudently leave the Treasury during a defined period.
2. The Strategic Treasury Budget: what Cardano actually intends to spend.
3. Category allocations: what that planned expenditure should support.
4. Individual Treasury Withdrawals: the specific recipients, activities and delivery arrangements.

I would therefore propose the following architecture.

1. A 72-epoch Strategic Treasury Plan

DReps should approve a Strategic Treasury Plan covering 72 epochs—approximately one year.

This plan should establish:

• The maximum aggregate amount that may be budgeted across the 72-epoch cycle.
• The amount Cardano actually intends to spend, which may be lower than the maximum prudential envelope.
• The high-level funding categories or “buckets.”
• The binding 72-epoch allocation for each category.
• An indicative release schedule across three 24-epoch windows.
• The amount, if any, to be allocated to a counter-cyclical reserve.
• The methodology and assumptions used to determine the overall envelope.
• Existing commitments, expected Treasury inflows and contingent or multi-period liabilities.
• Bear, base and bull market scenarios.

The category allocations should be agreed at the 72-epoch level. This would give builders, DReps and the wider community a predictable view of Cardano’s priorities over the coming year.

However, an annual category allocation should not make the full annual amount immediately available. Each category should have an indicative release profile across the three four-month windows so that the entire annual allocation cannot be consumed at the beginning of the cycle.

The total of all category budgets must not exceed the approved Strategic Treasury Budget, and that budget must remain within the overall prudential envelope.

2. Three separate 24-epoch NCL windows

Within the 72-epoch strategy, there should be three consecutive and non-overlapping NCL periods of 24 epochs each—approximately four months.

A long-duration NCL encourages front-running. Proposers are incentivised to submit early because the first successful withdrawals can consume capacity before later and potentially more important proposals are assessed.

Long NCL periods can also leave Cardano operating under assumptions that are no longer appropriate following changes in:

• The ada market.
• Treasury inflows.
• Treasury runway.
• Existing liabilities.
• Delivery performance.
• Ecosystem priorities.
• The availability of credible proposals.

Each 24-epoch NCL should therefore be the operative legal ceiling for that window. Before each window begins, DReps should confirm the amount being released within the parameters of the 72-epoch strategy.

That confirmation should consider current market conditions and delivery evidence from earlier windows. DReps should be able to reduce a later window’s limit where circumstances have weakened. Any increase beyond the approved 72-epoch aggregate maximum or any material alteration of the annual category allocations should require a formal revision of the Strategic Treasury Plan.

Every withdrawal should count against:

• The operative 24-epoch NCL.
• The cumulative 72-epoch Strategic Treasury Budget.
• The relevant 72-epoch category allocation.
• The amount released to that category during the applicable 24-epoch window.

This provides annual strategic direction without creating an annual spending entitlement.

Unused ordinary spending capacity should expire at the end of the 72-epoch cycle and should not automatically roll forward. Unused capacity in one category should not automatically be transferred to another category without transparent DRep approval.

3. A Counter-Cyclical Treasury Principle

I also believe the Constitution should include a broad counter-cyclical treasury principle.

Cardano should not follow the same spending policy regardless of market conditions.

In strong ada markets, Cardano may be able to fund development while also converting a carefully limited portion of approved Treasury funding into stable-value reserves. This would allow the ecosystem to prepare for future market weakness rather than assuming favourable conditions will continue indefinitely.

In weaker ada markets, Cardano should generally become more selective about new discretionary expenditure, prioritise core protocol maintenance, security and essential shared infrastructure, and draw prudently on reserves accumulated during stronger markets.

The principle could be expressed as follows:

Cardano’s Treasury strategy should operate counter-cyclically. During strong market conditions, the community should consider building transparent and conservatively managed stable-value reserves for use during future periods of market weakness. During weak market conditions, new discretionary expenditure should be approached more cautiously, essential network requirements should be prioritised, and previously accumulated reserves may be used prudently to support continuity and long-term development.

“Strong” and “weak” markets should not be determined by sentiment or by a single ada price.

Each 72-epoch Strategic Treasury Plan should use a published and reproducible methodology considering factors such as:

• Ada price relative to appropriate moving averages.
• Market volatility and liquidity.
• Treasury balance and projected inflows.
• The fiat purchasing power of the Treasury.
• Expected Treasury runway.
• Existing approved but undisbursed obligations.
• Multi-period commitments.
• The size and liquidity of previously accumulated reserves.
• Bear, base and bull scenarios.

The methodology should guide both the 72-epoch total and the amounts made available in each 24-epoch window.

4. Stable-value reserves require separate safeguards

The current Cardano Treasury is a protocol-controlled supply of ada, and Treasury Withdrawals must be denominated in ada. A stable-value reserve would therefore require a specifically approved withdrawal and a separate governance and custody structure. It should not be treated as though the protocol Treasury can already hold stablecoins directly.

Any reserve mechanism should require:

• Explicit approval by DReps.
• A defined maximum allocation.
• Named and accountable administrators.
• Transparent and auditable wallets or accounts.
• Clearly permitted assets and diversification limits.
• Conservative counterparty, custody and smart-contract risk controls.
• Independent financial and operational audits.
• Liquidity and redemption requirements.
• Public reporting of holdings, transactions and performance.
• Conflict-of-interest disclosures.
• Rules governing when reserves may be used.
• A mechanism for returning residual value to the Cardano Treasury where technically and legally possible.
• Prohibition of speculative leverage or inadequately collateralised assets.

The purpose should be capital preservation and continuity—not speculative trading or an open-ended asset-management mandate.

Amounts intentionally transferred into an approved long-term reserve would persist beyond the 72-epoch cycle, but they must remain distinguishable from unused NCL or budget capacity, which should expire.

5. Portfolio assessment rather than first-come-first-served funding

Shorter NCL windows will not eliminate front-running unless Treasury Withdrawals are also assessed in structured rounds.

Ordinary proposals should therefore be submitted before defined assessment dates and compared with competing proposals in the same category. Ratification order should not determine strategic priority.

Late proposals should normally wait for the next 24-epoch window unless they meet a tightly defined emergency standard. Core protocol and security requirements should have appropriate protection, while discretionary initiatives should compete on their expected value, delivery credibility and strategic fit.

Proposed synthesis

I believe CAP-3 could become significantly stronger by combining:

• Thomas’s objective of collectively agreed strategic categories.
• Wakuda’s distinction between the NCL and the budget.
• A binding 72-epoch Strategic Treasury Plan.
• Three operative 24-epoch NCL windows.
• 72-epoch category allocations with controlled releases in each window.
• A Counter-Cyclical Treasury Principle.
• A properly governed mechanism for building reserves during strong markets and using them prudently during weak markets.
• Scheduled portfolio assessment rather than first-come-first-served withdrawals.

In summary:

Counter-Cyclical Treasury Principle → 72-epoch strategy and category allocations → three 24-epoch NCL windows → controlled category releases → prioritised Treasury Withdrawals.

This would preserve the NCL’s essential purpose as a prudential fiscal constraint while giving Cardano the strategic direction, market awareness and long-term discipline that the current system lacks. It would also better reflect Tenets 8, 9 and 10: avoiding unreasonable expenditure, protecting Cardano’s long-term sustainability and promoting financial stability.

Should NCL windows be quarterly, half-yearly, annual, or something else?

• I do not think this will have any net change effect if the concern is spending ceiling vs target. So long as the NCL exists, it can be interpreted as being used either way. This will also create more strain on decision making for both DReps and Proposers, seemingly adding more complexity. Focus should be on budget processes I think.

Should DReps agree category-level budgets before each NCL period?

• "Should" - yes.

What categories should exist?
Fewer categories the better. Original planned buckets should be sufficient to start - more on those here: https://committees.docs.intersectmbo.org/intersect-budget-committee/archive/drep-knowledge-journey/stage-1-introduction-to-the-budget-process/budget-buckets

How much should be reserved for core infrastructure versus growth/adoption?
It's core infrastructure (see above buckets) vs everything else - not just growth/adoption. The issue becomes what other things are needed for growth/adoption. You could argue, and often see argued - all 'buckets'/categories compliment growth/adoption.

Should Cardano build stable reserves in stronger ADA markets?
Absolutely. And not just 'stable' coins either, that's just creating a low-risk recipe for disaster. Diversification of the treasury is necessary for long-term stability of it. We should be investing, putting away 'stable' reserves, and hedging against market conditions. I would be in favor of up to 15-20% of treasury in good/great market conditions being allocated up front to kick that off. From there a regular upkeep based on yearly proposals and required quarterly reporting on it's current standings or something.

Should the treasury eventually act as a sovereign reserve or VC-style ecosystem investment function?
If so, what risk controls should exist first?
I think it's treasury + a funded sovereign reserve - not a conversion. This itself should be separated out from any NCL or budget process conversations - it's a fairly large topic to cover.

Thank you, Will, for continuing to develop this thoughtful proposal, and thank you to everyone who has already contributed to the discussion.

I strongly support the overall direction of CAP-3 and the architecture you outlined in your latest post — particularly the clear separation between the prudential NCL, the Strategic Treasury Budget, the category allocations, and the individual withdrawals, together with the counter-cyclical principle.

After reflecting on a few practical details that still feel slightly under-specified, I would like to offer some concrete suggestions. These are intended purely as constructive refinements to the solid framework you and others have already sketched.

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1. Quarterly (18-Epoch) NCL Windows and Transition Arrangements

I support moving to shorter operative windows. My preferred length is 18 epochs (approximately 90 days). This aligns closely with a natural calendar quarter, improves responsiveness to changing market and ecosystem conditions, and reduces the incentive for proposers to front-run.

For the transition, I would suggest the following:

• Implementation Timing: The new 18-epoch windows should begin at the start of the next full window after ratification, so that we avoid disrupting an ongoing cycle.
• Current Capacity Handling: Any remaining capacity under the current longer NCL could either be pro-rated into the first 18-epoch window or closed out cleanly — whichever the community prefers.
• Existing Commitments: Existing multi-period commitments should continue to be honoured and simply pre-deducted from the relevant future category allocations.
• One-Time Carry-Over: During the first 72-epoch cycle only, a limited one-time carry-over of unused ordinary capacity (capped at 20%) could be permitted to ease the transition; thereafter, unused capacity would expire at the end of each 72-epoch cycle.
• Emergency Pathway: A tightly defined emergency pathway for genuine core-protocol or security needs should remain available, but any such spending would still count against the current window’s NCL and the relevant category.

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2. Rolling Adjustment Rules for Category Allocations

I agree that the category buckets should not be static. At the same time, we need clear guardrails so that rolling adjustments do not become a source of constant contention or unintended strategic drift.

The parameters I would like to see embedded in each 72-epoch Strategic Treasury Plan are:

• Frequency: Adjustments may be considered once before the start of each 18-epoch window (i.e. at most 4 times per year).
• Ordinary Adjustments: Ordinary adjustments to any single category would be limited to $\pm15%$ relative to the previous allocation and would require only the normal $>50%$ threshold.
• Major Re-allocations: Any adjustment exceeding $\pm15%$ for a single category, or any broader structural re-allocation, would require a higher threshold ($\ge65%$) and must be accompanied by a published impact assessment.
• Capacity Expiration & Intra-Window Transfers: Unused capacity in a category would expire at the end of the 72-epoch cycle by default. Limited intra-window reallocation between categories would still be possible, but only through an explicit additional governance action.
• Core Infrastructure Floor: A minimum floor for the core-infrastructure category (to be set in the first Strategic Plan) should be protected by the higher threshold.

These rules would preserve necessary adaptability while preventing excessive volatility in the strategic direction.

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3. Independent Governance and Custody Framework for Counter-Cyclical Reserves

I fully support the counter-cyclical principle. However, simply electing a committee of DReps to manage the reserves carries real risks: most DReps are not professional asset managers or custodians, and there is a danger of the same small group rotating through the roles.

To address this properly, I recommend a clear separation of duties — a hybrid model that is standard in well-run sovereign wealth and institutional treasury structures.

Recommended Structure

1. Oversight Layer: A small Reserve Oversight Committee (5 members) elected by DReps. This committee does not handle day-to-day operations. Its role is limited to setting and updating the investment policy and risk parameters, selecting and dismissing professional service providers, approving major decisions (including any deployment of reserves), and supervising reporting and audits.
2. Professional Execution & Custody Layer: Actual asset management, trading, and custody are outsourced to independent, regulated professional institutions selected through an open competitive process (RFP). These entities operate at arm’s length from Cardano governance.
3. Technical Controls: Funds are held under a high-threshold multi-signature or MPC arrangement that requires cooperation between the professional custodian and the Oversight Committee (and possibly independent observers).

Term-Length Recommendation for the Oversight Committee

(Carefully balanced to avoid both entrenchment and knowledge vacuums)

• Each member serves a 2-year term (approximately 146 epochs).
• Terms are staggered so that not all seats turn over at the same time.
• A member may serve a maximum of two consecutive terms.
• After completing two consecutive terms, the individual must take a mandatory break of at least one full term before becoming eligible to stand again.

Why this design? It maintains institutional knowledge and continuity while preventing long-term capture by the same individuals. A pure lifetime limit of two terms would risk creating periodic expertise gaps; the “two consecutive + mandatory break” rule is the safer middle path.

Additional Safeguards

• Minimum expertise requirements for at least half the committee seats.
• Mandatory conflict-of-interest disclosures.
• Full public monthly reporting and quarterly independent audits.
• The ability for DReps to remove committee members via a no-confidence action.
• Once ADA is transferred into the reserve, it is permanently removed from ordinary NCL and budget-capacity calculations. Residual value returns to the Cardano Treasury when technically and legally possible.

This hybrid approach keeps professional competence where it belongs, while ensuring the community retains ultimate strategic control and strong accountability.

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I believe that incorporating clearer parameters on window length and transition, disciplined rolling-adjustment rules, and this properly firewalled hybrid reserve framework would strengthen CAP-3 considerably without altering its core intent.

I would be very happy to discuss any of these points further or to help refine the formal language if that would be useful.