DRep Voting Framework for Sustainable Ecosystem

Version: 1.2
Author: Hix (COFFE/KISSA DRep)

Changes from v1.1:

• Added Appropriate NCL criteria as 15% of distributed total staking reward in previous year

Changes from v1.0:

• Tier 2 restructured into three sub-tiers (2a, 2b, 2c)
• Tier 2b (Protocol Extensions) newly defined
• Tier 2c (Academic Research and Foundational Studies) newly defined
• Research vs Implementation distinction introduced

日本語版はこちら→ DRep投票フレームワーク：持続可能なエコシステムのために

Preface

As a DRep, I recognize that the current Net Change Limit (NCL) structure presents a fundamental governance challenge.
The NCL establishes only a total spending cap without any category-based budget allocation. This means any proposal, whether for core protocol development or optional developer tooling, competes within the same undifferentiated pool of resources. Without clear boundaries, “essential infrastructure” becomes a claim any project can make, and there is no systematic mechanism to prevent similar proposals from proliferating indefinitely.

This structural deficit creates a scenario where Treasury spending operates as a first-come-first-served system, allowing Tier 2 and Tier 3 proposals to expand without limit. This results in a lack of strategic resource allocation, and the Treasury risks becoming an unlimited funding pool for any plausible claim, regardless of whether market funding would be more appropriate.

I strongly believe the Cardano community should establish category-based NCL allocation, likely through Constitutional Amendment.

Each Tier should have an explicit budget allocation within the NCL. Without this enforcement at the protocol level, quantity limits cannot be systematically applied, competitive selection remains ad-hoc, and Treasury dependency will continue to expand without bounds.

Appropriate NCL Criteria

The Net Change Limit (NCL) defines the maximum amount of ADA that can be withdrawn from the treasury within a single year. How this parameter is set has a direct impact on Cardano’s long-term fiscal health.
I believe the appropriate NCL should be set at approximately 15% of the previous year’s staking rewards distributed to the market.

The Inflation Perspective

In a Proof-of-Stake network, staking rewards represent inflation that market participants have already priced in. Treasury withdrawals, however, are an additional layer of dilution that the market has not accounted for.
Based on 2025 data (circulating supply: ~36.2B ADA, staking rewards: ~₳548M):

Scenario	Annual Release	Effective Inflation Rate	Inflation Acceleration
Staking rewards only (priced in)	548M ADA	1.51%	baseline
15% of 2025 reward (₳82M)	630M ADA	1.74%	+15%
2025 actual pace ₳277M	825M ADA	2.28%	+51%
Full NCL withdrawal (₳350M)	898M ADA	2.48%	+64%

Inflation acceleration = increase relative to staking-rewards-only baseline (1.51%)

The 2025 actual withdrawal pace accelerated ADA’s effective inflation rate by 51% beyond what staking rewards alone would produce. Since BTC has a fixed supply, this additional dilution appears directly in ADA/BTC — which declined 48.7% over the same period.

Proposed NCL for 2026

Based on 2025 staking rewards of ₳548M, 15% equates to approximately ₳82M per year — keeping inflation acceleration within +15% of the staking-rewards baseline. This framework applies ₳82M as the appropriate NCL for 2026.
A predictable and fiscally disciplined treasury policy is, in my view, foundational to long-term confidence in ADA and the stability of its value.

Voting Method without Tier Distribution (right now)

Until such constitutional category budgets exist, I apply exceptionally strict evaluation criteria to all Treasury Withdrawal Governance Actions.

This strict approach is necessary under two conditions:

• first, when category-based budget allocation within NCL does not exist (our current reality)
• second, when the NCL budget significantly exceeds on-chain revenue, creating unsustainable spending patterns

My voting framework prioritizes long-term ecosystem sustainability over short-term project funding, even when individual proposals demonstrate clear technical merit.

This framework provides interim discipline through clear Tier definitions with explicit quantity limits, strict requirements for any Tier 2 consideration, rejection of proposals that would set unlimited precedent, and protection of market mechanisms for Tier 3 and 4 infrastructure. Without this discipline, the boundary between what Treasury should fund and what the market should fund will erode completely, ultimately harming the ecosystem’s economic health and competitive positioning.

Research vs Implementation

Treasury funding evaluation should distinguish between Research scope and Implementation scope, as these have fundamentally different economic characteristics.

Implementation scope: Production code, user-facing products, operational infrastructure. Evaluated under standard Tier classification (1, 2a, 2b, 3, 4).
Research scope: Knowledge production with public-good characteristics (publications, proofs, specifications, prototypes, CPS). Evaluated under Tier 2c, with public-good rationale for treasury funding.

Basic research is a typical market failure area due to non-excludability, uncertainty, positive externalities, and economies of scale. Cardano’s competitive position as a research-driven blockchain depends on sustained investment in academic research, which cannot be replicated by market funding within reasonable timeframes.

This distinction prevents both under-investment in long-term research and over-investment in market-fundable implementation.

Tier Classification

Tier 1: Pure Protocol

Treasury Funding: Appropriate

Essential for protocol operation:

• Consensus algorithm research & development
• Cryptography foundation
• Ledger rules & specification
• Hard fork implementation

Tier 2: Critical Infrastructure (conditional)

Tier 2 is divided into three sub-tiers based on the nature of the work.

Tier 2a: Reference & Essential Implementation

Treasury Funding: Conditional (strict requirements + quantity limits)

Infrastructure essential for ecosystem function that cannot reasonably be market-funded.

Quantity: Maximum 2-3 projects

Includes:

• Reference node implementation (ONE only): Defines protocol specification in executable code and serves as the standard for all other implementations.
• Core protocol libraries (competitive RFP, max 2-3): Libraries that implement protocol specifications and require hard-fork updates. Must be language-agnostic and serve the entire ecosystem, not a single programming language.
• Alternative Node implementation (client diversity): Only 2nd implementation in a ROI perspective. The budget should be allocated via competitive Request-For-Proposal.
• Essential governance tooling (competitive selection, max 1-2): Tools that most DReps depend on to fulfill constitutional duties. The test: would governance function without it? If merely convenient rather than essential, belongs in Tier 3.

Requirements (ALL mandatory):

• Ecosystem-wide necessity (not language-specific)
• Protocol-dependent or governance-critical
• No viable market-funding alternative
• Competitive Request-For-Proposal selection within a limited budget
• Time-limited (1-2 years max)
• Market transition plan required

Tier 2b: Protocol Extensions

Treasury Funding: Conditional (strict requirements + quantity limits)

Tools and infrastructure that make the protocol accessible to users and developers. This category covers implementation work, distinct from research (Tier 2c).

Quantity: Maximum 2-3 projects

Examples (not exhaustive):

• Smart contract execution layer (e.g., Plutus)
• ZK verification infrastructure
• Governance tools (e.g., voting interfaces)
• Reference wallet implementation (safeguard only; only if no wallet exists in the ecosystem)

What qualifies under Tier 2b is determined by the requirements below, not by a fixed list. New categories of protocol accessibility tools may emerge as the ecosystem evolves.

Requirements (ALL mandatory):

• Ecosystem-wide necessity (not language-specific or application-specific)
• Required for users or developers to access core protocol functionality
• No viable market-funding alternative at required quality level
• Competitive Request-For-Proposal selection where multiple capable providers exist
• First-mover exception: where the field is new and no comparable implementations exist, single-organization funding is acceptable for the initial iteration. Subsequent iterations must move toward competitive selection
• Time-limited
• Market transition plan required

Distinction from Tier 2a:

• Tier 2a covers infrastructure required for protocol or governance to function (reference node, alternative node, core libraries, essential governance tooling)
• Tier 2b covers infrastructure required for users and developers to access protocol functionality

Tier 2c: Academic Research and Foundational Studies

Treasury Funding: Conditional (strict requirements + periodic evaluation)

Basic and applied research with public-good characteristics. Outputs are knowledge artifacts (peer-reviewed publications, formal proofs, specifications, theoretical frameworks, validation prototypes, CPS), not production code or user-facing products.

Why treasury funding is appropriate:
Basic research is a typical market failure area. Cardano’s competitive position as a research-driven blockchain depends on sustained investment in academic research, which cannot be replicated by market funding due to long time horizons, public-good characteristics, and the impossibility of capturing positive externalities.

Requirements (ALL mandatory):

1 – Research Purpose

• Research proposals must be related to Cardano Ecosystem

2 – Periodic Budget Cycle

• Research budgets are evaluated at defined intervals (annual, biennial, or project-based)
• No automatic continuation; each cycle requires a new governance action

3- Renewal Requires Demonstrated Value

• Continuation of funding across cycles is not automatic
• Each new cycle must be justified by the substantive value of prior outputs (papers, CPS, CIPs, prototypes), not by the fact of prior funding alone
• Prior outputs must be publicly verifiable

4 – Budget Justification

• Detailed breakdown by work package and personnel allocation
• Per-person cost compared to academic industry standards
• Comparison with prior funding cycles (if applicable)
• Cumulative treasury impact contextualized with current reserves

5 – Research-Implementation Separation

• Research and implementation budgets must be structurally separated in the proposal
• The proposal must explicitly state which parts are research scope and which are implementation scope
• When research outputs mature into implementation, the implementation must be funded through a separate proposal under Tier 1 or Tier 2b, not continued under Tier 2c

Note on quantitative caps:
Setting fixed percentage caps tied to NCL (currently 350M ADA per epoch range) may obscure the absolute appropriateness of individual proposals. The current NCL itself may be larger than optimal, and using it as a baseline for evaluating individual proposals risks normalizing excessive spending. DReps should evaluate each Tier 2c proposal on its own merits.

Tier 3: Optional Infrastructure

Treasury Funding: Inappropriate – Market-funding only

Useful but not essential; alternatives exist:

• 3rd+ node implementations
• Language-specific libraries
• Developer tools
• Explorers, indexers, APIs

Market sources: VC, SPO consortiums, sponsorships, subscriptions

Tier 4: Application Layer

Treasury Funding: Inappropriate – Market only

User-facing services: dApps, wallets, services

Evaluation Process under No NCL distribution plan

Under current NCL condition (without any distribution plans), I will vote throughout the evaluation flows below.

Step 1: Classify

• Identify whether the proposal is research scope or implementation scope
• Identify which Tier (1, 2a, 2b, 2c, 3, or 4) the proposal fits into

Step 2: Check Requirements

• Tier 1: Constitutional compliance
• Tier 2a, 2b: ALL respective requirements + quantity limits
• Tier 2c: ALL requirements + periodic evaluation
• Tier 3/4: Market funding (automatic NO)

Step 3: Vote

• Requirements met + within limits → Consider YES
• Requirements partially met → Consider Conditional YES with explicit caveats, or Abstain
• Otherwise → NO

Why Strict Limits Matter?

While Tier 2 categories look necessary for Treasury funding, Tier 2 infrastructure expands indefinitely without budget limits and quantity caps. Every programming language can claim its libraries are “essential infrastructure,” and every additional node implementation can argue it adds “critical diversity.” There is no natural stopping point (the category grows until it encompasses nearly all development tooling), defeating the purpose of having tiers at all.

Budget limits and Quantity caps create clear boundaries. The reference implementation is singular by definition: only one implementation can serve as the authoritative standard. A second node implementation establishes client diversity, but a third provides sharply diminishing returns. Language-specific libraries, no matter how useful, belong in Tier 3 because approving one language creates precedent for approving all languages. Developer tools follow the same logic—if the market values them, the market will fund them.

For research (Tier 2c), the discipline takes a different form: periodic cycles, renewal based on demonstrated value, and clear separation from implementation. Research cannot be quantity-capped in the same way as implementation, because the productive output of research is knowledge, not products, and the long time horizons of basic research require sustained investment. However, periodic evaluation with substantive deliverable assessment prevents path dependency and ensures research funding remains tied to genuine value.

These boundaries are not arbitrary restrictions. They reflect the economic reality that Treasury funding crowds out private investment, and that clear limits are the only mechanism preventing uncontrolled expansion when constitutional category budgets do not yet exist.

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Key Distinctions

Reference (Tier 2a) vs Alternatives:

• Reference: ONE, defines specification
• 2nd: ONE, client diversity
• 3rd+: Market funding

Essential (Tier 2a) vs Protocol Extension (Tier 2b):

• Essential: Required for protocol or governance to function
• Protocol Extension: Required for users and developers to access protocol functionality

Implementation (Tier 2a/2b) vs Research (Tier 2c):

• Implementation: Production code, user-facing or operational
• Research: Knowledge artifacts, publications, prototypes for validation

Tier 2b vs Tier 3:

• Tier 2b: Language-agnostic, critical for accessing protocol functionality, no market alternative at required scale
• Tier 3: Language-specific or convenience-focused, alternatives exist

Long-term Solution

The Cardano community should pursue a Constitutional Amendment establishing Treasury category limits.

• Tier 1 would receive budget allocation for protocol development
• Tier 2a and 2b would receive limited allocation for critical and accessibility infrastructure with quantity caps
• Tier 2c would receive a dedicated allocation for academic research with periodic evaluation
• Tier 3 and 4 would be prohibited from Treasury funding

Specific allocation percentages and enforcement mechanisms should be determined through community discussion and the governance process.

This framework serves as interim discipline until such structural limits are constitutionally implemented.

Note on framework application: This is a framework, not an automatic approval mechanism. Proposals classified under Tier 1 or Tier 2 are not automatically approved. Each proposal is evaluated individually, with the framework serving as a reference for that evaluation.

Disclaimer: This represents my evaluation criteria as a DRep. Other DReps may apply different criteria. Provided for transparency and consistency.

Version History:

• v1.0.0 (2026-04-11): Initial framework
• v1.1.0 (2026-XX-XX): Added Tier 2b (Protocol Extensions), Tier 2c (Academic Research and Foundational Studies), and Research vs Implementation distinction