Full version rationale: “Treasury Cut Reduction”

I plan to vote “Yes” on the Treasury Cut Reduction (Tax Reduction) Proposal.

Below, I will outline my reasons for this decision.

Reason 1: Cardano’s budget should be limited to “research funding and governance maintenance.”

To simplify the discussion, I will first counter the primary argument from the “No” side, which states that “research funding is necessary.”

According to the current budget proposal submitted by Intersect, 100 million ADA, or 40% of the total 248 million ADA budget, is allocated to “Marketing” and “Innovation.” Cutting these expenses would mean that research funding would not need to be reduced at all. (These figures are approximate.)

Rather, I believe that a constitutional safeguard should be established to ensure that Treasury withdrawals are strictly limited to research purposes and governance-related activities, such as managing governance votes.

Reason 2: Minimizing the risk of centralization in Cardano governance
As stated above, Cardano’s Treasury budget should be strictly allocated to research and governance management. Allowing unnecessary budget withdrawals could lead to increased centralization, making it essential to reduce the Treasury Cut and redistribute power to ADA holders.
Concerns about the current Intersect budget proposal

[Marketing Budget]
The Intersect budget proposal includes significant allocations for “Marketing” and “Catalyst.”
One major concern is the potential risk of media manipulation similar to past issues with USAID. If Intersect leverages media to promote Cardano, there is a risk that it may also shape narratives in a way that benefits its own interests rather than reflecting the true voice of the community.
Additionally, influencer marketing is being considered, which would involve paying non-ADA holders in ADA to attract new users. This could lead to a situation where influential individuals who are not ADA holders gain governance power for financial incentives, rather than through genuine community involvement.

This scenario could enable centralized entities like Intersect to use community funds to cultivate supporters who align with their interests, further accelerating centralization.

[Catalyst]
There are 3 key issues with the Catalyst funding system:

1. Low return on investment (ROI)
2. Capital outflow to non-ADA holders
3. Centralized management structure

📌 Low ROI:
Many past Catalyst projects have received significant funding based primarily on influencer promotion, rather than their actual ROI potential.
In Japan, a substantial amount of funding has been allocated to Catalyst projects, yet very few have continued as sustainable, “living projects.” Moreover, there is no established system for objectively evaluating projects once funding has been disbursed, leading to instances where projects fade away after securing funds.

📌 Capital outflow to non-ADA holders:
Many new participants join Catalyst solely to receive grants without being long-term contributors to the Cardano ecosystem. Companies and individuals who have not previously contributed to the community may apply for funding, develop experimental products, and then disappear without sustaining their projects.
Since Catalyst funding is often converted into fiat currency immediately upon receipt, there is no way to track the funds afterward. From a transparency perspective, this creates an environment susceptible to corruption.

📌 Centralized management structure:
Catalyst operates as a funding platform where proposals are approved through voting, but after approval, project execution is effectively managed in a centralized manner.
Once a project receives funding, it becomes dependent on the Catalyst management team for continued support. There have been multiple cases where individuals who received funding hesitated to criticize the Catalyst team due to fear of losing future funding.

Ultimately, Catalyst operates as a centralization scheme under the guise of decentralization.
For these reasons, I have never submitted a proposal to Catalyst and do not intend to do so in the future. Instead, funding should be provided through an independent Treasury budget that is directly accountable to the community.

These are merely a few examples, but they illustrate how a large Treasury budget increases the risk of centralization. I believe the Treasury should be kept to a minimal level to preserve decentralization.

Reason 3: Encouraging participation in governance
Currently, Cardano’s staking rate stands at 58%, a 15% decrease from 74% in November 2022, when staking ROA was higher. Since staking rewards from the Treasury continue to decline, it is expected that staking rewards will continue to decrease.

Cardano’s network is maintained by Proof-of-Stake (PoS), and its security relies solely on staking incentives.

• The expected return on low-risk assets is generally 2–5% per year, but many staking pools now have an ROA below 3%.
• If this continues, a significant amount of ADA may flow into liquidity pools on exchanges that offer higher yields, leading to a further decline in the staking rate.

A lower staking rate means fewer active stake pools, posing a significant security risk to the network. It also reduces voter participation in governance.

Increasing staking rewards will create greater financial incentives for ADA holders, encouraging more active governance participation.

• Many ADA holders currently do not participate in governance votes, but if rewards increase, more holders may engage in the governance process.
• Higher rewards incentivize long-term holding, reducing short-term speculation and strengthening the network.

A common counterargument is that “Increasing rewards through tax cuts is only a temporary fix.” While I agree with this to some extent, tax cuts have a permanent impact. Even when the Treasury Reserve is depleted, this measure remains effective.
Since it is inevitable that in the future, rewards will need to be funded solely through transaction fees, we must maximize staking rewards now to prepare for that transition.
Moreover, reducing the Treasury Cut is just one of many necessary measures. We must also work toward increasing the value of ADA and boosting transaction volume.

A continued decline in staking rewards will drive more ADA into exchanges and increase delegation concentration in large SPOs, posing a major centralization risk for both governance and network security.

Reason 4: Eliminating uncertainties in Treasury withdrawals
Currently, Treasury withdrawals can be approved with a simple majority of governance voters, as long as they remain within the annual threshold.

• If ADA prices drop significantly or major exchanges form alliances to influence governance votes, they could theoretically pass withdrawal proposals for any purpose.
• With staking rates already on a downward trend, accumulating large amounts of ADA in the Treasury increases the risk that external actors may target the Treasury and attempt to seize funds.

To mitigate these risks, we should minimize the inflow of ADA into the Treasury and strictly limit its usage.

[Counterarguments & Responses]
🛑 “Won’t increasing rewards lead to more ADA being sold?”

• ADA’s total supply is fixed and does not increase.
• Additionally, Treasury withdrawals also introduce ADA into circulation, so the total impact is comparable.
• Staking rewards are distributed gradually every five days, meaning the market impact of a 10% tax cut is relatively small.
• In contrast, Treasury withdrawals involve large lump-sum disbursements, which have an immediate and significant impact on market liquidity.

🛑 “Are you voting Yes just because you’re an SPO?”

• While it is true that I am an SPO, increased staking rewards benefit all ADA holders, not just me.
• The price of ADA is determined by market dynamics, and increased supply does not necessarily reduce fiat value.
• Conversely, Treasury withdrawals introduce large amounts of ADA into circulation, potentially harming the collective interests of ADA holders.

Conclusion
To maintain a healthy and truly decentralized Cardano ecosystem, the Treasury budget should be kept minimal and restricted to “research” and “governance management.”
I firmly believe that transparency and decentralization are the foundation of Cardano.

Thus, I will vote “Yes” to protect the future of decentralization and empower ADA holders in governance.

If you agree with my opinion, please consider delegating to me as your DRep using the link below. Conversely, if you disagree with my stance, you are free to reassign your DRep delegation.