Growth, Strategy, and Electric Capital

I'm sorry, but it seems there is no transcript text provided for me to edit. Please provide the text you'd like me to clean up. Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Always warm, always sunny, sometimes Colorado. Today is January 20th, 2024.

Hard to believe that already 20 days of the year have passed. It’s been a very unique and interesting year—a fun year—and it’s going to be probably the biggest year of growth and change for the Cardano ecosystem. I wanted to make this video because I was just looking through the Electric Capital developer report. It’s a great example of how we can start organizing and orienting our thinking as a community and an ecosystem in general as we make priorities moving towards the end of the year. As many of there’s a transition occurring where we’re entering the age of Voltaire.

There are three pillars associated with this age of Voltaire. The first idea is democratic consent, where you have a list of things you can change or do inside the system, and there needs to be some on-chain governance system that enables and allows you to make those changes. We have concepts the DS, the Constitutional Committee, and the SPOs; it’s a tripartite government that’s being proposed, and we’re gradually building in that direction together. The second pillar is the notion of institutions. Institutions are organizations the Cardano Foundation, Intersect, or others.

You could count IO as an institution, which are around and have a role in a place. Hopefully, by the end of the year, they will be fully enabled and validated through democratic consent, so some delegated authority. The point of an institution is to help eschew complexity. In other words, the world is a very complicated place with a lot going on. We need a mixing pot where we take all that complexity, turn it into simplicity, and create a clear understanding of things a budget, a roadmap, strategic priorities, and where we want to go and how we want to get there.

The third pillar is the concept of constitutional representation, ensuring that the fundamental rights of the holders and users of the system are well understood, preserved, and protected. For example, there are fundamental things that we seem to care about right now, such as deflationary monetary policy. Nobody is currently advocating for doubling the supply of ADA. Other foundational concerns include determinism and inclusive accountability. These are usually implicit across the entire cryptocurrency ecosystem, but they ought to be written down, preserved, and protected, making them hard to change unless there’s an overwhelming desire over a sustained period of time.

The age of Voltaire is about combining those three different concepts and execution threads and putting them together. But then there’s the actual question of where do we go from there. What you look for are certain themes and steers. Themes are things like, if we look at the developer report, for example, let me share my screen. Here is the dashboard they constructed.

They say Cardano has about 170 full-time developers, around 490 monthly active developers, 2,796 repositories inside the ecosystem, and about 3 million commits. While these numbers aren’t fully accurate, they’re moving in the right direction, and the trend lines are looking really good. We’ve stayed productive as an ecosystem all the way through the bear market. Even though the bull market is coming to an end, we’re still building, and there’s still interest. When you look at the developer report, which is quite long, you’ll see a graph view of how things are interconnected.

When we talk about strategic steer, you’ll notice that Ethereum is hyper-connected. Polkadot, as a derivative of the Ethereum ecosystem, is fairly well connected. Algorand is somewhat connected; it has some interesting connection points. Cardano, Hedera, XRP, Mina, Tezos, and Flow, according to the developer report, are not as connected. We could look at methodologies and say there are some connection points.

For example, the Mamba allows a connection into Ethereum, but it’s fair to say that it’s obviously not as connected as Polygon is to Ethereum, given that Polygon is a Layer Two solution. The point of having an on-chain government in Voltaire is that we can look at these types of information and say, “Okay, what is our strategy in terms of growth?” We want this blue dot to grow bigger. Ethereum is growing, Cosmos is growing, and Polkadot is growing. You’ll notice that Cosmos has tons of connections, but it’s not directly connected to market value.

The same goes for Polkadot—tons of connections, but not necessarily connected to market value or utility. That’s just a data point. We want this to grow larger, and we’d also like to start connecting the graph so it’s easier for people to move between. When you look at the partner chain strategies, this idea of a Cardano service layer is that you have blockchain-to-blockchain sales and a hybrid application. A hybrid application is one where Cardano secures it, but then it can sell its services as a blockchain to another blockchain’s applications.

For example, Ethereum can call Midnight, which is secured by Cardano and provides privacy and other capabilities to an Ethereum application without requiring the relocation of that application. This means an Ethereum developer is writing compact code, creating a connection point. We are also embracing Parity Substrate as a starting point in the partner chain framework, which means there’s going to be a connection between Cardano and Polkadot, allowing you to navigate the graph to pretty much get anywhere you want to go. The same applies when you look at other concepts. For example, Kell and Mina are using a lot of zero-knowledge technology, and there’s a bit of overlap between some of the ideas of Midnight, creating another connection point.

If it’s a priority of ours to connect ourselves to the broader world through developer flow, API calls, and transaction volume, that’s an example of a strategy that’s already in play. But then there’s the question of how important that is relative to other metrics. Some of the things we’re developing at Intersect are things the decentralization index as a metric of decentralization, which tends to be very under-emphasized by the venture capital class because there isn’t a correlation between how decentralized something is and how valuable it is. If you’re an investor looking for returns, it doesn’t really matter if it’s highly centralized or highly decentralized; there are other things they care about. However, if your goal is decentralization resilience and you have philosophical reasons for not wanting the network to be co-opted and controlled, then maybe decentralization is a very important steer and North Star.

Then there’s the notion of ecosystem value. In the stock world, we have a notion of fundamental analysis. People like Benjamin Graham or Warren Buffett popularized and made this fundamental analysis a bedrock of how they deployed capital. They would do a fundamental analysis on an equity and then ask if it was under or overvalued relative to the current market price. If it was undervalued, they’d buy it; if it was overvalued, they’d short it.

The problem is that in protocols, it’s a much more complicated thing because the value is not connected to the efforts of an entity; it’s connected to the network value of an ecosystem. That’s a much harder question to answer, and it’s much harder to apply fundamental analysis in that context. However, people still deploy capital and purchase these assets, as well as make decisions about what to build on. You have to think about what it means to grow the value of the network. That’s another metric, just like decentralization, that you can develop.

It’s a very complex, multimodal metric, but it could be something that becomes a North Star. You can also look at concepts like developer activity, which is closely related to something that Alex Pentland was talking about in social physics—the idea flow notion. He noticed that high-performing organizations usually come from the ability to link ideas and networks together. Organizations that tend to be off on a clique long-term tend to fail, while those that are hyper-connected tend to be much more resilient and long-lived. If the goal is better idea flow, then there have to be better connection points.

You need to ask where that idea flow will occur—at the standards level, at the code level, or at the transaction and value flow level. The point of institutions, because this is a complicated thing, is to discuss these matters and then reflect a goal and strategy with a budget. Everybody in life will tell you that you’re important, your idea is important, and you matter. The power and magic of capitalism and money is that you can actually quantify how much you matter. A great example would be that the U.

S. government in 2023 spent roughly about $66 billion on K-12 education at the federal level, while spending nearly twice as much funding a proxy war in Ukraine. Wherever your politics fall, that’s a quantified commitment where we say this event is twice as important as the education of our children. Money talks in a budget, and it reflects who’s in charge, what the priorities are, and how a government thinks. When we talk about the budget of Cardano, each of you listening has some first, second, or third-order surface-level concerns and some deep philosophical concerns about where you want this protocol to go.

The concept of the first pillar of representation and consent for a governing structure means that you endow those concerns either yourself by being a delegate or to a third party that you trust. You endow them with your will, and then they discuss what the vision, roadmap, and budget of Cardano should be relative to its resources. For example, if we care about marketing and adoption and we have some notion of ecosystem growth, do we care at the $5 million a year level, the $10 million a year level, or the $20 million a year level? What are the differences in terms of projections of what that actually buys you? Where is the diminishing return?

It’s very easy to overspend, and it’s very easy to underspend. So what’s the balance of these types of things? If you’re interested in this conversation, this is an example of a discussion that will be occurring at Intersect. Intersect is going to make a recommended budget and submit it to the government of Cardano for debate and ultimately a decision. They have no special authority; only their budget can be considered.

Any budget can actually be considered, and this is the power and magic of an open blockchain system. As an American citizen, I don’t get the right to propose a budget to the House of Representatives for the federal government. I wish I did because I’d start at zero and we’d just talk from there. But you actually do with Cardano; every single user can submit a governance action and say, “This is the proposed budget connected to a well-formed structure, a transaction of a series of Treasury withdrawals to accommodate that particular budget.” The point of institutions is to have those discussions in a way that leads to something that is votable.

It’s not a partial thing; it’s a totality and preponderance of the needs of many different people. This is going to be an example of something that we as an ecosystem prioritize. When we look at the Electric Capital developer report, we should keep an open mind and embrace where people are at. There are some good things to read there, some inaccurate things, which we as an ecosystem will work with them to correct, and then there are inconvenient truths that we’re not doing a great job as an ecosystem about. When you have good institutions, they can parse that and translate it into continuous quality improvement.

They can ask, “Okay, how can we be better?” Maybe we can have bi-weekly hackathons, invest more into AEN, or into a TypeScript language to make it easier to attract developers from other ecosystems. Maybe certain core key dApps need to win as an ecosystem and get listed on mainstream exchanges so the Cardano native asset standard stands alongside ERC20. Perhaps we need more cross-chain applications, and this hybrid dApp model is a good way of bringing people into the ecosystem without requiring migration. Maybe we need to bring new capabilities to Cardano, like account abstraction or data availability, or else we won’t attract those developers.

Or maybe we’re all comfortable with where we sit, and it’s more of an adoption issue. Let’s focus on what we already have and getting adoption with that, as that will bring in many new users and make that circle larger. There may be other ideas we haven’t considered, but when we read these documents closely, it’s important for the community to always ask what is real, what’s not real, what do we agree with, what do we disagree with, what’s fair, and what’s not fair. Intellectual honesty requires you to admit that not all the time are things so great. One of the cool things about Cardano is that there are bedrock considerations that the rest of the industry either seems to undervalue, ignore, or misunderstand.

A great example would be that I’ve seen numerous researchers from the Ethereum Foundation continue to assert that we do not have 50% business security with Cardano, but rather a third. They don’t seem to believe that something like Ouroboros Genesis is actually possible, at least with current technology and design. We’re convinced because we wrote the papers as an ecosystem, went through peer review, and built the protocols. Cardano is running and has millions of commits; we believe it is real. However, they don’t believe that.

Because of that lack of belief, they’re not embracing the technology, the concepts, and pursuing a different roadmap. This means we’re ahead of them, and we don’t have to focus on such things; they do. It gives us the freedom to focus on other things that are further down the line. A great example would be input endorsers, where we have a direct line of sight as a consequence of the design of Ouroboros on how to shard the base layer of the system, while many people in the Ethereum ecosystem are trying to shard through Layer Two, rollups, and other mechanisms. They’ve kind of given up on Layer One scalability.

Ecosystems like Solana have not, while Ethereum seems to be moving in a different direction. That’s a competitive advantage we have—not only do we have stronger theoretical foundations, but we also have a better path to high scalability and high throughput without many of the problems that people have pursued in the past. There’s an existing roadmap for how to get that done. The budget process and strategy of the ecosystem discuss how quickly we should do that and what compromises we are prepared to make to get there quickly. In engineering, there are always three things you can’t have all at once: cost, quality, and time.

You can spend a lot and get something fast and high quality, you can get something fast but sacrifice high quality and potentially cost, or you can get something high quality but it may take a long time. This is the engineering dilemma in software protocol development and scientific development; there’s no way to get around it. The workflow we have with Cardano, for better or worse, has enabled us to build a beautiful ecosystem that has been remarkably stable for such a long time. It has attracted a dedicated cohort of people. When we pursue next-generation features and functionality, the question is whether we continue following that careful and deliberate process and if we are comfortable with the rate of innovation we have.

We have 2011 papers; we don’t seem to have a shortage of academically validated ideas. We’re getting faster at the engineering side in deploying things, and we’re getting better at listening to the needs of users and bringing those needs in as quickly as possible. However, something of the magnitude of input endorsers could be possible to do in 2025, but it would require more resources, many companies working together, high coordination costs, and potentially sacrificing other features in the system. What that would do is give us a throughput advantage over Ethereum, Solana, and other ecosystems because we would no longer be network constrained. That’s an example of a trade-off conversation, and we need to zero in on how quickly we ought to move.

There are certainly a lot of independent companies that are now really excited about the prospect of working with Cardano. A great example is Ouroboros Genesis. Despite being invented by Input Output and through the research we did over several years, it’s actually being implemented by an independent company named Twe. They’re on a fixed-cost contract with strong deliverable obligations, and there’s a real possibility that it’ll be done and integrated before the first half of this year. They could easily roll over into more consensus protocols, and that’s an example of a discussion the community can have.

They can look at the performance of what was expected, the acceptance criteria, and what was delivered. That’s an example of a well-understood protocol. Input endorsers require a lot of prototyping to elevate what’s called the Software Readiness Level (SRL). Right now, there are discussions with a very old member of the community, Well Typed, which is Duncan Coutts’s company, about what is required to prototype and understand the implications and simulations of input endorsers as the design starts finalizing. It’s going to be an interesting question of what the requisite SRL is that a team like Twe would feel comfortable accepting a fixed-cost contract for, getting it done, and having bounded time and cost relative to quality expectations we have as an ecosystem.

This is kind of a three-dimensional puzzle, and you put these pieces together. This is how the sausage-making is done with Cardano’s development. The repos are in the hands of Intersect; that’s where the product function is now. Those committees, as they grow stronger and evolve, will basically be in charge of the entire vision and roadmap in the near horizon of Cardano, subject to the approval of the SIP process and the on-chain governance of Cardano for when and how to initiate hard forks and update software. The government of Cardano includes a tripartite model: the Constitutional Committee, DS, and SPOs.

There’s a high degree of inclusion from different walks of life and different economics to participate in the governance. That’s what this year is going to be defined by—taking the training wheels off the bike, learning how to drive it, and eventually allowing the community to end-to-end decide what the priorities are. It’s impossible to do this in Bitcoin and Ethereum at the moment. They either require a cult of personality around strong leadership to lead the way and tell everybody what the priorities are, or it’s anarchy where there is no priority and it maintains the status quo. Despite the amazing innovations the EVM, for example, and fly clients, they’re just fantasies and can’t really be pulled into the protocol because there’s no way to coordinate an ecosystem that large and get permission to do a hard fork, even if it has overwhelming benefits for the ecosystem.

Unless it’s a catastrophic event, there are months of barking, and it’s not possible to innovate.