Treasury Questions

Hi, this is Charles Hoskinson broadcasting live from warm, sunny Colorado. Always warm, always sunny, sometimes Colorado. I'm making a quick video because there's actually a very interesting question that I figured would be fun to share with you guys. From time to time, people ask interesting questions that provoke interesting conversations. So, the ratio of the day is still no responses.

Well, it's your lucky day, ratio; you get a response today! Two easy questions. Well, they may be easy to ask, but they may have complicated answers. First, who owns the products and services paid for by the treasury? Is it the broader community, aka a holder?

I'm currently a one in 337.2 billion owner of the product or service, or is it some other entity? Second, where's the path to sustainability? What's the image of the budget space? This is a request to comment on my questions, which were posted in their conversation channel and neatly avoided by the host and co-hosts.

Having read the comments above and below my comments, sweet! Well, it is your lucky day, sir; we're going to talk about your concerns and problems. Let me go ahead and share my screen real quickly here for you. The first question is interesting because it has never really been answered completely in the cryptocurrency space: who owns the output? In the old Genesis days, no one did.

We just open-sourced everything, and everything was a grant. But in these days, there's this concept of a trust on behalf of ADA holders. So, the short answer to your question is: no one, everyone, or you decide. In the "no one" case, it's like those old "Choose Your Own Adventure" books I read when I was a kid. You can have multiple endings and various things that can happen.

In the "everyone" case, you could set up a special purpose management vehicle that could hold the output of the funding, such as the intellectual property, and then monetize that and pay back to the treasury in some way. The third option is "you decide," meaning that somebody could take a loan from the treasury or a particular company could be paid. For example, let’s say a lot of code is written to facilitate Circle to operate on Cardano, but Circle wants to preserve the IP part of that integration. In this case, the intellectual property belongs to them, similar to when a grant goes to a third party through Catalyst and they preserve the IP. So, there’s no one, there’s everyone, and there’s you decide.

You have different "Choose Your Own Adventures." You might ask, "Why would we want a special purpose entity?" Here’s an example: you could say, "All right, we’re going to take 300 million ADA out of the treasury and convert it to a portfolio of yield-bearing instruments." If that gets about 10% per year, it outperforms the S&P 500. Congratulations!

Then, that special purpose entity could make a purchase of the yield in ADA and return that to the treasury. Or you could let it accumulate, and it becomes a sovereign wealth fund. That’s an example of something you can do. The other thing is that we can build bespoke custom intellectual property and have a special license regime where it’s free for Cardano users, but it’s a fee for non-Cardano users, as an example. Special structures can be set up this way.

So, the question is: who decides? Your DP is going to decide that with the Constitutional Committee. A budget is going to be proposed, and a budget has an ask and oversight. So, if you ask for something like funding to do some science, how do I know it’s legit? Well, it could have peer review and formal methods.

Now, who owns it? That’s a very good question. The budget is a composition of these pairs. A budget is a set of these types of asks and consequences, and that set basically is the total ask that we have. The whole thing, Script B budget, that’s your first question.

The DS and the Constitutional Committee get to decide during the reconciliation of the intellectual property from the things being produced. This is another reason why I recommended using, instead of a smart contract, an intermediate organization to at least broker this. You have the Dev Foundation, which is owned by and controlled by Intersect, and you can use this as the binding entity. Yes, you can pay people with a smart contract; that’s fine. But the reason you need a binding entity is that when Company A goes there, there’s a concept of turning over the intellectual property that Company A produces to an entity, and then that entity needs to open source it.

Yes, you can have a smart contract do that, but it’s a little bit more complicated, and the smart contract doesn’t have legal character or legal agency or representation in the law. So, it’s much more straightforward to have a bilateral agreement between two entities and have that foundation behave in a certain way according to the wishes of the budget. You can do it that way or any other way you choose. The second question he asked was about sustainability, and there are three ways for Cardano to be sustainable in the long term. The first one is a ton of transactions; lots of fees.

This one’s not very appealing because the goal is to make the fees go down and make it cheaper to do transactions, so it's hard to say. The second way is for Cardano to become an AVS system. As I covered in a prior video, as new tokens launch, they pay inflation and fees to its holders, basically in SPOs. I think this is a really good step forward. What’s nice is there’s always something to launch—many, many tokens—so this will probably sustain us for a while.

The third option is to convert the treasury into a sovereign wealth fund. That’s your third option. We have about 1.5 billion ADA, give or take. At the all-time high, that was worth $4.

5 billion. That is no joke; that is a serious pile of money. A 10% return every year would yield $450 million a year for the rest of time. That’s a lot of money. One of the things you could do is convert a chunk of this into something an endowment, just let it accumulate, and over time it could be just like Abu Dhabi, which has $1.

7 trillion, or Norway, which has about the same, or Alaska, which has about $140 billion last time I looked. You could do a sovereign wealth fund. I think some combination of the three is what’s inevitably going to happen. There are going to be transaction fees, and inflation is going down while fees will go up. The AVS thing and the partner chains model provide many different revenue streams for sustainability, and a conversion of the treasury, in part or whole, to a proper sovereign wealth fund is also interesting.

It can create constant demand for the purchasing of ADA. Let’s say it does get 10% per year; if you don’t want to reinvest it in the SWF, you could simply buy ADA every year. If it’s $150 million of purchase demand every year, once it goes to $1 billion, it could be a billion dollars worth of purchase demand. You can also donate the ADA back to the treasury or cycle that back to block rewards. If there’s a big surplus of ADA, you can also use it to pay inflation for the block rewards.

This is another thing you have to think about. I did a pretty good job with Cardano—not to toot my own horn—but it went from a small project in Japan that nobody cared about, which raised about $70 million, to a $30 billion ecosystem with millions of people and a sovereign wealth fund that you control with $1.5 billion in it and very strong technological foundations. As much criticism as I encounter, the reality is that very few people alive have ever done anything like that. It’s just a fact.

It’s a sustainable ecosystem; it’s not in debt, and it has a surplus. When’s the last president or business leader that has come around with something like that? We did that in less than 10 years, from nothing, with no VC support, no love, and a lot of people in the industry doubting us every single day. That has been turned over to you. You have to make some decisions, and I’m getting real tired of people implying that Intersect is a boogeyman or has nefarious intents.

You’re in charge, full stop. You’re in charge. The DS are the people you select. You’re not an unelected cabal; you, the ADA holders, by your lack of participation or participation—one or the other—made an implicit or explicit decision to put these people into power. Their job, implied by ZIP 1694, is to converge to a budget, and within that budget is a commercial understanding about how the money is being spent, who the recipient is, what the terms and conditions are, and the audit and oversight.

I could do this; I had to do it for many years, but I don’t do this anymore. You do. You, the Cardano people, it’s your decision. You have agency for the first time ever. You really do.

It’s your decision: who, what, when—all of these types of things. Of course, I can give everybody advice, and I did give you some advice. I said, "Look, join a members-based organization and talk about it there, not on Twitter," because you can have adult conversations and think about things. It’s proportional to the participation. If you don’t want to do that, that’s fine; go do it some other way.

But that does not excuse you from the reality that you have a big pile of ADA, and you have to decide where to spend that ADA. We’ve presented a roadmap and talked about a lot of things that I feel would make Cardano not only competitive but leapfrog the competition. Things like Midgard give us data availability and an optimistic rollup strategy. We spoke to what we have in the Cardano ecosystem. Things like L2s make us as fast as Solana without the centralization issue.

Things like Bitcoin DeFi give us access to the largest cryptocurrency market in the world that preserves and maintains its value and liquidity. It’s not a flavor of the week; Bitcoin is always going to be here. Things like partner chains give us multiple revenue models for the people building blocks, so we don’t have to worry about inflation anymore on the ADA side. These are some ideas that put down the budget as the best approximation on how to do that. If you deeply cut the budget, I don’t believe it’s possible to do that.

You can negotiate and talk about it, but there are thresholds and limits. There are points even when I would not want to get involved because I’m not going to sign up to do something that’s a failed initiative or work for free. It’s your decision on these types of things. It’s my job to tell you what I think, and I write it down as we have done for 10 years. It’s your job to decide what you want to do.

If you want to live a life of constant suspicion where people have worked for you and with you for 10 years, written 240 papers, written millions of lines of code, and built this entire ecosystem from nothing, are dishonest and bad people who never get the benefit of the doubt, you can choose to live that way. But don’t be surprised when they really don’t like working with you. Or you can work with them, be nice about it, be collaborative, and say, "Well, I’m with you halfway, but I have concerns," and then put them down on the table in an adult, systematic, responsible way. It’s up to you; you can play it any way you want. Guess what?

You’re in charge, and it’s up to you. If you want to burn the house that I built for you down, go build another one. Go do that. If you want to squander the opportunity we have and all the magic that we’ve put in, go do that. That’s the risk and opportunity of decentralized governance.

That’s why it takes real guts for a founder to do that. All these other founders continue to tell you how remarkably decentralized they are, but when you pull up the rug, you see governance keys, foundations that hold all the money, and dev organizations where only one or two really control the whole thing. There’s not a lot of urgency to change that status quo because their brand, their reputation, in some cases legal risk, and ego are connected to that system. It takes a lot more guts to legitimately hand the ecosystem over as a founder to everybody. Massive guts, because they might mess it up.

they may change things in ways that disturb you so deeply that you don’t even want to be part of it anymore, like George Lucas and Star Wars. But that’s the reality, because you also know, on the other hand, they may do magical and amazing things that you never conceived, like Danny Venu with Blade Runner, and actually do a better job than you can do. So, it just depends: are you cynical or optimistic about people and humanity? That’s the quintessential question. You have a budget, you have DS, you have agency.

If you want to work with people and be collaborative in the process, people will be collaborative with you. If you want to assume that people are evil and just out to get you, don’t be surprised that they’re not. That goes for every single relationship, through and through. Now, there are certain people that prove time and again that they’re either unreliable or dishonest, and absolutely, if you want to hold them accountable, do so. But just understand that you lose access.

There’s no greater example in recent memory than what’s going on in Argentina right now. I don’t know what to feel about this whole thing; it’s tough. We had a constitutional convention in Argentina that brought a lot of money into that economy. We’ve been there since 2016. We opened an office there, hired people, invested, and worked with local businesses.

We’re one of the largest and most advanced blockchain companies in the world. We could have gone to Uruguay, Chile, Paraguay, or Brazil, and believe me, there were a lot of offers. But we chose to be there, and we are there for eight, going on nine years. You go to an event, and you’re excited because the political environment is changing. It’s going to open up a lot of great and magical opportunities, and handlers get in the way.

Friends of the handlers get in the way and shut you out. Some kid, covered in tattoos, who doesn’t know his head from his ass and is clearly a scam artist, convinces the president of the country to do something stupid—very stupid—and it blows up. Everybody’s trying to run away from it, and then you think, "Okay, maybe they’ve turned a page," and then you see a tweet today. These things happen; it’s just what it is. Sometimes it’s because people don’t know what they’re doing, and sometimes people don’t have the best of intent.

Sometimes you’re just not going to win. I’m a very competitive guy in my career. I’ve always wanted to win. I push hard; I work hard every day. I wake up at 5:00 a.

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