The future of blockchain innovation is poised for a significant boost as the Cardano Foundation initiates a strategic move to allocate substantial funds from its treasury. This approach involves mobilizing up to $75 million towards a new venture capital initiative, run in collaboration with Draper Dragon, with the ultimate goal of raising a total of $80 million. This fund is dedicated to investing in startups that are native to the Cardano blockchain, aiming to reinvest proceeds back into the treasury over time.
The proposed fund, known as the Cardano x Draper Dragon Ecosystem Fund (referred to as the “DDC Fund”), is set to operate for a minimum of six years. It plans to distribute venture capital to early-stage businesses and various ecosystem enhancement programs, ensuring transparency by providing performance metrics via a public dashboard and through quarterly updates, as outlined in the Foundation’s announcement.
Transforming the Treasury into a Growth Engine
This innovative proposal is intended to authorize a series of treasury withdrawals, structured across 438 epochs. It consists of three specific withdrawal phases: an initial allocation of $15 million, followed by two additional tranches of $30 million each in the subsequent years. The total withdrawal limit is capped at 175 million ADA, divided with distinct caps of 50 million ADA for the first phase and 85 million ADA for the subsequent two.
Additionally, the proposal anticipates that the remaining $5 million required to meet the $80 million goal will be sourced from qualified external limited partners. This initiative serves not only to bring in incremental capital but also to demonstrate the potential of Cardano investments to a wider audience.
This funding strategy intends to convert the treasury from a passive reserve into an active vehicle for capital growth. The objectives outlined are both direct and ambitious: to return a multiple of the investment back to the treasury, to facilitate Cardano’s sustainability, and to elevate the overall value of the ecosystem on multiple fronts including on-chain activity and developer engagement. As detailed in the official post, these goals reflect a commitment to sustainable growth.
Under this initiative, Draper Dragon will act as the general partner, responsible for making investment decisions. An associated adviser, regulated by the Securities Exchange Commission, will facilitate due diligence and strategic support. The Cardano Foundation will not be a direct decision-maker but will oversee the legal and structural framework necessary to bring the proposal to fruition within the guidelines of Cardano’s constitution.
A unique aspect of this plan includes the creation of a special purpose vehicle (SPV) established in the Cayman Islands, designated to serve as the fund’s limited partner. This SPV, intended to operate solely for the treasury’s benefit, will initially consist of three directors: one independent director, one director from the Foundation, and one elected by the community.
Financial Objectives for the DDC Fund
The financial aspirations of the DDC Fund are framed in scope that aligns with institutional venture capital benchmarks: aiming for a gross multiple of approximately 3x on invested capital, with an internal rate of return (IRR) of over 25%. These projections are intended to reflect goals rather than guarantees of performance.
With respect to ecosystem growth, the targets are set to increase Cardano’s total value locked (TVL) significantly: from around $300 million currently to over $3 billion, with goals equally split between real-world assets (RWA) and decentralized finance (DeFi) initiatives. This includes enhancing on-chain usage, generating revenue, and fostering developer participation.
The allocation of the $75 million from treasury funds will cover various expenditures, including direct investments, growth capital, and educational initiatives. Direct investment is projected to receive the largest portion ($50 million), with growth capital and education support allocated $11.5 million and $6 million respectively, focused on marketing efforts, liquidity provisions, exchange engagements, and programs at Draper University.
The structure also incorporates governance mechanisms to ensure responsible fund management. Provisions are included to account for price fluctuations of ADA, allowing for strategic timing in conversions and offering up to six months to meet capital calls. Strategies are in place to manage both excess and shortage scenarios regarding the fund’s value.
Potential challenges are also addressed within the proposal. Should treasury withdrawals fail multiple times within the span of a year, measures are outlined for the controlled winding-down of the fund and asset liquidation.
The DDC Fund promises transparency through a publicly accessible key performance indicator dashboard and regular fund assessments, complemented by community engagement events. However, certain details concerning deal terms and valuations will remain confidential, aligning with standard practices within the venture capital sector.
At the time of writing, ADA was trading at $0.4215.
