In a recent discussion, Charles Hoskinson, co-founder of Cardano, introduced the concept of a “decentralized sovereign wealth fund” tailored for the Cardano ecosystem. This vision underscores his belief that the network’s treasury should not remain stagnant but rather evolve into a robust, managed portfolio capable of reaching a valuation of at least one billion dollars.
Overview of the Decentralized Sovereign Wealth Fund
During a livestream presentation on June 12, Hoskinson highlighted the impressive balance of the Cardano treasury, which currently stands at approximately 1.7 billion ADA, equivalent to around $1.2 billion. Though significant, he pointed out that the current structure is lacking, depending primarily on block inflation and transaction fees without any yield-generating opportunities.
“Imagine leveraging around $100 million from the treasury to diversify into a mix of stablecoins and Bitcoin,” he elaborated. Using a strategic approach with time-weighted purchases and intermediary trades would ensure minimal market impact, amounting to less than a “50 basis points” slippage.
This concept arose from the observation that Cardano’s liquidity is relatively thin compared to competing networks. Currently, it holds only $33 million in stablecoins against a total locked value of $330 million, creating a liquidity ratio that underperforms compared to Ethereum and Solana. Enhancing this liquidity is imperative, particularly for attracting listings on smaller exchanges that necessitate a solid stablecoin presence.
The proposal transitioned into a discussion on fund structure, drawing inspiration from Norway’s or Abu Dhabi’s substantial sovereign wealth funds. Hoskinson envisions a governance model spearheaded by an elected board overseeing a professionally managed fund that leverages both smart contracts and traditional management frameworks.
Returns from various sources—such as on-chain money markets and real-world asset protocols—would be reinvested, revitalizing the treasury. Hoskinson posited that within a five-to-ten year timeframe, this initiative could lead to the establishment of a billion-dollar treasury comprising both stablecoins and Bitcoin, thereby enhancing the value of ADA.
Governance remains a pivotal issue as Cardano’s community engages in discussions about budget voting, alongside the exploration of new governance tools, like quadratic voting and anonymous ballots. It’s essential that the sovereign fund proposal is refined ahead of the upcoming Rare Evo conference to facilitate discussions around a potential constitutional update.
In the realm of competition, Hoskinson has called for a structured approach to ensure accountability among administrators, highlighting the role of established regulated asset managers to mitigate any possible slippage in retail exchanges.
Concerns have been raised on social media regarding the potential negative impact of liquidating $100 million in ADA. Hoskinson addressed this by asserting that Cardano’s trading venues manage significant volumes daily, rebutting claims of liquidity issues.
The strategy extends beyond stablecoins, suggestively incorporating a broader multi-chain vision. Cardano’s anticipated privacy-focused sidechain, Midnight, will enhance the treasury’s portfolio management by introducing additional native tokens for rewards, allowing Cardano to position itself as a prospective DeFi platform for other cryptocurrencies.
The road ahead remains uncertain regarding the transformative potential of Cardano’s treasury. Still, Hoskinson framed this discussion as a pivotal step towards recognizing Cardano as a sovereign entity deserving of a sophisticated economic structure. “We have to start treating ourselves that way,” he emphasized.
As the market fluctuates, ADA currently trades around $0.635, reflecting the ongoing dynamics within the cryptocurrency landscape.
