All you need to know about Cardano’s CIP-1694 and its push toward decentralized governance

All you need to know about Cardano’s CIP-1694 and its push toward decentralized governance

Cardano is gearing up for the final chapter of its five-era roadmap. Towards the end of 2022, the leading proof-of-stake blockchain and the 7th largest blockchain by market capitalization revealed that Input Output Global Inc. (IOG) was preparing Cardano to enter the Voltaire era.

In this article, we take you through all you need to know about the network’s ongoing push toward decentralized governance.

How it began

Unknown to many crypto enthusiasts, the once touted “Ethereum Killer” has five development phases, beginning with Byron. Although the Cardano story began in 2015 with the aim of solving the scalability, sustainability, and interoperability problem of blockchains, it wasn’t until 2017 that the network launched. The first version of the network – Cardano Bryon – made its debut in September 2017.

Cardano has five development phases – Byron, Shelley, Goguen, Basho, and Voltaire.

Bryon marked the launch of the ADA altcoin, named after the revolutionary mathematician Ada Lovelace. Crypto enthusiasts and traders were able to buy and sell ADA following the launch.

Since 2017, the blockchain network has passed through three other phases. Shelley brought decentralization to the blockchain through the introduction of stake pool operators (SPOs). It also focused on “several critical steps to ensure an enhanced user experience for stake pool operations, delegation preferences, and incentives.” While the Goguen era introduced native tokens and smart contracts to the blockchain, Basho focused on scaling Cardano.

The final phase in the five-era roadmap is Voltaire, which introduces the elements of community governance and voting.

What is Voltaire?

Voltaire is undoubtedly one of the most anticipated eras by the Cardano (ADA) community. It is worth mentioning that the altcoin's development company, IOG, has been working on the different phases in parallel, following the arrival of the Byron and Shelley eras.

Decentralized governance and decision-making lie at the heart of Voltaire. Voltaire provides the Cardano community with the ability to decide on network development updates, technical improvements, and project funding.

Simply put, Voltaire will introduce a voting and treasury system that will allow network participants to use their stake and voting rights to influence the future development of the network. CIP-1694 is laying the groundwork for this to happen.

CIP-1694 in brief

Generally speaking, the Cardano Improvement Proposal (CIP) deprecates the existing governance support for protocol parameter updates and MIR certificates. It also seeks to add two new fields to the existing transaction bodies – governance actions and votes. Virtually any Cardano holder will be able to create a governance action, which will be ratified by three groups - a Constitutional committee, a group of delegation representatives (DReps), and stake pool operators (SPOs).

Current state of governance on Cardano

Currently, every governance action on Cardano must begin with a special governance transaction, controlled by just three entities – IOG, the Cardano Foundation, and Emurgo. The seven governance keys of the network are shared between these three entities – 3,2,2 to IOG, the Cardano Foundation, and Emurgo, respectively.

Although decentralized, the current model allows just the three founding entities to participate in voting.

Moving forward

The transition to Voltaire will introduce a number of changes, such as a Constitution and a Constitutional Committee. The Constitution will define the “core values and guiding principles” for the governance of Cardano. While there is a possibility that the document may take the form of a smart contract in the future, it will come as an off-chain document in its initial stage.

Meanwhile, the Constitutional Committee will be responsible for “overseeing governance,” ensuring that all governance actions are in line with the Constitution. According to CIP-1694, the committee will not wield any special powers like Delegation Representatives (DReps).

Speaking of DReps, the position will be open to all ADA holders through registration. Network participants can choose to delegate their staking keys to these individuals to make decisions on their behalf.

CIP-1694 and governance

It is almost impossible to separate decentralized communities from governance. In its initial stage, Voltaire will introduce six governance actions, namely:

  • Motion of no-confidence
  • New Constitutional Committee and/or quorum size
  • Updates to the Constitution
  • Hard-Fork Initiation
  • Protocol Parameter Changes
  • Treasury Withdrawals

The new framework would allow any ADA holder to submit a governance action. However, to prevent people from spamming the network, holders must deposit a fixed amount of tokens when submitting a governance action on-chain. The deposit will be returned after an action is ratified and enacted, the action expires, or a ratified action is dropped.

As with most DAOs, a governance action will be considered ratified after passing through an on-chain voting process and obtaining the required number of “yes” votes. However, an action may not be enacted on-chain if it receives a “no-confidence” vote from the Constitutional Committee, DReps, or SPOs.

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