Project Catalyst and Voltaire bring power to the people

Designing a groundbreaking proof-of-stake blockchain means it is vital to ensure that the system is self-sustainable. This will allow it to drive growth and maturity in a truly decentralized and organic way. Voltaire is IOHK’s way of establishing this capability, allowing the community to maintain the Cardano blockchain while continuing to develop it by proposing and implementing system improvements. This puts the power to make decisions in the hands of ada holders.

Rigorous research lies at the heart of building a solid blockchain. July’s Shelley summit included a presentation on the importance of funding for the growth of Cardano. This was based on research between Lancaster University and IOHK into the notion of a treasury system and an effective, democratic approach to funding Cardano’s long-term development. IOHK has now applied treasury mechanism capabilities in Project Catalyst, which combines research, social experiments and community consent to establish an open, democratic culture within the Cardano community.

A democratic approach

With the rapid growth of blockchain technology, the world is witnessing the emergence of platforms across a variety of industries. Technological growth and maturity are essential for long-term blockchain sustainability and development. That is why someone has to support and fund growth and system enhancements. A democratic approach is an integral part of the blockchain ecosystem because it allows sustainability decisions to be made collaboratively, without relying on a central governing entity. Thus, the governing and decision-making process must be collective. This will allow users to understand how improvements are made, who makes decisions, and ultimately where the funding comes from to make these choices.

Long-term sustainability

There are several ways to raise capital for development purposes. Donations, venture capital funding, and initial coin offerings (ICOs) are the most common. However, although such models may work for raising initial capital, they rarely ensure a long-term funding source or predict the amount of capital needed for development and maintenance. In addition, these models suffer from centralized control, making it difficult to find a consensus meeting the needs and goals of everyone.

To establish a long-term funding source for blockchain development, some cryptocurrency projects apply taxation, taking a percentage from fees or rewards, and accumulating them in a separate pool – a treasury. Treasury funds can then be used for system development and maintenance purposes. In addition, treasury reserves undergo inflation as the value of cryptocurrencies grows. This grants another potential source of funds accretion.

However, funding systems are often at risk of centralization when making decisions on guiding development. In these systems, only certain individuals in the organization or company are empowered to make decisions on how to use available funds and for which purposes. Considering that the decentralized architecture of blockchain makes it inappropriate to have centralized control over funding, disagreement can arise among organization members and lead to complex disputes.

Treasury systems and Cardano

A number of treasury systems have arisen to address the problems. These systems may consist of iterative treasury periods during which project funding proposals are submitted, discussed, and voted on. However, common drawbacks include poor voter privacy or ballot submission security. In addition, the soundness of funding decisions can be compromised if master nodes are subject to coercion, or a lack of expert involvement might encourage irrational behavior.

As a third-generation cryptocurrency platform, Cardano was created to solve the difficulties encountered by previous platforms.

Cardano aims to bring democracy to the process, giving power to everyone and so ensuring that decisions are fair. For this, it is crucial to put in place transparent voting and funding processes. This is where Voltaire comes in.

The paper on treasury systems for cryptocurrencies introduces a community-controlled, decentralized, collaborative decision-making mechanism for sustainable funding of blockchain development and maintenance. This approach to collaborative intelligence relies on ‘liquid democracy’ – a hybrid of direct and representative democracy that provides the benefits of both systems.

This approach enables the treasury system to take advantage of expert knowledge in a voting process, as well as ensuring that all ada holders are granted an opportunity to vote. Thus, for each project, a voter can either vote directly or delegate their voting power to a member of the community who is an expert on the topic.

To ensure sustainability, the treasury system is controlled by the community and is refilled constantly from potential sources such as:

• some newly-minted coins being held back as funding
• a percentage of stake pool rewards and transaction fees
• additional donations or charity

Because funds are being accumulated continually, it will be possible to fund projects and pay for improvement proposals.

So, the funding process can consist of ‘treasury periods’, with each being divided into the following phases:

• pre-voting
• voting
• post-voting

During each period, project proposals may be submitted, discussed by experts and voters, and finally voted for to fund the most essential projects. Even though anyone can submit a proposal, only certain proposals can be supported depending on their importance and desirability for network development.

Voting and decision making

To understand which project should be funded first, let’s discuss the process of decision-making.

Ada holders who participate in treasury voting include scientists and developers, management team members, and investors and the general public. Each of these may have different imperatives for the growth of the system, and that is why there has to be a way to make these choices and desires work together.

For this, the voting power is proportional to the amount of ada someone owns; the more ada, the more influence in making decisions. As part of the liquid democracy approach, as well as direct yes/no voting, an individual may delegate their voting power to an expert they trust. In this case, the expert will be able to vote directly on the proposal they regard as the most important. After the voting, project proposals may be scored based on the number of yes/no votes and be shortlisted; the weakest project proposals will be discarded. Then, shortlisted proposals can be ranked according to their score, and the top-ranked proposals will be funded in turn until the treasury fund is exhausted. The strategy of dividing the decision-making process into stages allows reaching consensus on the priority of improvements.

To ensure voter privacy, the research team has invented an ‘honest verifier zero-knowledge proof for unit vector encryption with logarithmic size communication’. Zero-knowledge techniques are mathematical methods used to verify things without revealing any underlying data. In this case, the zero-knowledge proof means that someone can vote without revealing any information about themselves, other than that they are eligible to vote. This eliminates any possibility of voter coercion.

Treasury prototypes have been created at IOHK for benchmarking. Implementing the research as the basis of Voltaire will help to deliver reliable and secure means for treasury voting and decision-making. Project Catalyst is an experimental treasury system that combines proposal and voting procedures focusing on the establishment of a democratic culture within the Cardano community. Initially, Cardano’s treasury will be refilled from a percentage of stake pool rewards ensuring a sustainable treasury source. Other blockchains have treasury systems, but IOHK’s combines complete privacy through zero-knowledge proofs, liquid democracy from expert involvement and vote delegation, and participation for all, not just a governing entity. This should encourage participation, incentivization, and decentralization for making fair and transparent decisions.

It is also important to note that this treasury system mechanism can be implemented on a variety of blockchains, not just Cardano. It has already been proposed implementing it for Ethereum Classic. In the process, treasury systems can help everyone to understand how a network will develop.

After a successful closed user group trial earlier which started this summer, Project Catalyst will very soon be opened up to its first public beta program. Although it is still early days for Cardano on-chain governance, we look forward to a bright future, with the community lighting the way. So, please follow the blog for updates on Voltaire and how Project Catalyst is paving the way to Cardano’s sustainability.