Just like anyone can use the internet to put up a website, anyone can launch a blockchain network using some new or repurposed version of blockchain technology and software. But will it last? Will there be funding to feed it beyond the exciting launch phase? Will its decentralized participants be able to cooperate on decision-making? These questions about sustainability and governance are at the core of the parameter we will be talking about today: the Treasury Growth Rate often denoted as the Greek letter tau (τ).
What is the Treasury Growth Rate (τ)?
In Cardano, the treasury serves as a collective pool of funds dedicated to self-sustainability of the network. It does this by supporting projects, proposals, and initiatives that assures continuity or other benefits to the network. Every epoch (a roughly 5-day period in Cardano’s lifecycle), rewards are distributed to stakeholders for their participation in securing the network (by staking to stake pool) and pool operators for validating transactions. A fraction of these rewards is directed into the treasury. That fraction is defined by the treasury growth rate, or τ. As of this writing τ is set to 0.2 –τ has never been changed since its initial configuration.
Mathematically, τ represents the proportion of the total block rewards allocated to the treasury. This means, with τ currently set to 0.2, 20% of all the rewards (from transaction fees and monetary expansion) in a given epoch are deposited into the treasury, leaving the remaining 80% to be distributed among stake pool operators, delegators, and other reward recipients.
Why Does τ Matter?
Here are some reason we think the value of τ has a profound impact on the health and sustainability of the Cardano ecosystem:
Funding Innovation & Maintenance: A higher τ increases the funds available in the treasury, enabling more proposals and projects to receive support through mechanisms like Project Catalyst and the Cardano Budget Process.
Incentivizing Participation: A lower τ allows a larger share of rewards to go directly to stakeholders, which might encourage greater participation in staking and delegation.
Balancing Immediate vs. Long-Term Goals: The treasury growth rate reflects a balance between rewarding current network participants and investing in the network’s future. Adjusting τ is akin to choosing between consuming resources today or saving them for tomorrow.
How is τ Determined?
Currently, τ is set at a protocol level, determined by Cardano’s governance model. This ensures a predictable flow of funds into the treasury. In the future, however, the value of τ may be subject to adjustment through Cardano’s on-chain governance mechanisms.
Cardano’s governance model empowers the community to influence how much emphasis is placed on treasury growth, adapting to the network’s evolving needs. For instance, as the ecosystem matures and grows more self-sustaining, the community might decide to lower τ to direct more rewards to active participants. The community might also decide to raise τ to accommodate large spending necessary to more pointedly answer some of the challenges introduced by other emerging technologies like Artificial Intelligence and Quantum computing. This is even more likely if Cardano’s partner chain ecosystem takes off and brings in additional revenue from new blockchains borrowing Cardano’s security for a fee.
Real-World Impact: τ in Action
The effects of τ are most visible in Project Catalyst, Cardano’s innovation fund and one of the largest decentralized funding platforms in blockchain. Thanks to τ, Project Catalyst is able to distribute millions of ada each funding round to proposals ranging from infrastructure improvements to community-driven education initiatives. When the Cardano Cardano Budget 2025 is finalized and approved by DReps it provides funding for Cardano continuous core development, tooling and support for governance, research, outreach and education.
A robust treasury, fueled by an appropriate τ, ensures that Project Catalyst and similar initiatives remain a cornerstone of Cardano’s growth and innovation strategy. It fosters a self-sustaining ecosystem where developers, educators, entrepreneurs, and artists can contribute to the network’s long-term vision.
Challenges and Considerations
While τ plays a critical role in treasury funding, it’s not without its challenges:
Stakeholder Alignment
Different stakeholders have varying preferences for how much of the rewards should flow into the treasury versus immediate payouts. For instance, a high τ benefits future innovation but might reduce short-term rewards for delegators. One ongoing point of contention as of this writing is the incentivisation structure for the new roles introduced by Cardano Governance: Prior to Cardano on-chain governance, the only incentivized roles were stakers, pool operators, and community innovation through Project Catalyst. Now we have Delegated Representatives (DReps), Constitution Committee (CC) members, and Members Based Organizations (MBOs) like Intersect and Pragma. Currently these roles are not incentivised directly by Cardano. Should it be? Where should the money come from?
Economic Cycles
In bear markets, when the value of ADA is lower, a high τ might lead to a relatively underfunded treasury in fiat terms. Conversely, during bull markets, even a modest τ could result in significant treasury growth.
Governance Complexity
Adjusting τ requires robust governance mechanisms and consensus among the community, which can be challenging in a decentralized environment.
Conclusion
The Treasury Growth Rate (τ) is more than just a parameter in Cardano’s protocol—it’s a statement about the network’s priorities and its vision for sustainable, decentralized growth. Cardano is a third-generation blockchain, meaning that it followed in the footsteps of earlier pioneers, attempting to solve problems inherent in earlier blockchain systems. For example, programmability in Bitcoin is very limited. Ethereum’s approach to smart contracts works best for some challenges but falls short for many others. Ethereum also notably does not have a built-in plan for sustainability and governance.
By directing a portion of rewards into the treasury, τ ensures that the Cardano ecosystem has the resources to foster innovation, support its community, and navigate the challenges of the future.
Τ is a small symbol with a big role: it encapsulates what makes Cardano unique: a commitment to building systems that endure.
No comments yet…