has just been launched:

This is what it means

The Cardano blockchain has completed the first stage of its Chang hard fork, setting the stage for more decentralized governance. At 10:44 p.m. London time on Sunday, Cardano officially began the process of transferring control of the $13 billion blockchain to holders of its native ADA token. According to Frederik Gregaard, CEO of the Cardano Foundation, many in the Cardano community were drawn to the network because of its promise of a decentralized governance model.

“Every ADA holder can contribute to the evolution of the ecosystem,” Gregaard told DL News. “The community will collaborate, innovate, and govern together.”Cardano is the first major blockchain to implement a token-based governance system. It is known as the shift from the Age of Voltaire, after the French writer and free speech advocate. The blockchain’s development was previously under the management of founder Charles Hoskinson’s blockchain engineering firm Input Output Global, alongside the Cardano Foundation and EMURGO, Cardano’s official commercial arm. While many Cardano fans celebrate the move, decentralization can be a double-edged sword. A form of governance called decentralized autonomous organizations (or DAOs) has come in for criticism. Detractors say many DAOs have bloated budgets, suffer from inadequate checks and balances, and end up controlled by a few powerful stakeholders. Cardano’s new governance is the latest example of a crypto project committing to the ideal of decentralization.

Why decentralize?

“Without a central authority controlling the network, it’s much harder for governments or corporations to censor information or transactions,” Florian Volery, co-founder of Liqwid Labs, the company behind the Cardano lending protocol Liqwid, told DL News. Volery said this will make Cardano more attractive to institutions looking to get into decentralized finance, or DeFi. But the competition is tough. Ethereum, which is home to the largest DeFi ecosystem, has attracted the likes of BlackRock, a $9 trillion asset manager, among others. Pablo Bejarano, CEO of Cardano-based asset manager PBG, says Cardano’s move toward decentralized governance will highlight that other blockchains lack such a system. On competing blockchains, “decision-making is often centralized among a few actors,” he told DL News. Still, decentralized governance isn’t the only consideration. Cardano only achieved smart contract functionality — the ability to build DeFi protocols on the blockchain — in 2021.

It has also struggled with an unspent transaction output (UTXO) problem. Simply put, only one user can interact with certain DeFi protocols, such as decentralized exchange liquidity pools, at a given time. Other major blockchains, such as Ethereum and Solana, do not have this problem. The UTXO problem causes transactions to fail when, for example, multiple users try to trade the same tokens on a decentralized exchange at the same time — a big problem for any blockchain aiming to scale to millions of users. How to Avoid DAO Problems Although Cardano’s governance is set to become more decentralized, the network does not want to be associated with actual DAOs and the problems that have befallen them.

“In a DAO, decisions are typically made by governance token holders who vote on proposals, often with only a few checks or balances,” Gregaard said. Cardano’s new system, so-called DReps — community spokespeople who participate in voting on governance actions — will represent token holders. DReps will join a total of three cooperative legislative bodies (a tricameral model) to make decisions. Gregaard said that will ensure that all important stakeholders have a say and that checks and balances are ensured.

Still, putting such a system into practice is easier said than done. Involving thousands of ADA token holders, many of whom may not fully understand the new governance system, could lead to disappointment upon discovering that they do not have the same kind of control over the project and its finances as members of a DAO. While Chang's hard fork has already begun, Cardano's transition to decentralized governance is not yet complete. A second upgrade will unlock the final governance features later this year.

#Ada.