- Cardano’s Chang Hark fork has just gone live.
- It brings decentralized, on-chain governance to the blockchain.
- The transition will be completed with a second upgrade later this year.
The Cardano blockchain has completed the first stage of its Chang hard fork, paving the way 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 token ADA.
According to Frederik Gregaard, CEO of the Cardano Foundation, many members of the Cardano community have gravitated towards the network because of its promise of a decentralized governance model.
“Every ADA holder can contribute to the evolution of the ecosystem,” Gregaard said. DL News“The community will collaborate, innovate and govern by mutual agreement.”
Cardano is the first major blockchain to implement a token-based governance system. It is being dubbed the change of the Voltaire era, named after the French writer and free speech advocate.
The blockchain’s development was previously managed by founder Charles Hoskinson’s blockchain engineering firm, Input Output Global, as well as the Cardano Foundation and EMURGO, Cardano’s official commercial arm.
While many Cardano fans are celebrating the move, decentralization can be a double-edged sword.
A form of governance called decentralized autonomous organizations (DAOs) has been criticized.
Join the community to receive our latest stories and updates
Critics say many DAOs have excessive budgets, suffer from inadequate checks and balances, and end up being controlled by a few powerful players.
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,” said Florian Volery, co-founder of Liqwid Labs, the company behind Cardano lending protocol Liqwid. DL News.
Volery said this will make Cardano more attractive to institutions looking to get into decentralized finance – or DeFi.
But the competition is fierce. Ethereum, which hosts the largest DeFi ecosystem, has attracted companies like 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 what other blockchains lack in place.
On competing blockchains, “decision-making is often centralized among a few actors,” he said. DL News.
However, decentralized governance is not the only consideration.
Cardano only achieved smart contract functionality, the ability to build DeFi protocols on the blockchain, in 2021.
The network also faced an unspent transaction output (UTXO) issue. Simply put, only one user can interact with certain DeFi protocols, such as decentralized exchange liquidity pools, at any given time.
Other leading blockchains, like Ethereum and Solana, don’t 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 hoping to scale to millions of users.
Avoiding DAO Problems
Although Cardano’s governance is becoming more decentralized, the network does not want to be associated with real DAOs and the problems that have befallen them.
“In a DAO, decisions are typically made by governance token holders voting on proposals, often with few checks or balances,” Gregaard said.
Cardano’s new system, called DReps, will represent token holders as community spokespeople who participate in voting on governance actions.
The DReps will join a total of three cooperative legislative bodies – a tricameral model – to make decisions.
This, Gregaard said, will ensure that all important stakeholders have the opportunity to express themselves and that checks and balances are ensured.
However, implementing such a system 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 at not having the same kind of control over the project and its finances as members of a DAO.
Although the Chang hard fork has started, Cardano’s transition to decentralized governance is not yet complete.
A second upgrade will unlock the final governance features later this year.
Tim Craig is DL News DeFi correspondent based in Edinburgh. Feel free to share your tips with us at tim@dlnews.com.
