Cardano operates with a capped supply, making ADA a scarce resource similar to BTC. The expectation is that ADA’s market value will rise in the future due to high demand. However, there’s an important consideration: the treasury holds 1.7B ADA, which can be gradually released into circulation in the coming years. With the introduction of on-chain governance, treasury funds will be allocated to cover IOG’s costs for Cardano development and investments in the ecosystem. This approach has risks. Increased selling pressure from the release of ADA could negatively impact market expectations and ADA holders’ confidence. On the other hand, neglecting ecosystem investments could hinder growth and jeopardize Cardano’s position in the top 10 market capitalization rankings. Striking the right balance is no easy task, and there may not be a definitive solution. It requires careful thought about how to manage treasury allocations without compromising either monetary policy or the ecosystem’s development. Let’s reflect on this challenge together. Finding the Ideal Net Change Limit The recently approved Net Change Limit (NCL) of 350M ADA comes with significant risks. If 350M ADA were sold within a short period, for example, between July and the end of 2025, it could create high selling pressure, potentially dropping ADA’s price as low as 0.2 USD, leading to severe challenges. This risk would be magnified in the event of another crypto winter, further intensifying selling pressure. Funding the ecosystem in dollar terms during such bear market conditions would require selling large amounts of ADA from the treasury, exacerbating the downward spiral of selling pressure. In this context, a high NCL poses a greater threat to monetary policy. History has shown that projects like IOTA, Tezos, Algorand, and Polkadot have heavily invested in their ecosystems and developed impressive technologies, yet they struggle to attract substantial user activity. These chains fail to dominate in terms of engagement, underscoring a critical lesson for other blockchains. For Cardano, staying in the top 10 market capitalization rankings is crucial. Retail investors, institutions, and crypto enthusiasts judge projects not just by technological advancements, but by market performance. If Cardano were to drop out of the top 10 for a prolonged period, it may never regain its position, regardless of decentralization, on-chain governance, or even breakthroughs like Ouroboros Leios or Midgard. While this reality may feel unfair or subjective, it highlights the disconnect between technological quality and user activity. Reaching technological milestones is only one part of the equation. Without developers, libraries, tools, and—most critically—active users, the ecosystem cannot thrive. The takeaway is clear: protecting monetary policy must remain a priority. Balancing investment in the ecosystem with maintaining financial stability is essential to long-term success. An active governance action proposes reducing the NCL to 200M ADA, but this raises several concerns. Cardano requires significant investments to advance technology, support builders, and grow the ecosystem. Without increased user activity, Treasury revenue will stagnate or be depleted. The second is more probable. The ongoing costs of maintenance and development will persist and gradually exhaust the reserve, ultimately rendering Cardano economically unsustainable over time. Like Bitcoin and many other blockchains, Cardano's security relies heavily on fees—a challenge that will only grow in urgency. The reserve, which has served as a funding source in Cardano's early years, is being gradually depleted. While infinite inflation could theoretically solve this, it introduces infinite selling pressure, which is unsustainable. Both Cardano and Bitcoin operate under capped supply models, and their communities expect monetary policy rules to remain intact. Increasing revenue through user activity and fees is the only viable solution. Cardano's security also depends on maintaining attractive staking rewards. These rewards are declining, and while past proposals to raise them failed, they revealed a clear demand from parts of the community for higher incentives. Ouroboros Leios offers a path to greater scalability, which is essential for increasing user activity and generating Treasury revenue. However, its potential can only be fully realized with active developers, robust tools, and a thriving DeFi ecosystem. As Cardano scales, a strong and well-established DeFi ecosystem must already be in place—this process is currently underway. Investments in both the Cardano protocol and its broader ecosystem are critical. Neglecting either will jeopardize the project's success. The takeaway is clear: investing in both the protocol and the ecosystem is essential to ensuring Cardano's long-term economic sustainability. Finding Balance Both monetary policy and ecosystem development come with risks, and mistakes in either area can lead to serious consequences. Ultimately, we must weigh these risks and make a decision. Based on current market conditions, releasing 350M ADA appears manageable. Over the past few years, three Catalyst funding rounds per year have added a total of 150M ADA annually to the market without any significant issues. In my view, the risks to monetary policy are less severe than the risks of neglecting ecosystem development. If developers leave the ecosystem, it will likely be costly and difficult to bring them back. Rebuilding tools and restarting DeFi projects could take years, leaving us in a situation where we have technological advancements like Leios and Midgard but lack third-party developers and a thriving DeFi ecosystem. Thus, it may be less risky to accept some strain on monetary policy than to fail in building technologies and attracting user interest for the protocol and DeFi. On the flip side, prioritizing monetary policy excessively—by reducing the NCL to a strict minimum, such as 150M–200M ADA—might yield short-term benefits. The reduced supply of ADA, combined with steady demand, would likely drive up its market value. However, Cardano cannot rely solely on its monetary policy, especially when competing with Bitcoin in this domain. The market has shown that capped-supply projects are not always favored. Cardano does not sit on the second place, so it must succeed not only through sound monetary policy but also by achieving a strong network effect. To do so, it must establish itself as the leading smart contract platform. Balancing these priorities is key to its long-term success.
