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Cardano’s Governance Actions

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The Cardano community is looking forward to the Chang Hard-Fork, as it will start the transition to on-chain governance. In this article, we will describe governance actions, their life cycle, and the basic principles of voting.

The Transition From The Shelley Era To The Voltaire Era

In the Shelley era, governance actions are approved only by the 3 founding entities of IOG, Cardano Foundation, and Emurgo. They need governance keys for that. There are 7 governance keys. For the approval of governance action, it is necessary to obtain 5 signatures.

In the Voltaire era, the founding entities will be replaced by 3 new governance bodies.

New governance bodies will be the Constitutional Committee (CC), Decentralization Representatives (DReps), and Staking Pool Operators (SPOs).

In practice, this means that the number of governance keys will not be fixed, but flexible.

Governance Actions

Any ADA holder can propose a governance action to the chain. This requires a deposit, which will be refunded once the action is finalized. Finalization of the governance action implies that it has either been ratified or expired. The amount of the deposit will be determined by the govActionDeposit parameter.

A transaction involving a governance action includes a governance action ID, a deposit, a reward address for the refund of the deposit (upon action finalization), an anchor for metadata necessary for justifying the action, and a hash digest that references previous actions of the same type (this helps avoid a collision with another action of the same type).

Each action will include some elements that are specific to its type:

Governance actions are ratified through on-chain voting.

Each type of governance action has unique ratification prerequisites, but they always involve at least two of the three governance bodies. A hard fork is an exceptional case that necessitates ratification by all governing bodies.

For a given governance action to be ratified, the majority of two governance bodies with voting rights must vote YES and meet a specified threshold. Each threshold is a governance parameter.

DReps and SPOs vote by stake (1 Lovelace = 1 Vote) while members of the constitutional commission vote in a 1 person = 1 vote style.

To ensure legitimacy in the case of DReps and SPOs voting, the minimum acceptable threshold should not be less than 50% of the delegated stake.

As depicted in the image, DReps and SPOs are entitled to vote on the governance action motion of no confidence. The threshold is established at 51% of the stake. The majority of the stake in both the DReps and SPOs groups voted YES, and the required threshold was met. This implies that the governance action will be enacted.

At present, seven distinct types of governance actions are set to be defined, three of which pertain to the constitutional commission.

DReps hold the authority to make decisions on all governance actions. The Constitutional Commission is required to approve all actions, with the exception of those that concern itself. The only exception is the amendment of the constitution, which must also receive the commission’s approval. SPOs are entitled to vote solely on actions related to the commission, hard fork, and Info action.

A hard fork warrants particular attention as it enables the community to introduce significant, non-backward compatible changes to the protocol. Initiating a hard fork entails altering the major version of the protocol. However, to trigger a hard fork, the majority of SPOs need to first install a new version of the client, signifying their agreement to the new changes in the protocol.

Technically speaking, triggering a hard fork constitutes a change of a parameter. While SPOs do not have the right to vote on parameter changes, the major version of the protocol is the sole parameter they vote on.

A governance action is an on-chain event that gets initiated by a transaction. It has a deadline post which cannot be enacted. The governance action goes through four stages:

  • An action is considered proposed when it gets incorporated into the blockchain.
  • An action is considered ratified when it accumulates sufficient votes in its favor.
  • An action that fails to get ratified before its deadline is considered expired.
  • An action that has been ratified is considered enacted once it gets activated on the network.

Governance actions are verified for ratification only at the boundary of an epoch. During the same phase when a snapshot is taken for stake distribution, votes for governance actions are also examined.

Once ratified, actions are prepared for enactment. Hence, all submitted governance actions will either be ratified and subsequently enacted, or they will expire.

Note that there is no status rejected in the lifecycle of governance action.

All governance actions are enacted at the boundary of the epoch following their ratification. This implies that if the deadline for the expiration of the governance action is, for instance, 10 epochs, the action could potentially be ratified and enacted, for instance, just 2 epochs after its submission.

In the illustration, you can observe that the governance of the action was proposed in epoch 1. The expiration is set at the end of epoch 9. In the first scenario, the action was ratified in epoch 6, so it was enacted after the transition to epoch 7. In the second scenario, at the end of epoch 9, the action was not ratified, so from epoch 10 it is considered expired.

If a governance action fails to be enacted, it signifies that either the majority of all eligible voting groups voted against it, or the necessary voting threshold was not met.

The sequence of enacting governance actions is determined by their acceptance order to the chain. This method effectively resolves any conflicts that may arise, such as when two parameter changes are in competition.

Voting

Entering the Voltaire era, Cardano transactions will be modified to support governance actions and votes. Participants will be able to submit transactions with governance actions and votes.

Each vote transaction consists of the following:

  • a governance action ID
  • a role (CC, DRep, or SPO)
  • a governance credential witness for the role
  • an optional anchor for information that is relevant to the vote
  • A vote: Yes, No, Abstain

For SPOs and DReps, the quantity of votes cast (‘Yes’, ‘No’, or ‘Abstain’) is in proportion to the Lovelace delegated to them at the moment the action is verified for ratification. This happens each time during the epoch transition until the potential expiration of the governance action.

If a voter chooses to ‘Abstain’ from a governance action, their stake is not included in the active voting stake, meaning it doesn’t contribute towards reaching the necessary threshold for action ratification.

A single voter can cast votes multiple times for each governance action. Votes that are correctly submitted supersede any previous votes from the same credential and role. In other words, voters have the flexibility to change their stance on any action. Once a governance action is ratified, voting ceases and any transactions containing additional votes become invalid.

As for constitutional committee members, each existing member has one vote, ensuring equal voting power among the committee members.

The image illustrates the submission of a governance action. The action was submitted in Epoch 1, with an expiration set for the end of Epoch 14, which is when the final verification and potential ratification of the governance action are scheduled to occur. DREPs and SPOs are entitled to vote on this particular governance action.

SPOs and DREPs actively participated in the voting process, enabling the required threshold to be met by Epoch 11. By the end of Epoch 11, a majority stake had agreed to the proposal. Consequently, the governance action was ratified at the end of Epoch 11 and enacted at the onset of Epoch 12.

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