Cardano’s ecosystem has grown rapidly, fueled in part by its Treasury system and community-driven funding through Project Catalyst and other initiatives. These public funds have supported dozens of decentralized finance (DeFi) projects, from decentralized exchanges (DEXs) to lending protocols, bringing valuable experimentation and utility to the blockchain. But as the ecosystem matures, a critical issue has emerged: sustainability. Treasury reserves are finite, and without a feedback loop, Cardano risks funding projects that thrive privately while the public resources that supported them dwindle. If this cycle continues unchecked, Cardano could face the same systemic weaknesses and communities left holding depreciating tokens. To ensure long-term growth, the community must rethink how profitable projects interact with the Treasury and the broader network economy. The guiding principle is simple: public funds should not subsidize private profits without accountability. The Treasury Problem: Funding Without Returns The Treasury exists to bootstrap innovation, but like any pool of resources, it is not infinite. Every ADA allocated to a project reduces the reserves available for future builders. Meanwhile, ongoing revenue into the Treasury primarily comes from on-chain fees—an amount that will grow with adoption but is limited in the near term. Here’s the recurring pattern seen across ecosystems: Teams secure public funding (Treasury, Catalyst, Foundation, DAO, etc.). They incentivize liquidity providers (LPs) and users with inflationary tokens. They retain all protocol fees. They sell tokens during bull markets. They return for more public funding when liquidity dries up or development stalls. The cycle repeats. This creates a troubling asymmetry. The public shoulders the initial risk, while the benefits are privatized by the teams running these protocols. The Treasury depletes, while successful projects expand their revenue streams without contributing back. For Cardano’s long-term viability, this cycle must be broken. The situation could be even more problematic. Besides Treasury fundings, some projects choose to fund development by selling their own tokens, creating expectations among token holders that the token’s value will rise over time. In these cases, the team has a dual responsibility: not only should they return ADA to the Treasury, but they must also deliver value to those who invested in or continue to hold the token. Ignoring either obligation undermines trust and damages the broader ecosystem. Profitable Projects Must Give Back Every project that has received Treasury funding and is now profitable should begin returning a portion of its profits to the Treasury. This is not about punishment—it is about responsibility. Profitable teams should not seek additional grants when they generate enough revenue to sustain themselves. If they do apply for funding, it should not be a “handout.” Instead, Treasury support should function more like a loan—with clear repayment plans in ADA. This shift changes the nature of public funding: Early-stage projects still get support. Proven, revenue-generating protocols contribute to replenishing the Treasury. Long-term sustainability becomes embedded in the system. In this model, the Treasury evolves into a self-reinforcing growth engine—funding innovation while replenishing itself through shared success. If a project is profitable, the team should share its revenue fairly—with token holders, liquidity providers, and the Treasury, especially if it received Treasury funding. Tokens shouldn’t exist just to raise money. Their real purpose should be to distribute value generated by the project. Tokens should serve as a distribution of revenue, not as a source of revenue. That’s how you build trust, sustainability, and long-term alignment with the ecosystem. Tokenomics vs. Real Revenue Another challenge is the reliance on inflationary tokens to attract liquidity and users. Many DeFi projects launch native tokens and use them to pay out yields. At first, this looks attractive—users get rewards, and liquidity deepens. But the model is fragile: Liquidity providers (LPs) face impermanent loss, often leaving them worse off than if they simply held their assets. As more tokens hit the market, prices collapse. LP incentives weaken, liquidity evaporates, and the project enters a death spiral. This “farm and dump” cycle is not unique to Cardano—it is a systemic DeFi problem. The takeaway is clear: tokens alone do not create sustainable liquidity. What sustains DeFi is real fees generated from real user activity. A successful DEX, for instance, must rely primarily on trading fees, not just token emissions. And those fees must be distributed transparently: A fair share should go to LPs. It keeps the liquidity in liquidity pools. Token holders should benefit. It is fair and fair and builds trust. The Treasury should also receive returns if it funded the project’s growth. It ensures long-term sustainability of the ecosystem. When projects rely solely on inflationary tokens without tying rewards to real economic activity, collapse is only a matter of time. A service with unique features and strong network effects can become profitable without relying on tokens. In such cases, the project may succeed independently of token economics. There’s no guarantee the team will act fairly toward token holders or the Treasury—there’s no mechanism to enforce that responsibility. Importantly, not every project is doomed to fail. A team can choose to keep the project alive by sharing revenue fairly with those who support it—such as liquidity providers or early backers. The worst-case scenario is when a team receives multiple rounds of funding from both the Treasury and token holders, yet fails to build a profitable service. If the team then abandons the project, it results in wasted public resources and broken trust. That’s why accountability and long-term commitment are critical. Liquidity Injection: A Double-Edged Sword Liquidity is the lifeblood of DeFi. Shallow liquidity means higher slippage, discouraging trades, reducing fees, and pushing LPs to exit—a dangerous cycle that can doom even promising platforms. That’s why liquidity injections are being discussed in the Cardano community, with proposals to allocate 100M ADA into DeFi. The question is: where should this liquidity go? The most strategic pairs appear to be: ADA/stablecoins – strengthening Cardano’s position as a base currency. ADA/real-world assets (RWAs) – bridging on-chain finance with tangible off-chain value. By contrast, injecting liquidity into ADA/DEX token or DEX token/stablecoin pairs risks propping up unsustainable tokenomics. If teams hold fees privately and rely solely on token incentives, Treasury-backed liquidity could simply enable more dumping. This is where accountability becomes critical. Treasury-backed liquidity must support pairs that strengthen the ecosystem, not just inflate team profits. Accountability in Treasury Funding It’s important to stress: successful projects should not be excluded from Treasury funding. In some cases, it makes sense for an already-profitable protocol to receive additional support for scaling or expanding features. But such funding should come with strict conditions: Clear, realistic goals. No vague promises. Revenue-sharing commitments. Profits must flow back into the ecosystem. Loan-style structures. Treasury funds are not free money. Without these measures, Cardano risks becoming a perpetual subsidy machine—supporting projects that never achieve self-sustainability and never return value. Treasury accountability ensures that funding leads to progress—not just persistence. Beyond the Treasury: Broader Value Distribution While Treasury returns are essential, they’re only one part of the equation. For Cardano DeFi to thrive, projects must also ensure fair value distribution across stakeholders: Liquidity providers should be compensated adequately for impermanent loss risks. Token holders should see real utility, not just speculative hope. Teams should demonstrate long-term commitment by holding their own tokens and earning through the same mechanisms as the community. When these principles align, everyone benefits: projects grow, LPs are incentivized, token holders gain confidence, and the Treasury remains healthy. Let’s Connect The Dots Treasury funding, liquidity, tokenomics, and the long-term health of the Cardano ecosystem are deeply intertwined. It all begins with the mindset of the teams building on Cardano—and the accountability of those who approve funding. If a team uses public funds without a genuine plan for success, it drains resources and weakens the ecosystem. But if a team delivers real value and shares revenue fairly—with token holders, liquidity providers, and the Treasury—their success becomes a win for everyone. Once a project is profitable, it shouldn’t continue requesting Treasury support. Yet in the Cardano ecosystem, we often see successful teams asking for more funding. Profitable projects should give back—not take more. Funding decisions rest primarily with DReps, and secondarily with ADA holders (via Catalyst) and the Builder DAO committee. These groups carry real responsibility. If Cardano is to thrive, they must make thoughtful, accountable decisions that prioritize sustainability over short-term gains. Conclusion: Building a Self-Sustaining Cardano DeFi The future of Cardano depends not just on innovation, but on sustainability. The Treasury cannot function as a one-way faucet of free capital. Profitable projects must return value, both to their communities and to the public pool that helped launch them. This means rethinking tokenomics, demanding accountability, and prioritizing real utility over hype. It means structuring Treasury funding as an investment, not a perpetual subsidy. And it means distributing value fairly—among LPs, token holders, teams, and the Treasury itself. If Cardano can break the cycle of privatized profits and public losses, it will stand apart from other ecosystems plagued by short-lived DeFi experiments. By embedding sustainability and accountability into its economic foundation, Cardano can build a DeFi landscape that not only survives but thrives for decades to come.
