What is Cardano's monetary policy?
Cardano's monetary policy addresses two issues:
- The necessity to offer rewards for people who participate in the network
- Funding the treasury
The expansion and future improvement of the Cardano blockchain will be greatly influenced by its community, who need to be incentivized through rewards to participate in Cardano’s development.
Staking rewards for delegators and stake pool operators come from two sources:
- Transaction fees - fees from every transaction from all blocks produced during every epoch go into a virtual 'pot'. A fixed percentage (ρ) of the remaining ada reserves is added to that pot.
- Monetary expansion - a certain percentage (τ) of the pot is sent to the treasury, and the rest is used as epoch rewards.
Funding the Treasury
The Treasury's goal is the provision of funds to develop Cardano activities through a voting process. This necessitates a process whereby funds are regularly sent to the Treasury to ensure that funds are always available.
Cardano's monetary policy aims to keep the protocol sustainable in the long term ensuring its decentralization and security. Monetary policy must provide sufficient economic incentive to maintain the protocol and develop the ecosystem. More than 75% of ada is already in circulation. The protocol will distribute the remaining coins periodically each epoch in the coming years as rewards for pool operators and delegators. The Cardano protocol has a capped number of coins and will only depend on fees in the future. There is no never-ending inflation of ada coins.