Cardano's Hard Fork: Turning On Community Governance and Improved Scalabilty

Key takeaways

• Cardano’s blockchain is undergoing a main upgrade called the Chang hard fork. 
• Main features: decentralizing its governance system and enhancing Cardano’s performance and scalability.
• 21Shares can help investors tap into the growing potential of Cardano via the largest Cardano ETP in the European market

Cardano is a smart contract platform created in 2017 by Charles Hoskinson, one of the co-founders of Ethereum. Since then, Cardano has grown to become one of the biggest Layer 1 blockchains in the world. The Chang hard fork represents the most significant enhancement to the network in nearly two years. It initiates the Voltaire era, the final stage of the roadmap, which aims to achieve complete decentralization of governance by implementing it entirely on-chain and fostering community-led decision-making.

Several features will be introduced as part of the upgrade to enable the network to become a self-sustaining system.

1. Transition to Community Governance 

Cardano’s governance will shift control from Input Output Global (IOG) to the Cardano community, enabling a decentralized governance model. This transition will be implemented in two phases:

• Phase One: Supports the transition to a fully community-governed blockchain network by creating the Interim Cardano Constitution and the Interim Constitutional Committee (ICC). some text
  1. The interim constitution will guide Cardano’s transition during the hard fork (September 1)
  2. Phase one will be a technical bootstrapping phase to present Cardano’s minimum viable product.
• Phase Two: Introduces the final complex components needed for full community-run governance, expected later in Q4.some text
  1. On-chain governance will be fully operational, including features that would empower the participation of Delegated Representatives, the constitutional committee, and staking pool operators.

2. On-chain voting: Cardano holders will be able to:

• Propose future updates
• Vote on proposals  
• Delegate voting power to elected representatives 

3. Improved scalability and transaction speeds: As the hard fork rolls out, Plutus V3 will debut, which offers substantial performance improvements, interoperable with Ethereum Virtual Machine (EVM) compatible blockchains, and supports Zero Knowledge Proof technology. The upgrade from Plutus V1 will reduce transaction size and increase throughput while simplifying Plutus script development, enhancing flexibility and security for developers.

This is a potential catalyst for Cardano’s adoption, which would be much welcomed to stave off competition from alternative smart-contract platforms. Development on the ground-level infrastructure of Cardano can invite developers to build applications on one of the biggest blockchains due to the better optionality and efficiency promised by the Chang hard fork. Cardano’s efficiency and its growing ecosystem of applications could, in turn, invite more users, who would now also have the incentive to vote on the network’s technical proposals. 

How can investors tap into Cardano’s growing potential?

100% physically backed by ADA, Cardano's native cryptocurrency, the 21Shares Cardano ETP (AADA) tracks the performance of ADA, providing a regulated way for investors to tap into the growth of Cardano.

The Cardano ETPs landscape in Europe is composed of 7 ETPs, totaling $49.3M in Asset Under Management (AUM) as of Sep 2, 2024. 21Shares’ AADA is currently the largest ETP tracking Cardano’s performance with $32.9M AUM, accounting for 67% of the market.

^{Data as of 02/09/2024 from Bloomberg}

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The interest in 21Shares’ Cardano ETP has significantly picked up during the last trading days. The daily turnover for AADA has more than doubled when compared to its yearly average, with $1.2M traded on average every day last week. This represents 96% of the total trading activity on Cardano ETPs (5D ADV).

When trading AADA, investors can also benefit from the tightest spreads among Cardano ETPs, with an average of 61 bps YTD, 23% lower than competitors’ best averages in 2024.

^{Data as of 02/09/2024 from Bloomberg; SIX, Xetra, Euronext aggregated.}

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