Cardano, another high-profile blockchain platform launched three years before Solana, is reportedly considering moving in the opposite direction. Now, founder Charles Hoskinson has put forth a doozy of a plan. His plan involves turning 5–10% of the ADA treasury – roughly $1.2 billion – into Bitcoin and stablecoins. This expansion goes on the backdrop of ongoing criticism of Cardano’s blockchain efficacy and efficiency compared to its peers, especially Solana. Despite its earlier start, Cardano lags behind in key metrics, including decentralized application (dApp) activity and total value locked (TVL) in its DeFi ecosystem. This proposed diversification would further strengthen Cardano’s ecosystem while paving the way to attract more liquidity. This plan sparks debate about its potential impact on ADA's value and the long-term strategy for Cardano's growth.

Performance Gap and Treasury Diversification

On blockchain performance, Cardano’s multifaceted approach has the platform lagging far behind the current top-performing platforms—many of which are led by Solana. This lack is especially remarkable when we consider Cardano has been around much longer. Cardano’s annual inflation rate hovers around 2%—the same target the Federal Reserve aims for. Furthermore, there are 35.36 billion ADA in global circulation, indicating that even more tokens are coming.

Charles Hoskinson, founder of the Cardano blockchain, has come up with a strategic solution to address these challenges and accelerate growth. Among other things, he proposes partially transforming the ADA treasury into Bitcoin and stablecoins. The proposal would largely stabilize the ADA treasury by converting 5–10% (~$1.2b) of their ADA treasury into less volatile assets. These assets will be predominantly Bitcoin and tokenized dollars aka stablecoins. The upward allocation into Bitcoin and stablecoins would offer stability to the overall ecosystem and draw new investors into the Cardano fold.

DeFi Ecosystem and Liquidity Challenges

Cardano’s decentralized finance (DeFi) ecosystem has struggled to gain a sufficient amount of activity and value locked. DexHunter, a decentralized exchange (DEX) aggregator, now ranks as Cardano’s leading dApp by unique active wallets (UAW). Among these, Lenfi, a borrowing and lending dApp, has the greatest value at $11.62 million.

Drawing that all important comparison to Ethereum, Cardano’s DeFi apps currently hold just $267.5 million. In sharp contrast, Solana has $8.3 billion locked in its platform, with Ethereum’s dApps having an incredible $62.7 billion. This jarring difference demonstrates the necessity for more liquidity and activity in the Cardano ecosystem. Even a modest inflow of stablecoin liquidity, say at least $100 million, would make a huge difference in Cardano’s dApp activity and overall DeFi presence. As things stand now, stablecoins only represent $31.44 million in Cardano.

Staking Rewards, Development Stages, and Regulatory Outlook

Cardano implements a staking rewards system that pays out 80% of the staking rewards directly to validators. The other 20% goes to the national treasury. This model not only helps keep the network up and running but financially empowers new development projects. During the Goguen era, Cardano unlocked smart contract functionality. It reached this goal through the completion of Allegra, Mary, and Alonzo hard forks in September 2021.

Cardano is now in the Basho scaling phase. This section is focused on optimizing the network’s performance and scalability before it transitions to the Voltaire governance phase. It’s hard to overstate the significance of this continued evolution, which reflects Cardano’s dedication to sustained development and flexibility amidst change. Cardano’s major advantage lies in its exposure to stablecoins. It has a particular likelihood of being one of the first blockchain assets to be bestowed with well-rounded regulation.

"Dollar hegemony is fundamental to the United States of America. It matters to us, to our economy…That’s why I’m a fan of properly backed stablecoins. I’m a fan of Tether. I’m a fan of Circle." - Howard Lutnick