The Cardano blockchain, one of the largest cryptocurrencies by market capitalization, is facing new challenges as staking rewards drop below 3%. According to the Sking Rewards site, the current reward rate for ADA staking is 2.97%.
In response to recent concerns, Cardano founder Charles Hoskinson highlighted a series of important actions to ensure the long-term sustainability of the Cardano blockchain.
It’s axiomatic. Of course, all cryptocurrencies require more transactions. That’s what blockchain is for.The most important thing we can do is run decentralized governance, run the Treasury, run the partner chain — Charles Hoskinson (@IOHK_Charles) March 31, 2024
Hoskinson said NMKR CEO and founder Patrick Tobler said a significant increase in transactions on Cardano may be needed to keep the chain sustainable, given the decline in staking reward rates. I responded to the discussion regarding suggested X. Tobler also proposed a future method to replace staking fees from the Treasury with transaction fees.
In response to these observations, Hoskinson pointed out that partner chains, increased trading volume, and rising ADA value could rebalance profitability for stake pool operators.
Tobler was not convinced by Cardano’s founder’s proposal, but said it would be more economical to operate the stake pool as there is currently no partner chain and transaction fees are insufficient to cover the stake pool’s rewards. suggested that scalability and user adoption may be needed to make it viable in the long term.
Hoskinson agreed, saying, “It’s an axiom. Of course, all cryptocurrencies need more transactions. That’s what blockchain is for.”
With this in mind, Cardano founders outlined the key steps to take in this scenario. This includes implementing decentralized governance, implementing financial operations chains and partner chains, etc.
ADA staking rewards
Staking is a fundamental aspect of the proof-of-stake mechanism employed by Cardano. This will allow ADA holders to participate in network verification while earning rewards.
ADA’s native staking rewards consist of block rewards and transaction fees. In each epoch, a fixed 0.22% of the reserve balance is used for block rewards and treasury.
Regarding transaction fees, the set of transactions within a block created during a particular epoch is used to determine the distribution of fee rewards. A total of 20% of these rewards will be donated to the treasury and the remaining 80% will be distributed to the stake pool. In the long run, the idea is to rely solely on trading fees as a source of compensation.
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