Cardano's $19 Million Gamble

[00:00:00]Cardano just got a $19 million pitch to fix its DeFi problem. And I think there's a very real chance that this is already a lost battle before a single dollar even gets spent. So, let's actually go through the proposal, the people behind it, and why I think this might be trying to fix a problem that just can't be solved right now.

[00:00:24]Hi, I'm Linda, and if you'd like to see more content like this, make sure to give me a follow. And remember that this is not financial advice. Always do your own research.

[00:00:35]All right. So, let's start with the actual structure of the Prime proposal.

[00:00:40]Alpha Growth is asking for 120 million ADA or $19.2 million to achieve a net TVL growth of $200 million over a 12-month period. And just a quick reminder, Cardano currently sits at a DeFi TVL of $90 million and 45 million in stablecoins.

[00:01:02]Alpha Growth will be working with the Pendulum team, and the whole proposal will be overseen by what's called an operating group. That group will consist of representatives from Blink Labs, Coin Seelon, Midgard Labs, Input Output, and Tweak.

[00:01:18]These roles are unpaid, though, and there will also be a separate DeFi and community advisory council, which is made up of actual Cardano native builders. Though, they are non-voting.

[00:01:31]They just exist to give existing projects a voice.

[00:01:35]All right. Now, let's look at Alpha Growth's pitch.

[00:01:38]They want to bring competitive DeFi to Cardano and say that Cardano's smart contract era, eUTXO architecture, and recent infrastructure additions are world-class.

[00:01:50]But, what is missing is the application depth, liquidity products, and capital flow that make an ecosystem a destination DeFi users actually choose.

[00:02:01]They want to close that gap through a 12-month community overseen program, benchmark Cardano DeFi against leading ecosystems, identify the highest value gaps, support Cardano native teams where they can deliver at comparable quality and timing, bring in missing applications or partners where needed, structure incentive campaigns under published criteria, and work with LPs and structured product issuers that can move capital on chain. All right, so that was a lot, but their intended result is durable TVL on Cardano that persists after incentives taper, not liquidity that leaves when subsidies end.

[00:02:42]So, that program will run in three phases. Phase one is a full audit of Cardano's DeFi across 20 to 25 categories that are then benchmarked against comparable chains and published as a public good by the end of month two.

[00:02:59]Phase two takes that audit and produces a gap analysis, essentially a prioritized to-do list. And phase three is where the actual incentive spending and capital deployment takes place.

[00:03:12]However, this phase three only happens if the operating groups or IOG, Midgard Labs, and so on votes [music] to release it. If that vote doesn't happen, then roughly 90 million ADA simply never leaves the treasury. And I personally really, really like that safeguard here.

[00:03:32]Now, Alpha Growth has highlighted that Cardano's DeFi ecosystem faces three interlocking liquidity challenges, and those are fragmented liquidity, inefficient liquidity, and insufficient liquidity.

[00:03:47]And they say that solving fragmentation and efficiency before chasing volume will be the key here. Because the bottleneck on Cardano's DeFi TVL growth is not infrastructure availability, but durable [music] LP economics.

[00:04:03]Now, they don't just want to pay people to use Cardano DeFi. No, they want to grow what they call organic APR. So, real user activity, more accounts, more transactions, and more fees generated.

[00:04:18]And we desperately need that. And this should minimize the long-run cost of incentivized TVL because the market itself is paying LPs to stay.

[00:04:28]And I think that just makes a lot of sense in theory. But in practice, I mean, we have already seen a few really high APR and low-risk opportunities on Cardano, but it just never translated to more people participating.

[00:04:45]So, the truth is that more attractive monetary incentives don't automatically translate to more DeFi users on Cardano.

[00:04:53]And just keep that point in mind. I'll talk more about why exactly we're facing this issue on Cardano a bit later.

[00:05:00]But let's go back to the proposal.

[00:05:03]Here's how they want to do it. They say that Cardano's eUTxO model and native non-custodial liquid staking are structural advantages that most competing ecosystems just simply don't have. They want to convert that structural advantage into LP-ready primitives.

[00:05:20]>> [music] >> And again, that does sound great, but a lot of protocols on Cardano already make use of this. So, I hope they'll bring some ideas to the table that Cardano hasn't already thought about here.

[00:05:33]Then Alpha Growth talks about risk and insurance tooling. They claim that limited on-chain risk management restricts the size of capital that institutional LPs are willing to commit.

[00:05:45]Their next point is and awareness. So, the translation is basically marketing. They say that ecosystem awareness among non-Cardano institutions, LPs, and protocols remains low. And finally, their last point is infrastructure. So, eUTXO vaults, solver markets, and risk tooling will land in parallel via prime grants and pending coordination.

[00:06:12]So, here's the cost breakdown. They want to spend $5.6 million on ecosystem grants, so basically helping Cardano projects. $4.3 million on LP incentives, $2.4 million on marketing in total. And for marketing, they will spend that money on conference and event sponsorships, content creation, they'll create distribution partnerships, co-market with Cardano native protocols, as well as ecosystem awareness research and surveys.

[00:06:44]After earning money, they will charge $1.7 million as a fixed [music] fee, and $4.6 million for a performance fee. The rest will go to audits and legal compliance, and any unused balances will go back to the treasury.

[00:07:00]So far, so good. But here's already the first hurdle. In order for Cardano to fund this, we have to change the NCL.

[00:07:09]Cardano's net change limit, so the cap on how much ADA the treasury can pay out in a given period, currently sits at 350 million ADA. So, even if the community wants to fund this, we first have to raise the NCL as there's simply not enough money left for this funding period. That's why people have proposed to raise the current NCL to 500 million ADA, but whether it will pass is still undecided at this point.

[00:07:38]All right, now let's get to the part where we have to be realistic with our expectations.

[00:07:45]And to be honest, my reservations are not about Alpha Growth's competence.

[00:07:49]It's more about whether it can actually work on Cardano at all. So, even if they pull it all off, provide great LP incentives, high APRs, high security, and so on, it still might not be enough.

[00:08:05]And there are a few reasons as to why.

[00:08:08]And I think it's simply because of how Cardano is set up. So, when we talk about marketing all of this, the truth is we can basically forget about all the existing ADA holders because the reality is that around 90% of ADA is held in Japan. They are not DeFi users. They never have been and never will be. Japanese ADA holders have historically bought ADA to just hold it.

[00:08:35]Most of them don't look at ADA as something you actively deploy to chase yield. And I'm not criticizing them at all. It's just who they are and what they came for, and that is perfectly fine.

[00:08:47]Now, the remaining few percent are largely people holding ADA as one piece of a larger crypto portfolio, and they're not specifically people that are looking for DeFi yields. So, if 90 plus percent of ADA sits with holders who fundamentally don't care about DeFi, that leaves a genuinely small size of existing ADA holders who are actually a realistic target market.

[00:09:12]So, the point I'm trying to make here is that the actual addressable market from Cardano's own existing base is incredibly tiny.

[00:09:23]We're also doing this in a bear market.

[00:09:25]So, fresh DeFi capital isn't exactly flooding into crypto right now. Most of the money that would have chased a new DeFi ecosystem a few years ago simply isn't here right now. Which means that if Alpha Growth wants to hit $200 of TVL growth, it can't realistically come from Cardano's own holder base, and it can't realistically come from fresh capital either. It has to come from pulling users away from chains that are already winning at DeFi. Solana, Ethereum layer twos like Arbitrum and Base, and other established DeFi hubs like Hyperliquid, for example.

[00:10:05]And >> [sighs and gasps] >> we have to be brutally honest with ourselves here.

[00:10:10]What can Cardano realistically offer someone who's already comfortable on Solana or Base to get them to move over?

[00:10:18]They've already got the high APRs. Their transactions settle in seconds. Their favorite protocols already have deep liquidity and battle-tested records.

[00:10:28]They don't want to learn about an entirely new ecosystem, download new wallets, and so on and so forth just to get the same yield they can already get where they are right now.

[00:10:39]So, to actually pull them over, we don't just need competitive APRs. We need something that only exists on Cardano, a genuine Cardano killer app, and pair them with high enough yields to make switching worth the hassle.

[00:10:55]But, right now those applications just don't really exist, and I don't know what it would even look like because every other ecosystem is already highly competitive. And I know everybody keeps talking about that one killer app, but what exactly is that killer app? Because nobody can give you an answer to this.

[00:11:16]And so, other ecosystems, they've already got way more than than we do on Cardano. So, that brings us to the next problem, [music] and that's stablecoins.

[00:11:26]DeFi simply does not work without proper stablecoins, and Cardano still doesn't have native USDC and probably never will have. The stablecoin that essentially every DeFi ecosystem is built around.

[00:11:40]What Cardano has is USDCX. Yes, wrapped version through a bridge. And it simply doesn't carry the same trust, liquidity, or integration depth. Just that alone would probably put your average DeFi user off of using it completely as it gets shoved into the, you know, too hard basket where you have to learn something new and go through all these extra hoops just to use it. People want easy. They don't want hurdles and especially not when you can achieve the same thing on other chains without the extra steps.

[00:12:12]Again, if Cardano had a holy grail, something so unique that you can't have anywhere else, people might be more keen on going through these extra steps and drawbacks. But other than that, they would just stick with what they know on other chains.

[00:12:30]Now, Cardano also has some issues at the base layer that it needs to fix first.

[00:12:35]One of them is settlement time and speed. DeFi runs on things that have to happen instantly. Think liquidations, arbitrage, or leverage trading. [music] And yes, we're working on fixing this, but it's not fully here yet. So, Cardano can't even compete with what the standard is today. So, it's hard to market it. And when it comes to marketing, ultimately, we also have to admit that Cardano has a huge perception problem. A lot of people just don't like Cardano and fixing that is going to be a lot of work. And it's probably going to take years. [music] And I know that all of this sounds quite negative because there are a lot of good things about Cardano. But these are just the hurdle we have to be aware of. And I think a 200 million increase in TVL is quite optimistic to put it mildly.

[00:13:26]Now, Alpha Growth was upfront here as well and said that this isn't a guaranteed win. They described it as a try-before-you-buy-it deal.

[00:13:36]>> [music] >> They'll build in that checkpoint specifically so that the community can pull back the majority of unspent funds if it's not working after a few months.

[00:13:46]So, here's where I personally stand with this. Despite all of the hurdles, I think it's worth trying. It's a way to finally get an answer to whether Cardano would ever work as a DeFi chain or not.

[00:13:58]Because the truth is DeFi was never actually what Cardano was built for in the first place. Charles Hoskinson's original vision was to bank the unbanked, [music] real-world financial infrastructure, and not to outcompete DeFi chains like Solana. So, if this experiment runs its course and the numbers don't move, I think the honest conclusion is to stop trying to force Cardano into a DeFi race that it was never designed to win, at least not yet.

[00:14:27]And just put that same energy fully behind building the tech and actual real-world use cases that Cardano's always been building toward. It might be the only path that's actually true to what Cardano is, instead of what everyone wants it to be.

[00:14:43]$19 million isn't enough capital to overcome structural problems that need protocol-level changes or to get tier-1 stablecoins on chain and create a one-of-a-kind DeFi protocol. And neither isn't enough to fix Cardano's reputation issues fully. So, voting this through might be setting Cardano up for a reality check that a lot of people probably don't want to see. And also, given the reluctance in treasury spendings recently, the solutions that are needed to actually make Cardano a DeFi chain are going to cost much more than dReps are willing to pay.

[00:15:20]So, it's a tough situation, but I think it can also be a very eye-opening one and a great opportunity to focus on what actually works for Cardano and just to figure that out. So, let me know what you think. Whether you think Prime is worth the risk or whether you think Cardano should just stop chasing a DeFi story that was never really ours to win.

[00:15:42]At least, not yet. And that's it for today's video. I know it sounded a little negative, but I felt like it was just important to highlight everything that's happening right now and just to talk about where we at with Cardano and the hurdles that we're really facing when it comes to DeFi. And I mean, at the end of the day, we do not have to win the DeFi race. We can still win with other things because crypto isn't just DeFi. So, let me know what you think and I hope I'll see you in my next video.

[00:16:12]Bye.