IOG, the developer behind Cardano, has alleged unconstitutional conduct: Reason Explained
Unleashing the Truth Behind Cardano's Governance Dispute
In the wee hours of June 3, Input Output Global (IOG) stirred up a buzz by announcing a review oftwo significant governance actions on the Cardano blockchain. With a curt yet impactful statement, IOG declared the DeFi Liquidity action as "unconstitutional," while the Cardano Blockchain Ecosystem Budget: Amaru 2025 was deemed constitutional.
This little sentence set off a fresh wave of discussions about the intricate procedural safeguards enshrined in Cardano's Constitution, a document put into force in February to grant legal validity to on-chain decision-making.
A Closer Look at the Controversial Proposals
IOG's rejection of the liquidity proposal is anchored in a technical yet fundamental rule stipulated in Article III, Section 5 of the Constitution. This rule mandates that every governance action should publish a URL for its off-chain documentation and record, on-chain, the cryptographic hash of the file. The hash is meant to certify that no one can secretly tinker with the file once voting begins.
The liquidity proposal fell short in this aspect. IOG's engineers downloaded the file and generated a Blake2b-256 digest. However, the hash embedded in the transaction didn't match. This discrepancy, according to IOG, renders the proposal unconstitutional as voters cannot be certain of what they are approving.
On the other hand, the Amaru project sailed through IOG's review, with the proposal aiming to secure ₳1.5 million to spearhead an alternative Cardano node implementation in Rust. It is already garnering near-unanimous support from voting stake.
The Legal Wrangling Over Decentralization
IOG's reasoning laid bare several constitutional touchpoints such as the proposal's alignment with the decentralization goals as per the Preamble and Article I, compliance with the standard metadata format demanded by Article III, Section 5, adherence to the explicit fund-administration framework stated in Article IV, Section 2, and ensuring that the requested sum doesn't transgress the Net-Change Limit in Article IV, Section 3. The only caveat raised by IOG was the ambiguity surrounding the line-item for "Ad-hoc mercenaries" to cover audits, which the company suggested should be clarified before disbursement.
The Path Forward
Under Cardano's CIP-1694 governance flow, delegated representatives (DReps) have until epoch 563 (June 8) to cast their votes. Barring the DeFi Liquidity action's reformatting with consistent metadata, it seems unlikely to pass, even if it manages to garner votes. The Amaru budget, however, is on track for approval, and once ratified, its administrators will be authorized to draw down funds gradually, subject to on-chain spending scripts and PRAGMA's legal oversight.
This episode reiterates the significance of the Constitution's seemingly dry formatting rules. The absence of an anchor-hash match can undermine the "single source of truth" principle and open the door to covert edits or alterations in proposals, rendering them invalid, even if they win the vote. As IOG's post succinctly put it, the mismatch "erodes the constitutional requirement for a clear, verifiable, and identical link between the on-chain governance action and its off-chain specification."
At the time of writing, ADA traded for $0.69.
Insights:
- Anchor-Hash Matching Requirement: An essential safeguard to ensure the integrity and immutability of governance actions on Cardano’s blockchain, it prevents undetectable edits or “bait-and-switch” changes in proposals by linking the on-chain governance action and its off-chain specification.
- Metadata Format and Validation: Strict format and metadata requirements to make sure the content linked to governance actions is consistent and auditable, reducing the risk of unconstitutional or flawed budget actions slipping through.
- Oversight via Constitutional Committee: An elected body that safeguards and interprets the Constitution, voting on whether governance actions comply with procedural and content requirements.
- Tranche-based Budget Withdrawals: Ensures that funds are distributed progressively only after specific milestones have been achieved and verified, bolstering accountability and protection against misuse.
- The mismatch between the anchor hash and the proposed off-chain documentation, as seen in the DeFi Liquidity action, demonstrates the importance of the anchor-hash matching requirement in ensuring the integrity and immutability of blockchain technology on Cardano's governance actions.
- The Amaru project's compliance with the metadata format and validation rules, along with the tranche-based budget withdrawals, underscores the significance of technology in facilitating transparent, auditable, and constitutional governance actions on the Cardano blockchain.
