CIP-???? | Governance Participant Compensation by Thomas-nada · Pull Request #1117 · cardano-foundation/CIPs

Thomas-nada · 2025-11-29T19:11:01Z

This proposal introduces Governance Participant Compensation to provide automated, deterministic compensation for Cardano governance actors (CC, DReps, SPOs) who cast a valid vote.

It achieves this by:

Funding: Consuming a portion of the proposal's deposit (not the Treasury) upon finalization.

Distribution: Using new ledger rules to split the funds into pools and distributing them via a hybrid model (equal share + stake-weighted) only to active voters.

Mechanism: Operating entirely within the ledger rules (like staking rewards) to ensure reliability and trustlessness.

Goal: Ensure sustainable, decentralized governance by making participation economically feasible.

(rendered latest proposal)

rphair

Marked for Triage in next CIP meeting https://hackmd.io/@cip-editors/124.

CIP-????/README.md

Co-authored-by: Robert Phair <rphair@cosd.com>

Updated to add optional reward-account support for DReps and CC hot keys, plus the eligibility rules for who can actually receive CLM payouts. This includes: - new ledger maps for storing optional reward accounts - updated DRep registration cert - updated CC hot key cert - eligibility section (must vote + must have reward account)

…n action type generate compensation. Added the `EffectiveRate` logic, updated the compensation pot formulas, and fixed the deposit/refund rules so that any portion tied to non-relevant groups isn’t consumed and is returned to the proposer. This makes the CLM behave correctly when, for example, SPOs can vote but their votes aren’t counted towards ratification. Only DReps/CC get compensated, and the SPO portion of the deposit stays refundable.

Ryun1 · 2025-12-09T15:13:31Z

CIP-????/README.md

+Cardano’s decentralized governance framework requires persistent engagement from CC members, DReps, and SPOs. These actors must analyze governance actions, evaluate technical and economic implications, and cast informed votes. This work incurs ongoing time, expertise, and operational costs. Without a reliable compensation model, several risks emerge:
+
+### Governance Fatigue
+Uncompensated governance labor leads to declining participation over time.


have we seen this?
do we have numbers on this?

Ryun1 · 2025-12-09T15:14:13Z

CIP-????/README.md

+### Centralization Risks
+Only large, well-funded entities can consistently afford to participate, reducing diversity and representation.
+
+### Low Governance Participation / Quorum Instability


Probably roll this one into Centralization Risks

Ryun1 · 2025-12-09T15:14:48Z

CIP-????/README.md

+Without compensation, new and smaller actors lack incentives to engage, harming governance quality.
+
+### Misaligned Incentives
+Proposers incur no cost commensurate with the burden placed on reviewers and voters.


Proposers do incur the opportunity cost of lost staking rewards

True, but is that considered cost? They are not paying for it. They incur potential losses, not cost.

I feel probably best to mention this

Ryun1 · 2025-12-09T15:18:01Z

CIP-????/README.md

+
+This mechanism requires **no smart contracts**, **no Treasury withdrawals**, and **no manual triggers**, operating fully within Cardano’s ledger rules in a manner analogous to staking rewards. It creates an incentive-aligned, sustainable, and decentralized compensation model that reflects the real cost of governance participation.
+
+---


please also consider addressing the points from CPS-20 Governance Stakeholder Incentivization

CIP-????/README.md

Ryun1 · 2025-12-09T15:23:56Z

CIP-????/README.md

+Proposers incur no cost commensurate with the burden placed on reviewers and voters.
+
+### Need for a Deterministic, Automated Mechanism
+Any off-chain or trust-based compensation scheme introduces friction and reduces security.


maybe worth discussing a smart contract based solution

Agreed. If a smart contract solution can do the same with less changes to the ledger I am all for it.

Ryun1 · 2025-12-09T15:24:47Z

CIP-????/README.md

+
+**Constraint:**  
+`ccCompensationRate + drepCompensationRate + spoCompensationRate ≤ MAX_COMP_RATE`  
+where `MAX_COMP_RATE` is hard-coded (e.g., 0.25).


probably not good to hard-code
best to have everything as an adjustable protocol parameter

I might even argue that we could do without MAX_COMP_RATE altogether.

In theory we could have 100% of govActionDeposit be usable for compensation and then lower it a bunch. Right now giving up 6 epochs worth of staking rewards on 100k ADA costs about ~200 ADA. If we instead had govActionDeposit at something like 1000 ADA, we could make governance more accessible, compensate governance actors fairly, AND mitigate spam proposals all at the same time.

Those are just hypothetical numbers and we definitely should make incremental changes instead of all at once. But the idea is that with this CIP it would all be a simple matter of just fine-tuning a few parameters.

The intent of this was to eliminate the possibility of overcharging.
I am all for fair compensation, but I don't want being an SPO, a DREP or a CC member to potentially become a "get rich quick" scheme. So to protect that I intruduced a max cap.
This could obviously be a variable parameter, and the 25% was just put in as an example that made somewhat sense when I was playing around with the parameters in various scenarios.

CIP-????/README.md

Ryun1 · 2025-12-09T15:28:07Z

CIP-????/README.md

+
+---
+
+#### DRep Compensation (Hybrid Model)


Is there consideration of the IOR proposed DRep compensation scheme?

I have barely read that one. So not it has not been considered.

might be worth reading :)

@Ryun1 are you by chance referring to the Threshold(k) mechanism proposed in this paper?

https://iohk.io/en/research/library/papers/reward-schemes-and-committee-sizes-in-proof-of-stake-governance

If so then I don't think they are exclusive. In fact I think they complement each other.

As an example, we could set this Threshold(k) parameter to 100 to reward the top 100 dReps equally (as explained in the paper). But those rewards would come from taking a commission out of each govActionDeposit as a percent for dReps, SPOs, and the CC respectively (with exceptions for GAs that their votes aren't counted on) as explained by this CIP.

You could have it such that the dRep fee is 1% of a GovAction (so 1k ADA) and then set this other Threshold(k) to target the top 100 dReps. Then each of those dReps would get 10 ADA per GA that they vote on.

It may not be much but it's sustainable and solves both the compensation issue and mitigates proposal spam by imposing a small cost on proposers.

Ryun1 · 2025-12-09T15:31:46Z

CIP-????/README.md

+
+---
+
+## Rationale: how does this CIP achieve its goals?


worth discussing that a mechanism like this would greatly increase the cost to proposers, could this have knock-on negative effects?

In the short run, maybe. In the long run, I believe that eventually we will hit a sweet spot where the govActionDeposit parameter could be lowered to a point where the governance actors are pleased with the compensation they recieve as well as the proposers are OK to pay this amount.
A bonus to this solution is that it will make proposers think twice about what they submit as there is an actual cost attached to it. This would allow for lowering the govActionDeposit while still keeping spam to a minimum.

believe that eventually we will hit a sweet spot where the govActionDeposit parameter could be lowered to a point where the governance actors are pleased with the compensation they recieve as well as the proposers are OK to pay this amount.

This would allow for lowering the govActionDeposit while still keeping spam to a minimum.

good points, please ensure theyre included in the CIP :)

Ryun1 · 2025-12-09T16:13:36Z

CIP-????/README.md

+
+### Centralization Risks
+Only large, well-funded entities can consistently afford to participate, reducing diversity and representation.
+


from CIPs call, another potential benefit for the proposed design

no reliance from volunteering

Ryun1 · 2025-12-09T16:18:00Z

CIP-????/README.md

+---
+
+## Rationale: how does this CIP achieve its goals?
+


From @Cerkoryn

With this CIP it solves the compensation issue for all three branches by adding an actual monetary cost to GA deposits. This could give us the flexibility to dial back govActionDeposit gradually and allow more of the deposit to go toward paying the governance actors that are required to do work BECAUSE of said GA

To take it a bit further, I think this is the only compensation mechanism I've seen that is inherently scalable AND sustainable.

Since compensation comes from the proposers (instead of the treasury or reserve), we don't really have to worry about draining either of those things faster. And since proposers pay per proposal, governance actors will inherently earn more if there are more proposals (more work to do) and visa versa.

I'm not sure I agree. A small governance deposit (e.g., 1000 ADA) seems unlikely to cover the cost of dReps and CC member time considering the deposit will be split across all representatives. If it costs 10,000-100,000 ADA to cover everyone's time, now you have a significant barrier to proposing anything - even things Cardano desperately needs. Some people are likely only comfortable proposing things today because it is just a deposit. Weren't several proposal deposits crowdfunded? Would that crowdfunding have succeeded if the deposit was confiscated to pay representatives? I'm not so sure...

Right now we are all paying 20% into the Cardano treasury every transaction. I would honestly rather just take 0.1-0.2% of that and split it among the representatives each epoch. (I'm guessing on what meaningful proportions would be.)

I like the idea of the treasury paying for compensation, but correct me if I am wrong, does not every withdrawal from the treasury currently require approval through a governace action?

The way I'm thinking about it, it would not go through the treasury. Staking rewards don't go through the treasury; they are automatically calculated and distributed at each epoch boundary. We could do something similar for representative compensation. So each epoch boundary: 19.8% would go to the treasury and 0.2% would be distributed to representatives automatically.

fallen-icarus · 2025-12-09T20:23:05Z

The idea I brought up in the CIP meeting was to use CIP-159 for micro-taxes:

When a user delegates to a dRep, their wallet automatically subscribes them into paying 0.001 ADA to their dRep every time they make a tx.

The user can always opt-out, but opt-out still typically sees >80% participation rates. We can do the same sort of micro-taxes for funding other entities like the CC or stake pool operators running the testnets.

Co-authored-by: Ryan <ryan.williams@intersectmbo.org>

Thomas-nada · 2025-12-09T23:29:10Z

The idea I brought up in the CIP meeting was to use CIP-159 for micro-taxes:

When a user delegates to a dRep, their wallet automatically subscribes them into paying 0.001 ADA to their dRep every time they make a tx.

The user can always opt-out, but opt-out still typically sees >80% participation rates. We can do the same sort of micro-taxes for funding other entities like the CC or stake pool operators running the testnets.

With CIP-149 currently being rolled out by wallet providers, SDKs and explorers we will be able to see the adpotion rate of a similar approach and also how the distribution rate will be.
If this is a success I am happy to go this route. But I am for the most against relying on voluntarism as the backbone of compensation. I draw similarities with waiters who are poorly paid because their employers know the waiters can rely on tips.

rphair · 2025-12-10T04:44:07Z

Thanks @Ryun1 @Cerkoryn @fallen-icarus @Thomas-nada for getting all your feedback from today's CIP meeting into GitHub. We've resolved at that meeting to leave this Unconfirmed but not for lack of interest in the potential of this proposal... only because the feedback could influence some key points of the specification.

Once these suggestions appear to be settled, we can get this back onto the meeting agenda for confirmation & assignment of a CIP number: perhaps at our next scheduled CIP meeting in the New Year (https://hackmd.io/@cip-editors/125).

fallen-icarus · 2025-12-10T12:57:43Z

@Thomas-nada CIP-149 is not the same as what I'm suggesting. There is a huge difference between opt-in vs opt-out mechanisms.

Opt-in usually gets about 15-20% participation.
Out-out usually gets about 80-90% participation.

I draw similarities with waiters who are poorly paid because their employers know the waiters can rely on tips.

This example is opt-in - customers must opt-in to paying a tip (of any size) to their waiter.

As much as people complain about opt-out, most people don't actually opt-out. With this in mind, I actually expect very low adoption of CIP-149 precisely because it is opt-in. (Also, I think its UX will be much worse than what I'm suggesting with CIP-159.)

SwooshSwoop1 · 2026-01-02T22:40:33Z

Correct way to do this is make DReps get paid per proposal. A fair priority queue sorted by money

Each proposal has ADA attached to it and people can keep depositing to the proposal(if they want it to be voted on first). The proposal also earns staking rewards interest.
Very fair because even small proposals will eventually get a chance and rise to the top because of staking reward interest.
Time duration - If it does not get enough voting, the votes simply reset.
No default voting. They must explicitly chose yes, no, abstain.

Problem? DReps have no financial incentive to act now since proposal gets interest either way(whether staked on proposal or their personal wallet).
DRep might actually have financial incentive to vote right away because there is risk of losing delegates or if they need spending money now.

If its important to the chain or has lots of attention, even low ADA proposals can be voted on first.

This is how US system works where certain bills get passed because money -> lobbyist-> the politician(DRep) supports it. Essentially a priority queue sorted by money.
And other bills get ignored for 20 years even though they get proposed every single year.

Thomas-nada added 3 commits November 29, 2025 19:45

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Thomas-nada changed the title ~~Compensatory ledger mechanism~~ CIP-??? | Compensatory ledger mechanism Nov 29, 2025

rphair changed the title ~~CIP-??? | Compensatory ledger mechanism~~ CIP-???? | Compensatory ledger mechanism Nov 30, 2025

rphair added Category: Ledger Proposals belonging to the 'Ledger' category. State: Triage Applied to new PR afer editor cleanup on GitHub, pending CIP meeting introduction. labels Nov 30, 2025

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Thomas-nada changed the title ~~CIP-???? | Compensatory ledger mechanism~~ CIP-???? | Governance Participant Compensation Dec 9, 2025

rphair added State: Unconfirmed Triaged at meeting but not confirmed (or assigned CIP number) yet. and removed State: Triage Applied to new PR afer editor cleanup on GitHub, pending CIP meeting introduction. labels Dec 11, 2025


		This mechanism requires no smart contracts, no Treasury withdrawals, and no manual triggers, operating fully within Cardano’s ledger rules in a manner analogous to staking rewards. It creates an incentive-aligned, sustainable, and decentralized compensation model that reflects the real cost of governance participation.

		---


		### Centralization Risks
		Only large, well-funded entities can consistently afford to participate, reducing diversity and representation.

Conversation

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