Charles Hoskinson, Cardano's co-founder, has put forward a plan to convert $100 million worth of ADA from the treasury into stablecoins and Bitcoin to strengthen Cardano's DeFi ecosystem.
Context of the Proposal
During a YouTube livestream, Hoskinson shared a strategy aimed at improving the DeFi sector in Cardano. Currently, only about 10% of Cardano's total value locked (TVL) is backed by stablecoins, which equates to roughly $31-33 million out of $330 million in TVL. Hoskinson believes increasing liquidity through stablecoins will be crucial for growth.
Importance to Cardano's DeFi
These investments could help improve the current stablecoin to TVL ratio, which in other ecosystems like Ethereum and Solana stands at 190% and 110%, respectively. Hoskinson claims that Cardano's low ratio limits DeFi growth and plans to raise it to 33-40%, which would provide deeper liquidity for lending, trading, and other on-chain activities.
Mechanics and Market Impact
Hoskinson suggested that liquidity could be introduced gradually through over-the-counter trades and TWAP algorithms over 30-90 days, to minimize market disruption. He believes the treasury could safely allocate 5-10% of its approximately 1.7 billion ADA without significantly affecting the token price, emphasizing that this move would generate 'non-inflationary revenue' for the treasury.
Hoskinson's proposal has sparked debate within the community. Formal discussions are expected to continue at the upcoming Rare Evo event, where next steps may be defined.
