Cardano Proposes $100 Million Treasury Shift to Boost DeFi Liquidity

Charles Hoskinson, the co-founder of Cardano, has proposed a significant shift in the network's treasury management. He suggests converting $100 million worth of ADA into a mix of stablecoins and Bitcoin. This move aims to address the current liquidity drought in Cardano's decentralized finance (DeFi) ecosystem, which has been hindered by a low stablecoin-to-Total Value Locked (TVL) ratio of approximately 9.65%. This ratio is significantly lower than that of competitors like Ethereum and Solana.

Hoskinson's proposal involves converting around 8% of Cardano's 1.7 billion ADA treasury into stablecoins such as USDM, USDA, and synthetic instruments like iUSD, as well as Bitcoin. The goal is to increase the stablecoin-to-TVL ratio to between 33% and 40%, which Hoskinson believes will catalyze significant DeFi activity within the Cardano ecosystem. The financial mechanics of the proposal are designed to generate annual returns of 5-10% from the diversified assets. These yields would then be reinvested into the ecosystem through strategic ADA buybacks and treasury reinvestment, creating a sustainable growth loop.

Hoskinson has addressed market impact concerns by projecting less than a 0.5% price impact on ADA through methodical execution over 30-90 days using time-weighted average pricing and over-the-counter transactions. The proposal also includes the establishment of a community-elected governing board to manage the newly formed decentralized sovereign wealth fund. This board would employ Web3 tools for transparent management, ensuring decentralized control and algorithmic accountability through smart contracts.

The proposal has sparked a debate within the Cardano community, with supporters viewing it as a necessary evolution to compete with other blockchains in the DeFi space. Critics, however, have raised concerns about potential price suppression during what many perceive as an extended bear market. Alternative approaches suggested include minting ADA-backed synthetic stablecoins rather than direct treasury conversion. The technical feasibility of scaling stablecoin adoption also faces skepticism, given that USDM, Cardano's primary stablecoin, currently maintains just a $31 million market cap.

The proposal has also exposed strategic divisions within Cardano's leadership structure. While Hoskinson emphasizes TVL and stablecoin liquidity as critical metrics, Cardano Foundation CEO Frederik Gregaard has previously downplayed TVL as a key adoption indicator. This dissonance reflects broader questions about Cardano's strategic direction—whether to prioritize financial market metrics or focus on real-world adoption and technological robustness.

The proposal is currently under internal review, with documents circulating among core Cardano teams and DeFi developers. If momentum builds, broader community discussion could begin as early as the upcoming Rare Evo conference. The long-term vision for this proposal is to build a multi-asset treasury that could grow to over a billion dollars in 5-10 years, enhancing the Cardano ecosystem's value and resilience. However, the success of this proposal hinges on the ability to generate sustainable yields and navigate potential governance disputes and market volatility.