CARDANO BLOCKCHAIN ECOSYSTEM INTERIM CONSTITUTION

INTRODUCTORY NOTES

This is an interim minimum viable constitution containing such provisions and guardrails as are necessary for CIP-1694 to come into effect. It is intended to be temporary. The Final Constitution must be ratified by Ada holders. Such ratification is expected to occur at the end of 2024 or the beginning of 2025. Therefore, the Final Constitution may differ, potentially significantly, from this Interim Constitution based on the desires of the Cardano community. During 2024, a series of workshops will be held all around the world allowing the Cardano community to participate in the process of completing the Final Constitution. Additionally, the Final Constitution will require the approval of Ada holders before coming into effect. Such approval is expected to occur in the beginning of 2025. However, given that on-chain governance will come into existence during 2024, requiring a robust constitution and constitutional committee before the Final Constitution has been ratified, this Interim Constitution must contain such provisions and guardrails as are necessary to support and give effect to the needs and requirements of CIP-1694, assuring that the principles identified in this Interim Constitution are not compromised, until the date on which the Final Constitution is ratified.

In approaching this Interim Constitution, it must be remembered that this is not a constitution for only a blockchain but rather, it is a constitution for a blockchain ecosystem – a much more ambitious endeavor. Accordingly, how governance actions are approved, while extremely important, is not the sole focus of this Interim Constitution. Rather, this Interim Constitution provides the basis and fundamental framework through which all actors in the Cardano Blockchain ecosystem can come together to govern themselves and form radically new approaches to human interaction and collaboration. By necessity, this Interim Constitution recognizes the role of and empowers the Constitutional Committee, confirms the right of the Cardano community to participate in collective bodies for collaboration, gives effect to on-chain governance, and empowers delegated representatives (referred to as DReps) to act as the voice of Ada holders for on-chain voting. The Interim Constitution also recognizes the necessity of safeguarding access to and the use of funds of the Cardano treasury during an interim period through the inclusion of the Cardano Guardrails in this Interim Constitution.

PREAMBLE

In the beginning of the Cardano Blockchain ecosystem, three pioneering entities, IOHK, Emurgo, and the Cardano Foundation, came together to foster the emergence of a new blockchain, the Cardano Blockchain, laying the foundation for a decentralized network that would empower individuals, and promote collaboration and innovation. Their pioneering efforts have shaped the path for a blockchain designed to ensure a fair and transparent environment where all participants can contribute to the Cardano Blockchain ecosystem's growth and success.

Over time, the Cardano Blockchain ecosystem has expanded significantly, and now, the Cardano Blockchain ecosystem, comprising of thousands of Ada holders, individuals, builders, developers, enterprises, stake pools, users of the Cardano Blockchain and others, operates in a truly decentralized manner, further strengthening the resilience and autonomy of the Cardano Blockchain ecosystem. As the Cardano Blockchain ecosystem continues to grow, it has become imperative to similarly adapt and evolve its governance model, reflecting the principles of decentralization, community involvement, inclusivity and collaboration that have been the cornerstone of the Cardano Blockchain ecosystem since its start.

Recognizing the need for a more robust and dynamic governance framework, and one that utilizes wherever possible and beneficial blockchain technology in the governance process, the Cardano community, as the members of this decentralized Cardano Blockchain ecosystem, hereby establishes this Cardano Interim Constitution. It shall serve as a guiding set of principles for the operation and governance of our collective efforts, fostering an environment where all participants can contribute to the betterment of the Cardano Blockchain ecosystem as a whole.

Together, the Cardano community commits to uphold the principles in this Interim Constitution and to work together towards the continuous improvement, growth, and success of our decentralized blockchain ecosystem known as the Cardano Blockchain.

This Interim Constitution shall serve as the embodiment of the guiding principles for the operation and governance of the decentralized Cardano Blockchain ecosystem, providing a foundation that will adapt and evolve over time to meet the continuing needs of the Cardano community. All members of the Cardano community are expected to abide by this Interim Constitution, and are entitled to participate in its governance processes, including completing a Final Constitution to be ratified by Ada holders, and are encouraged to work collaboratively towards the betterment of the Cardano Blockchain ecosystem as a whole, contributing to its growth, sustainability, and success.

ARTICLE I CARDANO BLOCKCHAIN ECOSYSTEM PRINCIPLES

Section 1

Through adopting a constitution, the Cardano Blockchain ecosystem shall establish a robust governance framework, ensuring that decisions are made in the best interest of the Cardano community. The Cardano community shall uphold principles of transparency, openness, and responsible governance, promoting a culture of trust and collaboration.

Section 2

The Cardano Blockchain shall be governed on a vote-based decision-making model, fostering inclusivity, a diversity of views, innovation and adaptability. All Ada holders shall have the opportunity to contribute to the governance and direction of the decentralized Cardano Blockchain ecosystem.

Section 3

The Cardano Blockchain shall operate in accordance with the Cardano Blockchain Guardrails as set forth in the Guardrails Appendix to this Interim Constitution.

ARTICLE II THE CARDANO BLOCKCHAIN COMMUNITY

Section 1

No formal membership shall be required to use, participate in and benefit from the Cardano Blockchain. Instead, all Ada holders, all developers of, all those building on, and all those otherwise supporting, maintaining or using the Cardano Blockchain are beneficiaries of the Cardano Blockchain ecosystem and, as such, are collectively members of the Cardano community. All Cardano community members are accordingly beneficiaries of this Interim Constitution, entitled to its rights, privileges and protections and, as such, are expected to support and uphold this Interim Constitution.

Section 2

Members of the Cardano community who hold ada are entitled to access and participate in the on-chain decision-making processes of the Cardano Blockchain ecosystem, including voting and taking part in on-chain governance regarding the Cardano Blockchain.

Section 3

Members of the Cardano community have a responsibility to maintain the integrity of the Cardano Blockchain ecosystem by following this Interim Constitution, operating the Cardano Blockchain network, participating in Cardano Blockchain governance activities, and resolving disputes in a fair and transparent manner.

Section 4

The Cardano community is entitled and encouraged through the provisions of this Interim Constitution to collaborate in developing, maintaining and building applications for the Cardano community, and to form temporary and permanent organizations and entities as the Cardano community deems desirable or appropriate in support of the Cardano Blockchain ecosystem.

ARTICLE III PARTICIPATORY GOVERNANCE

Section 1

The Cardano Blockchain ecosystem shall be governed by a decentralized, on-chain governance model, utilizing, to the extent possible and beneficial, smart contracts and other blockchain-based tools to facilitate decision-making and ensure transparency. Onchain voting for governance actions shall follow the process outlined in CIP-1694 and the Cardano Blockchain Guardrails.

Section 2

Three independent governance bodies shall participate in voting for on-chain governance actions to provide checks and balances for the Cardano Blockchain consisting of Delegated Representatives (DRep), Stake Pool Operators (SPO) and the Constitutional Committee (CC).

Section 3

On-chain governance decisions shall be made through a collective decision-making process, with specific consensus threshold requirements as required by CIP-1694. All on-chain governance actions shall be voted upon in accordance with CIP-1694 and the Cardano Blockchain Guardrails.

Section 4

All Ada holders shall have the right to vote in on-chain governance action decision-making processes, subject to any restrictions or requirements provided for in this Interim Constitution including CIP-1694 and the Cardano Blockchain Guardrails. Voting rights are in proportion to the Ada that is held.

All Ada holders shall have the right to propose changes to the governance structure of the Cardano Blockchain ecosystem in accordance with CIP-1694 and Cardano Blockchain Guardrails.

Section 5

A special form of governance action exists to allow community sentiment to be gauged without committing to any on-chain change. "Info" actions have no on-chain effect other than recording the votes on the action.

Section 6

Any governance action submitted to Ada holders for approval shall require a standardized and legible format including a URL and hash linked to documented off-chain content. Sufficient rationale shall be provided to justify the requested change to the Cardano Blockchain. The rationale shall include, at a minimum, a title, abstract, reason for the proposal, and relevant supporting materials.

Any governance action proposal reaching the on-chain governance stage shall be identical in content as to the final off-chain version of such governance action proposal.

Hard Fork Initiation and Protocol Parameter Change governance actions should undergo sufficient technical review and scrutiny as mandated by the Cardano Blockchain Guardrails to ensure that the governance action does not endanger the security, functionality or performance of the Cardano Blockchain. Governance actions should address their expected impact on the Cardano Blockchain ecosystem.

All Ada holders shall have the right to ensure that the process for participating in, submitting and voting on governance actions is open and transparent and is protected from undue influence and manipulation.

Section 7

The Cardano community is expected to support the creation, maintenance and ongoing administration of off-chain governance processes as may be necessary to give effect to the requirements of CIP-1694 and to ensure that there is awareness of and an opportunity to debate and shape all future governance actions.

Section 8

Any governance action requesting ada from the Cardano treasury in excess of 1,000,000 ada shall require an allocation of ada as a part of such funding request to cover the cost of periodic independent audits and the implementation of oversight metrics as to the use of such ada.

ARTICLE IV DELEGATED REPRESENTATIVES

Section 1

In order to participate in governance actions, holders of ada may register as DReps and directly vote on such governance actions or may delegate their voting rights to other registered DReps who shall vote on their behalf.

Section 2

Any Ada holder shall have the option to register as a DRep. Any Ada holder shall be allowed to delegate their voting stake to one or more registered DReps, including themselves. DReps may be individuals or coordinated groups. DReps are entitled to cast votes directly for on-chain governance actions and represent those Ada holders delegating their voting rights to them. This voting system shall enshrine a liquid democracy model where Ada holders can seamlessly select among DReps, register as a DRep, and change their delegation at any time.

The Cardano community is expected to support the creation, maintenance and ongoing administration of tools to enable Ada holders to explore and evaluate DRep candidates and select DReps on such criteria as they deem relevant.

Section 3

DReps may be compensated for their efforts to foster the creation of a professional governance cohort for the Cardano Blockchain ecosystem. DReps shall ensure that any compensation received in connection with their activities as a DRep is disclosed.

ARTICLE V STAKE POOL OPERATORS

SPOs shall have a specific role in approving critical on-chain governance actions which require additional oversight and independence, voting separately and independently from DReps as set forth in CIP-1694 and in the Cardano Blockchain Guardrails. SPOs shall participate in hard fork initiation processes as the operators of the nodes that participate in Cardano Blockchain’s consensus mechanism. SPOs shall act as a check on the power of the Constitutional Committee under exceptional circumstances by voting on "Motion of no-confidence" and "Update committee/threshold" governance actions.

ARTICLE VI CONSTITUTIONAL COMMITTEE

Section 1

A Constitutional Committee shall be established as the branch of Cardano's on-chain governance process that ensures governance actions are consistent with this Interim Constitution. The Constitutional Committee shall comprise a set of Ada holders that is collectively responsible for ensuring that on-chain governance actions prior to enactment on-chain, are constitutional. The Constitutional Committee shall be limited to voting on the constitutionality of governance actions. Constitutional Committee members shall be Ada holders and are expected to have appropriate expertise, considering their past contributions and involvement in the Cardano Blockchain ecosystem.

Section 2

Initially, the Constitutional Committee shall be composed of seven members. The initial Constitutional Committee members shall serve an inaugural term of 73 epochs starting from the date of the Chang hard fork. Thereafter, through an on-chain governance action, Ada holders may adjust the number of members on the Constitutional Committee in accordance with the Cardano Blockchain Guardrails. The Cardano community shall establish a process for election of members of the Constitutional Committee and shall, subject to the Cardano Blockchain Guardrails, determine the size of the Constitutional Committee from time to time, assuring that there are, at all times, a sufficient number of Constitutional Committee members to assure the integrity of the Cardano Blockchain. Term lengths for Constitutional Committee members shall be set in accordance with the Cardano Blockchain Guardrails.

Section 3

No governance action, other than a "Motion of no-confidence" or "Update constitutional committee/threshold" may be implemented on-chain unless the Constitutional Committee shall have first determined and affirmed through an on-chain action that such proposal does not violate this Interim Constitution.

The Constitutional Committee shall be considered to be in one of the following two states at all times: a state of confidence or a state of no-confidence. In a state of no-confidence, members of the then standing Constitutional Committee must be reinstated or replaced using the "Update committee/threshold" governance action before any other governance action may go forward.

Section 4

Constitutional Committee processes shall be transparent. The Constitutional Committee shall publish each decision. When voting no on a proposal, the Committee shall set forth the basis for its decision with reference to specific Articles of this Constitution that are in conflict with a given proposal.

Section 5

The Cardano community is expected to support the creation, maintenance and ongoing administration of tools as may be necessary and appropriate for the Constitutional Committee to perform its required functions.

ARTICLE VII AMENDMENTS

Section 1

Amendments to this Interim Constitution, including to the Cardano Blockchain Guardrails Appendix shall be approved by a collective decision-making process, requiring an on-chain governance action satisfying the applicable approval threshold.

ARTICLE VIII INTERIM PERIOD

Section 1

The Interim Period shall be a temporary period that shall continue until such date that the Final Constitution has been ratified by Ada holders in accordance with the Ratification Of Final Constitution as set forth in Appendix II.

Section 2

The process for transitioning from this Interim Constitution to Final Constitution is contained in Appendix II.

APPENDIX I: CARDANO BLOCKCHAIN GUARDRAILS

1 INTRODUCTION

To implement Cardano Blockchain on-chain governance pursuant to CIP-1694, it is necessary to establish sensible guardrails that will enable the Cardano Blockchain to continue to operate in a secure and sustainable way.

This Appendix sets forth guardrails that must be applied to Cardano Blockchain on-chain governance actions, including changes to the protocol parameters and limits on treasury withdrawals. These guardrails cover both essential, intrinsic limits on settings, and recommendations that are based on experience, measurement and governance objectives.

These guardrails are designed to avoid unexpected problems with the operation of the Cardano Blockchain. They are intended to guide the choice of sensible parameter settings and avoid potential problems with security, performance or functionality. As described below, some of these guardrails are automatable and will be enforced via an on-chain script or built-in ledger rules.

These guardrails apply to the Cardano Blockchain Layer 1 mainnet environment. They are not intended to apply to test environments or to other blockchains that use the Cardano Blockchain software.

Not all parameters for the Cardano Blockchain can be considered independently. Some parameters interact with other settings in an intrinsic way. Where known, these interactions are addressed in this Appendix.

While the guardrails in this Appendix presently reflect the current state of technical insight, this Appendix should be treated as a living document. Implementation improvements, new simulations or performance evaluation results for the Cardano Blockchain may allow some of the restrictions contained in these guardrails to be relaxed (or, in some circumstances, require them to be tightened) in due course. Additional guardrails may also be needed where, for example, new protocol parameters are introduced. The guardrails set forth in this Appendix may be amended from time to time pursuant to an on-chain governance action that satisfies the applicable voting threshold. Any such amendment to any guardrails shall require and be deemed to be an amendment to the Constitution itself.

Terminology and Guidance

Should/Should not. Where this Appendix says that a value "should not" be set below or above some value, this means that the guardrail is a recommendation or guideline, and the specific value could be open to discussion or alteration by a suitably expert group recognized by the Cardano community in light of experience with the Cardano Blockchain governance system or the operation of the Cardano Blockchain.

Must/Must not. Where this Appendix says that a value "must not" be set below or above some value, this means that the guardrail is a requirement that will be enforced by Cardano Blockchain ledger rules, types or other built-in mechanisms where possible, and that if not followed could cause a protocol failure, security breach or other undesirable outcome.

Benchmarking. Benchmarking refers to careful system level performance evaluation that is designed to show a-priori that, for example, 95% of blocks will be diffused across a global network of Cardano Blockchain nodes within the required 5s time interval in all cases. This may require construction of specific test workflows and execution on a large test network of Cardano nodes, simulating a global Cardano Blockchain network.

Performance analysis. Performance analysis refers to projecting theoretical performance, empirical benchmarking or simulation results to predict actual system behavior. For example, performance results obtained from tests in a controlled test environment (such as a collection of data centers with known networking properties) may be extrapolated to inform likely performance behavior in a real Cardano Blockchain network environment.

Simulation. Simulation refers to synthetic execution that is designed to inform performance/functionality decisions in a repeatable way. For example, the IOSim Cardano Blockchain module allows the operation of the networking stack to be simulated in a controlled and repeatable way, allowing issues to be detected before code deployment.

Performance Monitoring. Performance monitoring involves measuring the actual behavior of the Cardano Blockchain network, for example, by using timing probes to evaluate round-trip times, or test blocks to assess overall network health. It complements benchmarking and performance analysis by providing information about actual system behavior that cannot be obtained using simulated workloads or theoretical analysis.

Reverting Changes. Where performance monitoring shows that actual network behavior following a change is inconsistent with the performance requirements for the Cardano Blockchain, then the change must be reverted to its previous state if that is possible. For example, if the block size is increased from 100KB to 120KB and 95% of blocks are no longer diffused within 5s, then a change must be made to revert the block size to 100KB. If this is not possible, then one or more alternative changes must be made that will ensure that the performance requirements are met.

Severity Levels. Issues that affect the Cardano Blockchain network are classified by severity level, where:

• Severity 1 is a critical incident or issue with very high impact to the security, performance or functionality of the Cardano Blockchain network
• Severity 2 is a major incident or issue with significant impact to the security, performance or functionality of the Cardano Blockchain network
• Severity 3 is a minor incident or issue with low impact to the security, performance or functionality of the Cardano Blockchain network

Future Performance Requirements. Planned development such as new mechanisms for out-of-memory storage may impact block diffusion or other times. When changing parameters, it is necessary to consider these future performance requirements as well as the current operation of the Cardano Blockchain. Until development is complete, the requirements will be conservative; they may then be relaxed to account for actual timing behavior.

Automated Checking ("Guardrails Script")

A script hash is associated with the constitution hash when an Update to the Constitution or proposal policy governance action is enacted. It acts as an additional safeguard to the ledger rules and types, filtering non-compliant governance actions.

The guardrails script only affects two types of governance actions:

• Parameter Update actions, and
• Treasury Withdrawal actions.

The script is executed when either of these types of governance action is submitted on-chain. This avoids scenarios where, for example, an erroneous script could prevent the chain from ever enacting a Hard Fork action, resulting in deadlock. There are three different situations that apply to script usage.

Symbol and Explanation

• (y) The script can be used to enforce the guardrail.
• (x) The script cannot be used to enforce the guardrail.
• (~ - reason) The script cannot be used to enforce the guardrail for the reason given, but future ledger changes could enable this.

Guardrails may overlap: in this case, the most restrictive set of guardrails will apply.

Where a parameter is not explicitly listed in this document, then the script must not permit any changes to the parameter.

Conversely, where a parameter is explicitly listed in this document but no checkable guardrails are specified, the script must not impose any constraints on changes to the parameter.

2 GUARDRAILS AND GUIDELINES ON PROTOCOL PARAMETER UPDATE ACTIONS

Below are guardrails and guidelines for changing updatable protocol parameter settings via the protocol parameter update governance action such that the Cardano Blockchain is never in an unrecoverable state as a result of such changes.

Note that there are at least five different sources of parameter names, and these are not always consistent:

1. The name used in the Genesis file
2. The name used in protocol parameter update governance actions
3. The name used internally in ledger rules
4. The name used in the formal ledger specification
5. The name used in research papers

Where these parameter names differ, this Appendix uses the second convention.

Guardrails

PARAM-01 (y) Any protocol parameter that is not explicitly named in this document must not be changed by a Parameter update governance action

PARAM-02 (y) Where a protocol parameter is explicitly listed in this document but no checkable guardrails are specified, the guardrails script must not impose any constraints on changes to the parameter. Checkable guardrails are shown by a (y)

2.1 Critical Protocol Parameters

The below protocol parameters are critical from a security point of view.

Parameters that are Critical to the Operation of the Blockchain

• maximum block body size (maxBlockBodySize)
• maximum transaction size (maxTxSize)
• maximum block header size (maxBlockHeaderSize)
• maximum size of a serialized asset value (maxValueSize)
• maximum script execution/memory units in a single block (maxBlockExecutionUnits[steps/memory])
• minimum fee coefficient (txFeePerByte)
• minimum fee constant (txFeeFixed)
• minimum fee per byte for reference scripts (minFeeRefScriptCoinsPerByte)
• minimum Lovelace deposit per byte of serialized UTxO (utxoCostPerByte)
• governance action deposit (govDeposit)

Guardrails

PARAM-03 (y) Critical protocol parameters require an SPO vote in addition to a DRep vote: SPOs must say "yes" with a collective support of more than 50% of all active block production stake. This is enforced by the guardrails on the stake pool voting threshold.

PARAM-04 (x) At least 3 months should normally pass between the publication of an off-chain proposal to change a critical protocol parameter and the submission of the corresponding on-chain governance action. This guardrail may be relaxed in the event of a Severity 1 or Severity 2 network issue following careful technical discussion and evaluation.

Parameters that are Critical to the Governance System

• delegation key Lovelace deposit (stakeAddressDeposit)
• pool registration Lovelace deposit (stakePoolDeposit)
• minimum fixed rewards cut for pools (minPoolCost)
• DRep deposit amount (dRepDeposit)
• minimal Constitutional Committee size (committeeMinSize)
• maximum term length (in epochs) for the Constitutional Committee members (committeeMaxTermLimit)

Guardrails

PARAM-05 (y) DReps must vote "yes" with a collective support of more than 50% of all active voting stake. This is enforced by the guardrails on the DRep voting thresholds.

PARAM-06 (x) At least 3 months should normally pass between the publication of an off-chain proposal to change a parameter that is critical to the governance system and the submission of the corresponding on-chain governance action. This guardrail may be relaxed in the event of a Severity 1 or Severity 2 network issue following careful technical discussion and evaluation.

2.2 Economic Parameters

The overall goals when managing economic parameters are to:

1. Enable long-term economic sustainability for the Cardano Blockchain ecosystem;
2. Ensure that stake pools are adequately rewarded for maintaining the Cardano Blockchain;
3. Ensure that Ada holders are adequately rewarded for using stake in constructive ways, including when delegating ada for block production; and
4. Balance economic incentives for different Cardano Blockchain ecosystem stakeholders, including but not limited to Stake Pool Operators, Ada holders, DeFi users, infrastructure users, developers (e.g. DApps) and financial intermediaries (e.g. exchanges)

Triggers for Change

• Significant changes in the fiat value of Ada resulting in potential problems with security, performance or functionality
• Changes in transaction volumes or types
• Community requests or suggestions
• Emergency situations that require changes to economic parameters

Counter-indicators

Changes to the economic parameters should not be made in isolation. They need to account for:

• External economic factors
• Network security concerns

Core Metrics

• Fiat value of Ada resulting in potential problems with security, performance or functionality
• Transaction volumes and types
• Number and health of stake pools
• External economic factors

Changes to Specific Economic Parameters

Transaction fee per byte (txFeePerByte) and fixed transaction fee (txFeeFixed)

Defines the cost for basic transactions in Lovelace:

fee(tx) = txFeeFixed + txFeePerByte x nBytes(tx)

Guardrails

TFPB-01 (y) txFeePerByte must not be lower than 30 (0.000030 ada) This protects against low-cost denial of service attacks

TFPB-02 (y) txFeePerByte must not exceed 1,000 (0.001 ada) This ensures that transactions can be paid for

TFPB-03 (y) txFeePerByte must not be negative

TFF-01 (y) txFeeFixed must not be lower than 100,000 (0.1 ada) This protects against low-cost denial of service attacks

TFF-02 (y) txFeeFixed must not exceed 10,000,000 (10 ada) This ensures that transactions can be paid for

TFF-03 (y) txFeeFixed must not be negative

TFGEN-01 (x - "should") To maintain a consistent level of protection against denial-of-service attacks, txFeeFixed and txFeeFixed should be adjusted whenever Plutus Execution prices are adjusted (executionUnitPrices[steps/memory])

TFGEN-02 (x - unquantifiable) Any changes to txFeeFixed or txFeeFixed must consider the implications of reducing the cost of a denial-of-service attack or increasing the maximum transaction fee so that it becomes impossible to construct a transaction.

UTxO cost per byte (utxoCostPerByte)

Defines the cost for storage in UTxOs

• Sets a minimum threshold on ada that is held within a single UTxO (~1 ada minimum, could be >= 50 ada in the worst case)
• Provides protection against low-cost denial of service attack on UTxO storage. This attack has been executed on other chains - it is not theoretical. DoS protection decreases in line with the free node memory (proportional to UTxO growth)
• Helps reduce long term storage costs
• Provides an incentive to return UTxOs when no longer needed. Should significantly exceed minimum tx cost (~ 0.15 ada)

Guardrails

UCPB-01 (y) utxoCostPerByte must not be lower than 3,000 (0.003 ada)

UCPB-02 (y) utxoCostPerByte must not exceed 6,500 (0.0065 ada)

UCPB-03 (y) utxoCostPerByte must not be zero

UCPB-04 (y) utxoCostPerByte must not be negative

UCPB-05 (x - "should") Changes need to account for i) The acceptable cost of attack ii) The acceptable time for an attack (at least one epoch is assumed) iii) The acceptable memory configuration for full node users (assumed to be 16GB for wallets or 24GB for stake pools) iv) The sizes of UTxOs (~200B per UTxO minimum, up to about 10KB) and v) The current total node memory usage

Stake address deposit (stakeAddressDeposit)

Ensures that stake addresses are retired when no longer needed

• Helps reduce long term storage costs
• Helps limit CPU and memory costs in the ledger

The rationale for the deposit is to incentivize that scarce memory resources are returned when they are no longer required. Reducing the number of active stake addresses also reduces processing and memory costs at the epoch boundary when calculating stake snapshots.

Guardrails

SAD-01 (y) stakeAddressDeposit must not be lower than 1,000,000 (1 ada)

SAD-02 (y) stakeAddressDeposit must not exceed 5,000,000 (5 ada)

SAD-03 (y) stakeAddressDeposit must not be negative

Stake pool deposit (stakePoolDeposit)

Ensures that stake pools are retired by the stake pool operator when no longer needed by them

• Helps reduce long term storage costs

The rationale for the deposit is to incentivize that scarce memory resources are returned when they are no longer required. Rewards and stake snapshot calculations are also impacted by the number of active stake pools.

Guardrails

SPD-01 (y) stakePoolDeposit must not be lower than 250,000,000 (250 ada)

SPD-02 (y) stakePoolDeposit must not exceed 500,000,000 (500 ada)

SPD-03 (y) stakePoolDeposit must not be negative

Minimum Pool Cost (minPoolCost)

Part of the rewards mechanism

• The minimum pool cost is transferred to the pool rewards address before any delegator rewards are paid

Guardrails

MPC-01 (y) minPoolCost must not be negative

MPC-02 (y) minPoolCost must not exceed 500,000,000 (500 ada)

MPC-03 (x - "should") minPoolCost should be set in line with the economic cost for operating a pool

Treasury Cut (treasuryCut)

Part of the rewards mechanism

• The treasury cut portion of the monetary expansion is transferred to the treasury before any pool rewards are paid
• Can be set in the range 0.0-1.0 (0%-100%)

Guardrails

TC-01 (y) treasuryCut must not be lower than 0.1 (10%)

TC-02 (y) treasuryCut must not exceed 0.3 (30%)

TC-03 (y) treasuryCut must not be negative

TC-04 (y) treasuryCut must not exceed 1.0 (100%)

TC-05 (~ - no access to change history) treasuryCut must not be changed more than once in any 36 epoch period (approximately 6 months)

Monetary Expansion Rate (monetaryExpansion)

Part of the rewards mechanism

• The monetary expansion controls the amount of reserves that is used for rewards each epoch

Governs the long-term sustainability of Cardano

• The reserves are gradually depleted until no rewards are supplied

Guardrails

ME-01 (y) monetaryExpansion must not exceed 0.005

ME-02 (y) monetaryExpansion must not be lower than 0.001

ME-03 (y) monetaryExpansion must not be negative

ME-04 (x - "should") monetaryExpansion should not be varied by more than +/- 10% in any 73-epoch period (approximately 12 months)

ME-05 (x - "should") monetaryExpansion should not be changed more than once in any 36-epoch period (approximately 6 months)

Plutus Script Execution Prices (executionUnitPrices[priceSteps/priceMemory])

Define the fees for executing Plutus scripts

Gives an economic return for Plutus script execution

Provides security against low-cost DoS attacks

Guardrails

EIUP-PS-01 (y) executionUnitPrices[priceSteps] must not exceed 2,000 / 10,000,000

EIUP-PS-02 (y) executionUnitPrices[priceSteps] must not be lower than 500 / 10,000,000

EIUP-PM-01 (y) executionUnitPrices[priceMemory] must not exceed 2,000 / 10,000

EIUP-PM-02 (y) executionUnitPrices[priceMemory] must not be lower than 400 / 10,000

EIUP-GEN-01 (x - "similar to") The execution prices must be set so that i) the cost of executing a transaction with maximum CPU steps is similar to the cost of a maximum sized non-script transaction and ii) the cost of executing a transaction with maximum memory units is similar to the cost of a maximum sized non-script transaction

EIUP-GEN-02 (x - "should") The execution prices should be adjusted whenever transaction fees are adjusted (txFeeFixed/txFeePerByte). The goal is to ensure that the processing delay is similar for "full" transactions, regardless of their type. This helps ensure that the requirements on block diffusion/propagation times are met.

Transaction fee per byte for a reference script (minFeeRefScriptCoinsPerByte)

Defines the cost for using Plutus reference scripts in Lovelace

Guardrails

MFRS-01 (y) minFeeRefScriptCoinsPerByte must not exceed 1,000 (0.001 ada)

• This ensures that transactions can be paid for

MFRS-02 (y) minFeeRefScriptCoinsPerByte must not be negative

MFRS-03 (x - "should") To maintain a consistent level of protection against denial-of-service attacks, minFeeRefScriptCoinsPerByte should be adjusted whenever Plutus Execution prices are adjusted (executionUnitPrices[steps/memory]) and whenever txFeeFixed is adjusted

MFRS-04 (x - unquantifiable) Any changes to minFeeRefScriptCoinsPerByte must consider the implications of reducing the cost of a denial-of-service attack or increasing the maximum transaction fee

2.3 Network Parameters

The overall goals when managing the Cardano Blockchain network parameters are to:

1. Match the available Cardano Blockchain Layer 1 network capacity to current or future traffic demands, including payment transactions, layer 1 DApps, sidechain management and governance needs
2. Balance traffic demands for different user groups, including payment transactions, minters of Fungible/Non-Fungible Tokens, Plutus scripts, DeFi developers, Stake Pool Operators and voting transactions

Triggers for Change

Changes to network parameters may be triggered by:

1. Measured changes in traffic demands over a 2-epoch period (10 days)
2. Anticipated changes in traffic demands
3. Community requests

Counter-indicators

Changes may need to be reversed and/or should not be enacted in the event of:

• Excessive block propagation delays
• Stake pools being unable to handle traffic volume
• Scripts being unable to complete execution

Core Metrics

All decisions on parameter changes should be informed by:

• Block propagation delay profile
• Traffic volume (block size over time)
• Script volume (size of scripts and execution units)
• Script execution cost benchmarks
• Block propagation delay/diffusion benchmarks

Detailed benchmarking results are required to confirm the effect of any changes on mainnet performance or behavior prior to enactment. The effects of different transaction mixes must be analyzed, including normal transactions, Plutus scripts, and governance actions.

Guardrails

NETWORK-01 (x - "should") No individual network parameter should change more than once per two epochs

NETWORK-02 (x - "should") Only one network parameter should be changed per epoch unless they are directly correlated, e.g., per-transaction and per-block memory unit limits

Changes to Specific Network Parameters

Block Size (maxBlockBodySize)

The maximum size of a block, in Bytes.

Guardrails

MBBS-01 (y) maxBlockBodySize must not exceed 122,880 Bytes (120KB)

MBBS-02 (y) maxBlockBodySize must not be lower than 24,576 Bytes (24KB)

MBBS-03 (x - "exceptional circumstances") maxBlockBodySize must not be decreased, other than in exceptional circumstances where there are potential problems with security, performance or functionality

MBBS-04 (~ - no access to existing parameter values) maxBlockBodySize must be large enough to include at least one transaction (that is, maxBlockBodySize must be at least maxTxSize)

MBBS-05 (x - "should") maxBlockBodySize should be changed by at most 10,240 Bytes (10KB) per epoch (5 days), and preferably by 8,192 Bytes (8KB) or less per epoch

MBBS-06 (x - "should") The block size should not induce an additional Transmission Control Protocol (TCP) round trip. Any increase beyond this must be backed by performance analysis, simulation and benchmarking

MBBS-07 (x - "unquantifiable") The impact of any change to maxBlockBodySize must be confirmed by detailed benchmarking/simulation and not exceed the requirements of the block diffusion/propagation time budgets, as described below. Any increase to maxBlockBodySize must also consider future requirements for Plutus script execution (maxBlockExecutionUnits[steps]) against the total block diffusion target of 3s with 95% block propagation within 5s. The limit on maximum block size may be increased in the future if this is supported by benchmarking and monitoring results

Transaction Size (maxTxSize)

The maximum size of a transaction, in Bytes.

Guardrails

MTS-01 (y) maxTxSize must not exceed 32,768 Bytes (32KB)

MTS-02 (y) maxTxSize must not be negative

MTS-03 (~ - no access to existing parameter values) maxTxSize must not be decreased

MTS-04 (~ - no access to existing parameter values) maxTxSize must not exceed maxBlockBodySize

MTS-05 (x - "should") maxTxSize should not be increased by more than 2,560 Bytes (2.5KB) in any epoch, and preferably should be increased by 2,048 Bytes (2KB) or less per epoch

MTS-06 (x - "should") maxTxSize should not exceed 1/4 of the block size

Memory Unit Limits (maxBlockExecutionUnits[memory], maxTxExecutionUnits[memory])

The limit on the maximum number of memory units that can be used by Plutus scripts, either per-transaction or per-block.

Guardrails

MTEU-M-01 (y) maxTxExecutionUnits[memory] must not exceed 40,000,000 units

MTEU-M-02 (y) maxTxExecutionUnits[memory] must not be negative

MTEU-M-03 (~ - no access to existing parameter values) maxTxExecutionUnits[memory] must not be decreased

MTEU-M-04 (x - "should") maxTxExecutionUnits[memory] should not be increased by more than 2,500,000 units in any epoch

MBEU-M-01 (y) maxBlockExecutionUnits[memory] must not exceed 120,000,000 units

MBEU-M-02 (y) maxBlockExecutionUnits[memory] must not be negative

MBEU-M-03 (x - "should") maxBlockExecutionUnits[memory] should not be changed (increased or decreased) by more than 10,000,000 units in any epoch

MBEU-M-04 (x - unquantifiable) The impact of any change to maxBlockExecutionUnits[memory] must be confirmed by detailed benchmarking/simulation and not exceed the requirements of the diffusion/propagation time budgets, as also impacted by maxBlockExecutionUnits[steps]. Any increase must also consider previously agreed future requirements for the total block size (maxBlockBodySize) measured against the total block diffusion target of 3s with 95% block propagation within 5s. Future Plutus performance improvements may allow the per-block limit to be increased, but must be balanced against the overall diffusion limits as specified in the previous sentence, and future requirements

MEU-M-01 (~ - no access to existing parameter values) maxBlockExecutionUnits[memory] must not be less than maxTxExecutionUnits[memory]

CPU Unit Limits (maxBlockExecutionUnits[steps], maxTxExecutionUnits[steps])

The limit on the maximum number of CPU steps that can be used by Plutus scripts, either per-transaction or per-block.

Guardrails

MTEU-S-01 (y) maxTxExecutionUnits[steps] must not exceed 15,000,000,000 (15Bn) units

MTEU-S-02 (y) maxTxExecutionUnits[steps] must not be negative

MTEU-S-03 (~ - no access to existing parameter values) maxTxExecutionUnits[steps] must not be decreased

MTEU-S-04 (x - "should") maxTxExecutionUnits[steps] should not be increased by more than 500,000,000 (500M) units in any epoch (5 days)

MBEU-S-01 (y) maxBlockExecutionUnits[steps] must not exceed 40,000,000,000 (40Bn) units

MBEU-S-02 (y) maxBlockExecutionUnits[steps] must not be negative

MBEU-S-03 (x - "should") maxBlockExecutionUnits[steps] should not be changed (increased or decreased) by more than 2,000,000,000 (2Bn) units in any epoch (5 days)

MBEU-S-04 (x - unquantifiable) The impact of the change to maxBlockExecutionUnits[steps] must be confirmed by detailed benchmarking/simulation and not exceed the requirements of the block diffusion/propagation time budgets, as also impacted by maxBlockExecutionUnits[memory]. Any increase must also consider previously identified future requirements for the total block size (maxBlockBodySize) measured against the total block diffusion target of 3s with 95% block propagation within 5s. Future Plutus performance improvements may allow the per-block limit to be increased, but must be balanced against the overall diffusion limits as specified in the previous sentence, and future requirements

MEU-S-01 (~ - no access to existing parameter values) maxBlockExecutionUnits[steps] must not be less than maxTxExecutionUnits[steps]

Block Header Size (maxBlockHeaderSize)

The size of the block header.

Note that increasing the block header size may affect the overall block size (maxBlockBodySize)

Guardrails

MBHS-01 (y) maxBlockHeaderSize must not exceed 5,000 Bytes

MBHS-02 (y) maxBlockHeaderSize must not be negative

MBHS-03 (x - "largest valid header" is subject to change) maxBlockHeaderSize must be large enough for the largest valid header

MBHS-04 (x - "should") maxBlockHeaderSize should only normally be increased if the protocol changes

MBHS-05 (x - "should") maxBlockHeaderSize should be within TCP's initial congestion window (3 or 10 MTUs)

2.4 Technical/Security Parameters

The overall goals when managing the technical/security parameters are:

1. Ensure the security of the Cardano network in terms of decentralization, protection against Sybil and 51% attacks and protection against denial of service attacks
2. Enable changes to the Plutus language

Triggers for Change

• Changes in the number of active SPOs
• Changes to the Plutus language
• Security threats
• Community requests

Counter-indicators

• Economic concerns, e.g. when changing the number of stake pools

Core Metrics

• Number of stake pools
• Level of decentralization

Changes to Specific Technical/Security Parameters

Target Number of Stake Pools (stakePoolTargetNum)

Sets the target number of stake pools

• The expected number of pools when the network is in the equilibrium state
• Primarily a security parameter, ensuring decentralization by pool division/replication
• Has an economic effect as well as a security affect - economic advice is also required when changing this parameter
• Large changes in this parameter will trigger mass redelegation events

Guardrails

SPTN-01 (y) stakePoolTargetNum must not be lower than 250

SPTN-02 (y) stakePoolTargetNum must not exceed 2,000

SPTN-03 (y) stakePoolTargetNum must not be negative

SPTN-04 (y) stakePoolTargetNum must not be zero

Pledge Influence Factor (poolPledgeInfluence)

Enables the pledge protection mechanism

Provides protection against Sybil attack

• Higher values reward pools that have more pledge and penalize pools that have less pledge

Has an economic effect as well as technical effect - economic advice is also required

• Can be set in the range 0.0-infinity

Guardrails

PPI-01 (y) poolPledgeInfluence must not be lower than 0.1

PPI-02 (y) poolPledgeInfluence must not exceed 1.0

PPI-03 (y) poolPledgeInfluence must not be negative

PPI-04 (x - "should") poolPledgeInfluence should not vary by more than +/- 10% in any 18-epoch period (approximately 3 months)

Pool Retirement Window (poolRetireMaxEpoch)

Defines the maximum number of epochs notice that a pool can give when planning to retire

Guardrails

PRME-01 (y) poolRetireMaxEpoch must not be negative

PRME-02 (x - "should") poolRetireMaxEpoch should not be lower than 1

Collateral Percentage (collateralPercentage)

Defines how much collateral must be provided when executing a Plutus script as a percentage of the normal execution cost

• Collateral is additional to fee payments
• If a script fails to execute, then the collateral is lost
• The collateral is never lost if a script executes successfully

Provides security against low-cost attacks by making it more expensive rather than less expensive to execute failed scripts

Guardrails

CP-01 (y) collateralPercentage must not be lower than 100

CP-02 (y) collateralPercentage must not exceed 200

CP-03 (y) collateralPercentage must not be negative

CP-04 (y) collateralPercentage must not be zero

Maximum number of collateral inputs (maxCollateralInputs)

Defines the maximum number of inputs that can be used for collateral when executing a Plutus script

Guardrails

MCI-01 (y) maxCollateralInputs must not be lower than 1

Maximum Value Size (maxValueSize)

The limit on the serialized size of the Value in each output.

Guardrails

MVS-01 (y) maxValueSize must not exceed 12,288 Bytes (12KB)

MVS-02 (y) maxValueSize must not be negative

MVS-03 (~ - no access to existing parameter values) maxValueSize must be less than maxTxSize

MVS-04 (~ - no access to existing parameter values) maxValueSize must not be reduced

MVS-05 (x - "sensible output" is subject to interpretation) maxValueSize must be large enough to allow sensible outputs (e.g. any existing on-chain output or anticipated outputs that could be produced by new ledger rules)

Plutus Cost Models (costModels)

Define the base costs for each Plutus primitive in terms of CPU and memory unit

• There are about 150 distinct micro-parameters in total

Cost models are defined for each Plutus language version. A new language version may introduce additional micro-parameters or remove existing micro-parameters.

Guardrails

PCM-01 (x - unquantifiable) Cost model values must be set by benchmarking on a reference architecture

PCM-02 (x - primitives and language versions aren't introduced in transactions) The cost model must be updated if new primitives are introduced or a new Plutus language version is added

PCM-03 (~ - no access to Plutus cost model parameters) Cost model values must not be negative

PCM-04 (~ - no access to Plutus cost model parameters) A cost model must be supplied for each Plutus language version that the protocol supports

2.5 Governance Parameters

The overall goals when managing the governance parameters are to:

1. Ensure governance stability
2. Maintain a representative form of governance as outlined in CIP-1694

Triggers for Change

Changes to governance parameters may be triggered by:

1. Community requests
2. Regulatory requirements
3. Unexpected or unwanted governance outcomes
4. Entering a state of no confidence

Counter-indicators

Changes may need to be reversed and/or should not be enacted in the event of:

• Unexpected effects on governance
• Excessive Layer 1 load due to on-chain voting or excessive numbers of governance actions

Core Metrics

All decisions on parameter changes should be informed by:

• Governance participation levels
• Governance behaviors and patterns
• Regulatory considerations
• Confidence in the governance system
• The effectiveness of the governance system in managing necessary change

Changes to Specific Governance Parameters

Deposit for Governance Actions (govDeposit)

The deposit that is charged when submitting a governance action.

• Helps to limit the number of actions that are submitted

Guardrails

GD-01 (y) govDeposit must not be negative

GD-02 (y) govDeposit must not be lower than 1,000,000 (1 ada)

GD-03 (y) govDeposit must not exceed 10,000,000,000,000 (10 Million ada)

GD-04 (x - "should") govDeposit should be adjusted in line with fiat changes

Deposit for DReps (dRepDeposit)

The deposit that is charged when registering a DRep.

• Helps to limit the number of active DReps

Guardrails

DRD-01 (y) dRepDeposit must not be negative

DRD-02 (y) dRepDeposit must not be lower than 1,000,000 (1 ada)

DRD-03 (y) dRepDeposit must not exceed 100,000,000,000 (100,000 ada)

DRD-04 (x - "should") dRepDeposit should be adjusted in line with fiat changes

DRep Activity Period (dRepActivity)

The period (as a whole number of epochs) after which a DRep is considered to be inactive for vote calculation purposes, if they do not vote on any proposal.

Guardrails

DRA-01 (y) dRepActivity must not be lower than 13 epochs (2 months)

DRA-02 (y) dRepActivity must not exceed 37 epochs (6 months)

DRA-03 (y) dRepActivity must not be negative

DRA-04 (~ - no access to existing parameter values) dRepActivity must be greater than govActionLifetime

DRA-05 (x - "should") dRepActivity should be calculated in human terms (2 months etc)

DRep and SPO Governance Action Thresholds (dRepVotingThresholds[...],poolVotingThresholds[...])

Thresholds on the active voting stake that is required to ratify a specific type of governance action by either DReps or SPOs.

• Ensures legitimacy of the action

The threshold parameters are listed below:

dRepVotingThresholds:

• dvtCommitteeNoConfidence
• dvtCommitteeNormal
• dvtHardForkInitiation
• dvtMotionNoConfidence
• dvtPPEconomicGroup
• dvtPPGovGroup
• dvtPPNetworkGroup
• dvtPPTechnicalGroup
• dvtTreasuryWithdrawal
• dvtUpdateToConstitution

poolVotingThresholds:

• pvtCommitteeNoConfidence
• pvtCommitteeNormal
• pvtHardForkInitiation
• pvtMotionNoConfidence
• pvtPPSecurityGroup

Guardrails

VT-GEN-01 (y) All thresholds must be in the range 50%-100%

VT-GEN-02 (y) Economic, network and technical parameter thresholds must be in the range 51%-75%

VT-GEN-03 (y) Governance parameter thresholds must be in the range 75%-90%

VT-HF-01 (y) Hard fork action thresholds must be in the range 51%-80%

VT-CON-01 (y) Update Constitution or proposal policy action thresholds must be in the range 65%-90%

VT-CC-01 (y) Update Constitutional Committee action thresholds must be in the range 65%-90%

VT-NC-01 (y) No confidence action thresholds must be in the range 51%-75%

Governance Action Lifetime (govActionLifetime)

The period after which a governance action will expire if it is not enacted

• As a whole number of epochs

Guardrails

GAL-01 (y) govActionLifetime must not be lower than 1 epoch (5 days)

GAL-03 (x - "should") govActionLifetime should not be lower than 2 epochs (10 days)

GAL-02 (y) govActionLifetime must not exceed 15 epochs (75 days)

GAL-04 (x - "should") govActionLifetime should be calibrated in human terms (eg 30 days, two weeks), to allow sufficient time for voting etc. to take place

GAL-05 (~ - no access to existing parameter values) govActionLifetime must be less than dRepActivity

Maximum Constitutional Committee Term (committeeMaxTermLimit)

The limit on the maximum term that a committee member may serve

Guardrails

CMTL-01 (y) committeeMaxTermLimit must not be zero

CMTL-02 (y) committeeMaxTermLimit must not be negative

CMTL-03 (y) committeeMaxTermLimit must not be lower than 18 epochs (90 days, or approximately 3 months)

CMTL-04 (y) committeeMaxTermLimit must not exceed 293 epochs (approximately 4 years)

CMTL-05 (x - "should") committeeMaxTermLimit should not exceed 220 epochs (approximately 3 years)

The minimum size of the Constitutional Committee (committeeMinSize)

The least number of members that can be included in a Constitutional Committee following a governance action to change the Constitutional Committee.

Guardrails

CMS-01 (y) committeeMinSize must not be negative

CMS-02 (y) committeeMinSize must not be lower than 3

CMS-03 (y) committeeMinSize must not exceed 10

2.6 Monitoring and Reversion of Parameter Changes

All network parameter changes must be monitored carefully for no less than 2 epochs (10 days)

• Changes must be reverted as soon as possible if block propagation delays exceed 4.5s for more than 5% of blocks over any 6 hour rolling window

All other parameter changes should be monitored

• The reversion plan should be implemented if the overall effect on performance, security or functionality is unacceptable.

A specific reversion/recovery plan must be produced for each parameter change. This plan must include:

• Which parameters need to change and in which ways in order to return to the previous state (or a similar state)
• How to recover the network in the event of disastrous failure

This plan should be followed if problems are observed following the parameter change. Note that not all changes can be reverted. Additional care must be taken when making changes to these parameters.

2.7 Non-Updatable Protocol Parameters

Some fundamental protocol parameters cannot be changed by the Protocol Parameter Update governance action. These parameters can only be changed in a new Genesis file as part of a hard fork. It is not necessary to provide specific guardrails on updating these parameters.

3 GUARDRAILS AND GUIDELINES ON TREASURY WITHDRAWAL ACTIONS

Treasury withdrawal actions specify the destination and amount of a number of withdrawals from the Cardano treasury.

Guardrails

TREASURY-01 (x) DReps must define a net change limit for the Cardano Treasury's balance per period of time.

TREASURY-02 (x) The budget for the Cardano Treasury must not exceed the net change limit for the Cardano Treasury's balance per period of time.

TREASURY-03 (x) The budget for the Cardano Treasury must be denominated in ada.

TREASURY-04 (x) Treasury withdrawals must not be ratified until there is a community-approved Cardano budget then in effect pursuant to a previous on-chain governance action agreed by the DReps with a threshold of greater than 50% of the active voting stake.

4 GUARDRAILS AND GUIDELINES ON HARD FORK INITIATION ACTIONS

The hard fork initiation action requires both a new major and a new minor protocol version to be specified.

• As positive integers

As the result of a hard fork, new updatable protocol parameters may be introduced. Guardrails may be defined for these parameters, which will take effect following the hard fork. Existing updatable protocol parameters may also be deprecated by the hard fork, in which case the guardrails become obsolete for all future changes.

Guardrails

HARDFORK-01 (~ - no access to existing parameter values) The major protocol version must be the same as or one greater than the major version that will be enacted immediately prior to this change. If the major protocol version is one greater, then the minor protocol version must be zero.

HARDFORK-02 (~ - no access to existing parameter values) The minor protocol version must be no less than the minor version that will be enacted immediately prior to this change.

HARDFORK-03 (~ - no access to existing parameter values) At least one of the protocol versions (major or minor or both) must change.

HARDFORK-04 (x) At least 85% of stake pools by active stake should have upgraded to a Cardano node version that is capable of processing the rules associated with the new protocol version.

HARDFORK-05 (x) Any new updatable protocol parameters that are introduced with a hard fork must be included in this Appendix and suitable guardrails defined for those parameters.

HARDFORK-06 (x) Settings for any new protocol parameters that are introduced with a hard fork must be included in the appropriate Genesis file.

HARDFORK-07 (x) Any deprecated protocol parameters must be indicated in this Appendix.

HARDFORK-08 (~ - no access to Plutus cost model parameters) New Plutus versions must be supported by a version-specific Plutus cost model that covers each primitive that is available in the new Plutus version.

5 GUARDRAILS AND GUIDELINES ON UPDATE CONSTITUTIONAL COMMITTEE OR THRESHOLD ACTIONS

Update Constitutional Committee or Threshold governance actions may change the size, composition or required voting thresholds for the Constitutional Committee

Guardrails

UPDATE-CC-01 (x) Update Constitutional Committee and/or threshold and/or term governance actions must not be ratified until Ada holders have ratified through an on-chain governance action the Final Constitution.

6 GUARDRAILS AND GUIDELINES ON UPDATE TO THE CONSTITUTION OR PROPOSAL POLICY ACTIONS

Update to the constitution or proposal policy actions change the hash of the on-chain constitution and the associated governance proposal policy script.

Guardrails

UPDATE-CONSTITUTION-01 (x) An Update to the Constitution and/or proposal policy governance action must be submitted to define any required guardrails for new parameters that are introduced via a Hard Fork governance action

7 GUARDRAILS AND GUIDELINES ON NO CONFIDENCE ACTIONS

No confidence actions signal a state of no confidence in the governance system. No guardrails are imposed on No Confidence actions.

Guardrails

• None

8 GUARDRAILS AND GUIDELINES ON INFO ACTIONS

Info actions are not enacted on chain. No guardrails are imposed on Info actions.

Guardrails

• None

9 GUARDRAILS DURING THE INTERIM PERIOD

Interim Period

The Interim Period begins with the Chang Hard-Fork and ends after a community-ratified Final Constitution is enacted on-chain. Throughout the Interim Period, technical and constitution-enforced triggers will progressively turn on the features of CIP-1694.

Interim Period Technical Rollout:

• The Chang Hard Fork will enable three initial CIP-1694 governance actions and enable the representative framework to be established. These actions are the "Info", "Hard-fork initiation" and "Protocol parameter changes" actions. Ada holders will be able to register as and delegate to DReps immediately after the hard fork but, as described in CIP-1694, DRep voting will not be available, except on "Info" actions. This ensures that Ada holders have sufficient time to choose their voting delegations. SPOs will be able to vote as described in CIP-1694. "Hard-fork initiation" and "Protocol parameter changes" actions will also be ratified by the Constitutional Committee. Ada holders will be able to withdraw their staking rewards as usual.

• A subsequent hard fork, ratified by the Constitutional Committee and SPOs, shortly after the Chang Hard Fork, will enable the four remaining CIP-1694 governance actions: "treasury withdrawals", "motion of no-confidence", "update constitutional committee and/or threshold and/or terms", and "update to the constitution or proposal policy". At this point, DRep voting will be enabled and staking rewards can only be withdrawn if the Ada holder has delegated their vote (including to the pre-defined Abstain/No Confidence voting options).

Guardrails

INTERIM-01 (x) To provide sufficient time for DReps to register and campaign and for Ada holders to choose their initial voting delegations, at least 18 epochs (90 days, or approximately 3 months) must elapse after the Chang hard fork before the subsequent hard fork can be ratified. Once the subsequent hard fork is enacted, DRep voting can occur as described in CIP-1694.

INTERIM-02 (x) Treasury withdrawals must not be ratified until there is a community-approved Cardano Blockchain Ecosystem budget then in effect pursuant to a previous on-chain governance action.

INTERIM-03 (x) Treasury withdrawals must be consistent with the community-approved Cardano Blockchain ecosystem budget(s).

INTERIM-04 (x) Ada holders must have ratified the Final Constitution as specified in Appendix II before ratifying any other proposed "update to the constitution", "update constitutional committee and/or threshold and/or terms", and "motion of no-confidence" governance actions.

INTERIM-05 (x) "Update to the proposal policy" actions that are consistent with the Interim Constitution may be ratified during the interim period, provided the Interim Constitution itself is not changed.

10 LIST OF PROTOCOL PARAMETER GROUPS

The protocol parameters are grouped by type, allowing different thresholds to be set for each group.

The network group consists of:

• maximum block body size (maxBlockBodySize)
• maximum transaction size (maxTxSize)
• maximum block header size (maxBlockHeaderSize)
• maximum size of a serialized asset value (maxValueSize)
• maximum script execution units in a single transaction (maxTxExecutionUnits[steps])
• maximum script execution units in a single block (maxBlockExecutionUnits[steps])
• maximum number of collateral inputs (maxCollateralInputs)

The economic group consists of:

• minimum fee coefficient (txFeePerByte)
• minimum fee constant (txFeeFixed)
• minimum fee per byte for reference scripts (minFeeRefScriptCoinsPerByte)
• delegation key Lovelace deposit (stakeAddressDeposit)
• pool registration Lovelace deposit (stakePoolDeposit)
• monetary expansion (monetaryExpansion)
• treasury expansion (treasuryCut)
• minimum fixed rewards cut for pools (minPoolCost)
• minimum Lovelace deposit per byte of serialized UTxO (coinsPerUTxOByte)
• prices of Plutus execution units (executionUnitPrices[priceSteps/priceMemory])

The technical group consists of:

• pool pledge influence (poolPledgeInfluence)
• pool retirement maximum epoch (poolRetireMaxEpoch)
• desired number of pools (stakePoolTargetNum)
• Plutus execution cost models (costModels)
• proportion of collateral needed for scripts (collateralPercentage)

The governance group consists of all the new protocol parameters that are introduced in CIP-1694:

• governance voting thresholds (dRepVotingThresholds[...], poolVotingThresholds[...])
• governance action maximum lifetime in epochs (govActionLifetime)
• governance action deposit (govActionDeposit)
• DRep deposit amount (dRepDeposit)
• DRep activity period in epochs (dRepActivity)
• minimal constitutional committee size (committeeMinSize)
• maximum term length (in epochs) for the constitutional committee members (committeeMaxTermLimit)

APPENDIX II: RATIFICATION OF FINAL CONSTITUTION

Section 1

A series of global workshops for Ada holders to discuss and debate the Articles of a final constitution will commence during the second half of 2024. Workshops shall be geographically distributed to capture the breadth of sentiment in the Cardano community. Workshops shall elect up to a total of one hundred delegates comprising up to fifty voting delegates and up to fifty non-voting alternate delegates, who shall participate in a Constitutional Convention. Each voting delegate participating in the Constitutional Convention shall have an equal vote.

Section 2

The Constitutional Convention shall be held no later than the end of 2024.

Section 3

The Final Constitution shall be approved at the Constitutional Convention where delegates elected to attend the Constitutional Convention shall agree to the Final Constitution with such amendments as they deem appropriate and necessary. The Final Constitution as approved at the Constitutional Convention shall be submitted as a governance action in accordance with CIP-1694 no later than January 31, 2025.