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Cardano (ADA) Is The Top Asset On Grayscale’s Smart Contract Fund, But There Are Downsides

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Cardano remains the most weighted asset on Grayscale’s smart contract platform fund, but a user points out some downsides.

It bears mentioning that after persistent demand from the Cardano community, on July 2 last year, Grayscale finally added Cardano to its holdings, making ADA the third largest holding on the fund.

A year later, Grayscale launched a smart contract fund with ADA as the largest holding. Notably, the token still maintains that position, with its weight, increased by about 4% since the launch but down a little over 1% since the start of September, making up 28.25% of the fund. It has nearly 6% more weight on the fund than its closest competitor Solana.

While all of these are positive for the network as it represents a huge institutional interest in the asset that would likely bring about massive capital inflows in the future under better macroeconomic conditions, a user has raised some concerns over how this will affect governance.

Concerns Over Increased Grayscale Adoption 

As highlighted by the user, known only as ThisCorrosion, the fact that Grayscale stores all ADA purchased in Coinbase cold storage means that Coinbase controls the staking keys and is likely to have too much influence over ADA governance. Additionally, these institutions are not earning enough returns on their staked asset as they would if they staked the assets with stake pool operators (SPOs).

According to ThisCorrosion, institutions need to recognize the unique advantages digital assets provide over commodities that allow you to earn only when the value increases.

CIP-50: A Possible Fix

Despite these concerns, it is worth noting that the Cardano network may have a fix coming in the Voltaire phase of its roadmap. Notably, the Voltaire era focused on governance will allow the network to function without Input Output Global management and is set to kick off in 2023.

As Martin of Latin Stake Pools highlighted in the comments, a fix for the problem should come with Cardano Improvement Proposal number 50 (CIP-50), which is scheduled for the Voltaire era. Notably, Dr. Michael Liesenfelt, a research assistant professor at the University of Tennessee and the proposal’s author, elaborated that it will benefit these institutions while requiring them to commit to the Cardano network.

CIP-50 is a proposal by Liesenfelt to improve Cardano’s decentralization such that the number of nodes that bad actors must comprise to attack the network (Nakamoto coefficient) is greater than 50. An article from currently puts this metric, also known as Minimum Attack Vector (MAV), at 24. While this may seem like a small number, it bears mentioning that Ethereum’s Nakamoto coefficient is 3, while that of Bitcoin is 4. Consequently, it is far more decentralized than both leading crypto networks.

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Mark Brennan
Mark Brennan
Mark Brennan has been active in the cryptocurrency sector since 2014. His love and passion for the nascent industry drove him to develop interest in writing about important developments and updates about cryptocurrencies and blockchain. Brennan, who holds a Masters degree in Business Administration, learned about the potential of blockchain technology. Aside from crypto journalism, Brennan runs an education center, where he educates people about the asset class.

Disclaimer: The content is for informational purposes only, may include the author's personal opinion, and does not necessarily reflect the opinion of TheCryptoBasic. All Financial investments, including crypto, carry significant risk, so always do your complete research before investing. Never invest money you cannot afford to lose; the author or the publication does not hold any responsibility for your financial loss or gains.

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