Cardano tokenomics: design, incentives, and stablecoins

In the second installment of the Cardano R&D Sessions – a monthly series exploring the forefront of blockchain research and development – Input | Output Research (IOR), in collaboration with the Intersect Research Working Group, hosted a dynamic discussion on one of the ecosystem’s most pressing and complex topics: tokenomics.

Bringing together leading researchers and practitioners from across the Cardano ecosystem, the July session tackled the foundational design questions shaping Cardano’s economic infrastructure. With presentations from IOR Research Fellow Paolo Penna and DRep Ryan Wiley (a.k.a. Cerkoryn), the session featured a live panel discussion with Manvir Schneider (Cardano Foundation) and Raul Antonio (Fluid Tokens), moderated by IOR’s Director of Research Partnerships, Fergie Miller.

Why tokenomics matters

Tokenomics – how tokens are created, distributed, used, and retained –forms the economic engine of any blockchain network. For Cardano, with its growing suite of DeFi, governance, and partner chain applications, building robust and adaptive tokenomic models is key to long-term sustainability. As Paolo Penna framed it, tokenomics is ‘monetary policy for a decentralized system, influencing not just price but adoption, participation, and trust.’

The Tokenomics Focus Area in the proposed Cardano Vision research program proposed to the community by IOR outlined three core tokenomics research streams:

• TO-1: Tokenomics Design – studying how treasury flows, reserves, and token supply impact ecosystem health.
• TO-2: Rewards Sharing & Transaction Fees – refining incentive schemes for validators and governance.
• TO-3: Stablecoins – developing risk-aware frameworks for decentralized stablecoin design.

Despite its importance, tokenomics remains relatively underexplored. These research streams aim to provide Cardano with a scientifically grounded economic architecture that supports sustainable growth, decentralized participation, and real-world utility.

Modeling Cardano’s monetary system

Opening the session, Paolo Penna presented a foundational model of how proof-of-stake (PoS) blockchains function economically. In Cardano’s system, users pay transaction fees in ada while validators –stake pool operators (SPOs) – and their delegators receive rewards also in ada. This establishes a dynamic tension between supply and demand, where protocol-level parameters influence behavior but cannot directly control token price.

Paolo highlighted that while increasing validator rewards might incentivize staking (and thus reduce sell pressure), such changes must be carefully calibrated. Tokenomics cannot be treated as isolated levers. Design choices ripple across the entire system, affecting decentralization, utility, and long-term sustainability.

He identified three interdependent layers that tokenomics models must capture:

1. Validator economics – SPOs are rational actors responding to incentives. Changes in rewards or pledge structures impact their behavior.
2. System expansion – Cardano’s evolution through partner chains and governance (Voltaire) adds layers of economic interaction, requiring models that go beyond a single-chain view.
3. Price dynamics – ada’s market price, shaped by utility and sentiment, feeds back into staking behavior and protocol participation.

Too often, models focus on one or two of these aspects in isolation. Paolo called for integrated frameworks combining game theory, simulation, and empirical data to better understand feedback loops and forecast outcomes under different policy scenarios. In short, designing resilient tokenomics means treating Cardano as a living economy –one in which incentives, adoption, and governance co-evolve over time.

Revisiting CIP-50: pledge mechanics for decentralization

Ecosystem stakeholder and DRep Ryan Wiley then presented CIP-50: Rebirth, a proposal to improve Cardano’s pledge system and enhance network decentralization. Currently, many stake pools operate with little or no pledge, reducing their economic exposure and weakening civil resistance. This undermines the intended function of pledge: to align operator incentives and deter Sybil attacks.

CIP-50 introduces an ‘underpledged penalty zone’ in the reward formula. Pools whose delegated stake significantly exceeds their pledged ada – beyond a defined leverage threshold (l) – would see reduced or zero rewards on the excess. This incentivizes greater pledge commitment without penalizing the wider network.

Simulations show the proposal could meaningfully increase the Nakamoto coefficient and total network pledge, strengthening decentralization. Ryan highlighted that selecting the right l value is critical;too low could harm small pools, too high would reduce impact. He advocated for governance-controlled parameters, allowing the community to adjust thresholds dynamically over time in response to network needs.

Panel perspectives: designing a healthy token economy

The roundtable discussion opened with reflections from Manvir Schneider, who defined a healthy token economy as one that aligns incentives across all actors, sustains decentralized participation, and supports growing on-chain utility.

Raul Antonio, CTO of Fluid Tokens, emphasized transparency as key: all participants – SPOs, users, DReps –should be able to base strategies on clear, shared rules. Without that, they end up playing games against each other.

Manvir also warned against over-reliance on stake-weighted voting, proposing alternatives like the Banzhaf index to prevent outsized influence by large holders. His insights reinforced that tokenomics cannot be disentangled from governance design.

Stablecoins as adoption catalysts

The discussion turned to stablecoins as essential infrastructure for DeFi and a key entry point for broader adoption. Raul Antonio noted that on chains like Ethereum, users ‘often engage first via stablecoins – not native tokens – due to their familiarity and low volatility’. For Cardano to remain competitive and attract institutional users, it must offer stablecoins that are secure, accessible, and widely adopted.

Paolo Penna emphasized that designing robust stablecoins is complex. Effective approaches typically combine algorithmic mechanisms with reserve or collateral backing, striking a careful balance between capital efficiency, decentralization, and price stability. Missteps in design can lead to trust erosion or systemic risk.

Manvir Schneider added that with the rise of autonomous AI agents making on-chain payments, demand for reliable, programmable stablecoins will only grow. The panel agreed that stablecoins are not just a DeFi tool, but a cornerstone of Cardano’s long-term utility and global economic integration.

Research, rewards, and resilience

The discussion circled back to Cardano’s long-term economic sustainability. As ada reserves continue to deplete over time, the protocol must gradually transition to a state where transaction fees alone support validator rewards. This shift introduces significant design pressure, requiring optimization not just of individual parameters like k (number of pools) and a (influence of pledge), but also of broader system-level mechanics such as block size, planned reward reduction, and fee markets.

Paolo Penna outlined IOR’s ongoing work to model these pressures using game-theoretic frameworks and advanced simulation tools. These models help predict how stakeholders will respond to parameter changes, enabling researchers to estimate the time it takes for the system to reach an equilibrium and identify unintended consequences.

This data-driven approach is essential for designing future upgrades that are both economically sound and socially acceptable – ensuring that Cardano can maintain its core principles of decentralization, fairness, and resilience even as it matures into a self-sustaining economy.

Growth, DApps, and interoperability

Fergie Miller raised a key strategic challenge: how can Cardano’s tokenomics be optimized to attract and retain DApp developers in an increasingly competitive ecosystem?

Ryan Wiley pointed to Cardano’s non-custodial staking model as a distinct advantage. Unlike many other blockchains, users can delegate their ada and earn rewards without locking up their assets –opening the door for DeFi applications that preserve staking yields while enabling liquidity and governance participation. Raul Antonio supported this with examples of testnet DApps that allow users to provide liquidity in ada while simultaneously earning staking rewards and casting votes in governance processes.

Paolo emphasized the value of Cardano’s emerging partner chain framework in this context. By allowing parallel ecosystems to operate with their own native tokens, reward schemes, and fee models – while still connecting back to Cardano’s staking base – partner chains create a modular economic architecture. This enables innovation without diluting ada’s utility and allows for interoperability between chains, applications, and user roles across the broader ecosystem.

Decentralization and feedback loops

In his closing remarks, Paolo Penna described a powerful feedback loop that lies at the heart of Cardano’s vision: deeper decentralization fosters greater trust in the network, which in turn attracts more users, developers, and institutional actors and leads to increased adoption, innovation, and resilience. As more participants enter the system and contribute to its evolution, decentralization deepens further, reinforcing the cycle.

However, this positive loop only functions if participants understand and trust the system’s underlying economic rules. Paolo warned that if users cannot interpret or believe in how rewards, fees, or incentives work, they may act against the system’s intent –leading to inefficiencies or even vulnerabilities. Such breakdowns not only undermine the protocol’s goals but can also cause harm to individual users who unknowingly adopt suboptimal strategies.

To sustain trust, Cardano must ensure that tokenomic mechanisms remain transparent, explainable, and adaptable – supporting an inclusive network where users feel empowered, not outmaneuvered.

Looking ahead

The July R&D Session affirmed a vital insight: tokenomics is not just about setting parameters. It’s about designing the incentive architecture that underpins a decentralized society. The structure of rewards, fees, treasury flows, and governance rights defines how trust, participation, and value creation unfold over time. These concerns are the foundation of Cardano’s long-term resilience, inclusiveness, and economic relevance.

Panelists shared bold aspirations for that future: Raul Antonio called for more agile governance and DApps that integrate seamlessly with DeFi and on-chain voting, positioning Cardano as a model for decentralized decision-making. Ryan Wiley envisioned greater adoption of Hydra for capital-efficient, low-fee trading, and DApps that let users stake while participating in the wider ecosystem. Manvir Schneider emphasized the urgency of transitioning to a self-sustaining reward model powered by transaction fees. Paolo Penna highlighted interoperability as a crucial enabler – allowing Cardano’s tokenomics to connect and evolve with other economic systems.

As moderator Fergie Miller noted in his closing statements, the R&D Session format is still new, and so is the Voltaire era. But if we can continue bridging research and development, Cardano can lead the way in building a blockchain economy that is sustainable, adaptive, and governed by its community.

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