IO: Cardano Upgrades

Proposal as pdf:https://ipnso-com.ipns.dweb.link/?cid=QmXD6eoaFWrRoubFfvB2vSmLGbhVa66DbM9xw2dH1htRYK

This proposal delivers three coordinated initiatives that together expand Cardano's economic models, strengthen long-term Treasury resilience, and remove one of the biggest barriers to mainstream adoption, the requirement to hold ADA before you can transact.

Each workstream targets a different dimension of this opportunity. First, CIP-159 Account Address Enhancement upgrades how Cardano handles account addresses. This enables wallets to collect micro-fees (currently blocked by a minimum deposit requirement), makes DeFi applications cheaper for end users, and provides building blocks for Layer 2 scaling solutions to manage user funds. Second, Multi-Asset Treasury begins the design work to let the Cardano Treasury hold stablecoins and other native assets alongside ADA, protecting the funding process from price volatility and opening new financial models for the ecosystem. Finally, Babel Fees lets users pay transaction fees in any Cardano native asset (such as USDC or bridged BTC) instead of requiring ADA, removing a key friction point for new users entering the ecosystem.

Together, these initiatives unlock new wallet and DeFi revenue models, strengthen the Treasury's financial position through asset diversification, and reduce friction for users entering Cardano's DeFi ecosystem, where cross-chain bridging alone represents an estimated $1–2 billion annual market. IO is collaborating with Ensurable Systems on delivery. Intersect administers funds via milestone-based smart contracts, with independent oversight, and any unspent funds will be returned to the Treasury.

Treasury Ask: ₳13,103,039

As a DApp developer, wallet operator or cryptocurrency user on Cardano, I want account addresses to support direct deposits, micro-fee collection, and the Cardano Treasury to hold multiple asset types so that I can enable L2 reserves, build cheaper DeFi products and permit Treasury reserves to be held in stable currencies with resilience to ADA price volatility.

Additionally, as a DApp developer, wallet operator or a cryptocurrency user on Cardano, I want to pay transaction fees in any currency or asset I hold, so I can transact seamlessly without first acquiring ADA.

This proposal groups three platform-level enhancements that are technically independent but deliver compounding benefits when combined. CIP-159 Account Address Enhancement (WS1) provides the ledger-level account primitives that underpin CPS-23 Multi-asset Treasury design (WS2). Babel Fees (WS3) operates at the application layer on top of the separately funded CIP-118 Nested Transactions primitive, enabling fee payment in any native asset.

Workstream 1: CIP-159 Account Address Enhancement

Opportunity: Cardano's account addresses are ready for a significant expansion in capability. Enabling direct deposits that are not susceptible to minUTxOValue requirement on micro-fee collection opens new revenue models for wallets, reduces batcher and aggregator costs, and creates account-based patterns needed for L2 reserves and decentralized fixed-supply token minting. With the average transaction fee at ~0.39 ADA, micro-fee economics become viable the moment this restriction is lifted.

Solution: Enable direct deposits into account addresses with specific Plutus script support, unlocking new use cases without sacrificing local determinism. Phase 1 (ADA-only, Dijkstra era) in this proposal introduces direct-deposit into accounts, lifts the full-balance-drain restriction on withdrawal, adds account balance interval functionality, adds PlutusV4 script context support, and implements legacy Plutus mode for Nested Transactions. Phase 2, a future roadmap, extends these to support multi-assets, whitelisting, and dynamic deposit calculation.

Why now: Phase 1 is targeted for the Dijkstra era (cardano-node-12.x), expected Q3 2026. The technical design is ready, and the CIP has been developed. Delaying means continued inability for wallets and DApps to collect micro-fees, continued high batcher costs, and no path to L2 reserve patterns.

Workstream 2: CPS-23 Cardano Multi-Asset Treasury

Opportunity: Enabling the Cardano Treasury to hold multiple asset types, including stablecoins, gives proposers the option to denominate budgets in stable-value currencies, improving budget predictability and strengthening the Treasury's long-term financial position. A multi-asset Treasury supports more sustainable funding cycles and broadens the range of financial models available to the ecosystem.

Solution: Produce a Cardano Improvement Proposal (CIP) that outlines the technical Ledger changes needed to address CPS-23. This includes spam prevention via whitelisting or alternative mechanisms, changes to Treasury Withdrawal governance proposals, changes to donation-to-Treasury functionality, effects on Plutus context, and amendments to CIP-1694 for governance changes. This work builds directly on CIP-159 Account Address Enhancement, which brings multi-asset support to accounts: the same accounts used for receiving Treasury funds.

Why now: CIP-159 implementation provides the technical prerequisite. Multi-Asset Treasury is a main focus area of Pillar 5 (Ecosystem Sustainability & Resilience) in the Cardano 2030 Strategy. Beginning the CIP design process now ensures the specification is ready when the underlying infrastructure (Euler era) is deployed.

Workstream 3: Babel Fees

Opportunity: Cardano's native multi-asset architecture already supports a rich token ecosystem. Babel Fees completes the picture by enabling users to pay transaction fees in any native asset they hold, removing the need to acquire ADA first. For Bitcoin holders bridging to Cardano and stablecoin users entering DeFi, this is the seamless onboarding experience that converts first-time visitors into active participants.

Solution: Babel Fees enables users to pay transaction fees in any Cardano native asset, eliminating the need to hold ADA. The solution operates through Nested Transactions (CIP-118), a ledger-level primitive that enables composition of multiple partial transactions. A user initiates a transaction using their wallet; the wallet constructs a partial transaction and broadcasts it to listening Babel Fee providers; providers compete to fulfil the partial transaction by adding necessary ADA; the winning provider constructs a nested transaction and submits it on-chain; the user's transaction settles, and they never need to touch ADA. SPOs receive the same or slightly more ADA as in a standard transaction.

Key features: Zero Friction Integration - wallet developers integrate once, and users benefit across all compatible DApps. Partial Transactions - users create intentionally unbalanced transactions without providing ADA for fees. Independent providers can fulfil partial transactions at advertised exchange rates.

Why now: The implementation of Nested Transactions (CIP-118) provides the technical foundation. Upcoming Bitcoin bridge protocols present compelling early use cases for Babel Fees, enabling bridged BTC holders to transact on Cardano immediately without acquiring ADA. Fee abstraction is already proving its value across the industry, and Cardano's native multi-asset architecture is uniquely positioned to deliver it at the protocol level. New stablecoins (USDC) reaching production readiness on Cardano amplify the opportunity.

Technical Collaboration: IO is collaborating with Ensurable Systems to deliver and sustain these platform-level enhancements, combining IO’s deep protocol knowledge with Ensurable’s specialist capabilities as part of a broader commitment to distributing infrastructure stewardship across the Cardano ecosystem.

Proposed Value Delivered (Why)

This proposal delivers three platform-level capabilities that expand Cardano's economic models, strengthen long-term Treasury sustainability, and accelerate mainstream user adoption. Together, the workstreams unlock capabilities that are prerequisites for competitive DeFi economics, L2 scaling, prudent Treasury management, and mass-market onboarding. The dependency structure between the workstreams is additive: each delivers standalone value while collectively enabling a materially more capable and accessible Cardano.

CIP-159 enables wallet revenue models, cheaper DeFi batchers, and L2 reserve infrastructure that do not currently exist. The Multi-Asset Treasury CIP begins the design work that will allow the Cardano Treasury to hold stable-value assets and insulate the funding process from ADA price volatility. Babel Fees enables any Cardano native asset to serve as a fee medium, so new users can transact the moment they arrive, without acquiring ADA first.

Economic Impact of Account Address Enhancement

Wallet Revenue: Currently, the minUTxOValue parameter prevents wallets from charging fees below ~1 ADA. When the average transaction fee is only ~0.39 ADA, charging an additional 1 ADA is hard to justify. By enabling micro-fee collection through account addresses, Cardano wallets will have a significantly easier time finding product-market fit.

Cheaper Batchers/Aggregators: Most batcher/aggregator networks charge at least 1 ADA, partly due to the minUTxOValue requirement. Removing this constraint would make Cardano DeFi materially cheaper for end users.

L2 Reserves: L2 solutions such as Midgard need to manage large reserves of L1 ADA from users. With account address deposits, L2s can process deposit event UTxOs by depositing ADA into an account address, eliminating contention issues around reserve UTxO management.

Multi-Asset Treasury Support: CIP-159 is a prerequisite for multi-asset Treasury Withdrawals, enabling the Treasury to hold and disburse assets beyond ADA.

Economic Impact of Multi-Asset Treasury

• Stable-Value Funding: Treasury Withdrawals denominated in stablecoins provide reliable budgets not subject to ADA volatility.
  
• New Funding Models: Token-based loans, collateralized lending, and investment models become feasible when the Treasury can hold native tokens.
  
• Diverse Treasury Holdings: The community gains the ability to hold a mix of assets: stablecoins as a hedge, partner chain tokens for strategic value, or Real World Assets.
  
• Token Donations and Deposits: Community members and partner organizations can contribute native tokens (including stablecoins) to the Treasury.
  
• Cross-Chain Collaboration: Partner chains could contribute their native tokens (represented as CNTs) to Cardano’s Treasury, linking ecosystems financially.

Market Opportunity for Babel Fees

• Bridging Assets for DeFi: The global fee abstraction market for cross-chain DeFi is estimated at $1-2 billion annually (TAM). The segment addressable by lower-fee alternative chains narrows this to $12-35 million (SAM). With Cardano capturing an optimistic 20% of this serviceable market through Babel Fee providers, the obtainable opportunity is $2-7 million annually (SOM).
  
• SPO Revenue Diversification: SPOs can optionally operate as Babel Fee providers, earning competitive markups (10–50%) on fee conversions, supplementing staking rewards, and incentivizing high-quality infrastructure.
  
• Beyond the immediate DeFi bridging opportunity, Babel Fees positions Cardano to capture additional markets as the ecosystem matures, including stablecoin payments, payment gateway onramps, and asset distribution flows.

KPIs

Additional KPIs

Pillars

Deliverables & Roadmap

Resources

Resources across the three workstreams, which also incorporate shared resources on delivery and product:

• Workstream 1: Ledger engineers (serialization, rules, state), Plutus integration engineers, conformance testing engineers
  
• Workstream 2: Ledger architects for CIP research, drafting, and community consultation
  
• Workstream 3: Technical Lead Engineer/Architect, Versatile Cardano Protocol/Service Layer protocol engineers.

Budget

Total Treasury Ask: ₳13,103,039

• Workstream 1 Micro Fees: ₳7,069,985
  
• Workstream 2 Multi Asset Treasury: ₳2,356,662
• Workstream 3 Babel Fees: ₳3,676,392

Pricing Principles: IO is requesting funding in ADA and has provided USD figures as a reference. A portion of the funding shall bel specifically tied to demonstrating measurable impact on Cardano's KPIs and pillars

• Personnel & Delivery: Majority of costs needed to fund the delivery resources
  
• Ecosystem support, Audit, Assurance & Contingency: Leadership, ecosystem, and delivery to support execution and wider alignment. Independent work assurance and audits, plus contingency to account for complexities during execution

Proposal Risks

Additional Information

Known Limitations: CIP-165 (Canonical Ledger State) amendments required by CIP-159 may require more effort than currently estimated. This proposal delivers Babel Fees as an MVP with one Babel Fee provider and a closed network layer; the network layer is not required to be open and permissionless at this stage, with support for two major native assets (e.g., BTC, USDC) in the initial release.

Benefit Dependencies: CBU025: LedgerHD changes needed in Consensus. CBU056: Required community participation on CIP review and feedback. Babel Fees: Marketing and communications to Bitcoin and stablecoin communities to drive adoption; bridge partnerships reaching production readiness; decision on operating entity for the Babel Fee Service.

Release / Solution Readiness: CIP-159 Phase 1 targets Dijkstra era (Q3 2026). CPS-23 CIP targeted for community ratification by Q2 2027. Babel Fees production-ready MVP target: February 2027 (Q1 2027 delivery).

Treasury Governance & Compliance

Contract Management

A written off-chain Legal Contract will be created between Input Output and the Cardano Development Holdings (CDH), as mandated by the Constitution, and will be administered by Intersect. This will include details of the project delivery schedule and dispute resolution.

Project Delivery

All milestones, acceptance criteria, payment amounts and expected delivery dates will be agreed between the Input Output and Intersect, acting on behalf of the CDH. Input Output will deliver according to the agreed-upon project schedule within the Legal Contract, of which the necessary information will be made public via the budget management platform via transaction metadata.

Defined by the milestones within a Legal Contract, Input Output will submit and attest milestone acceptance to the community, Intersect or 3rd Party Assurer.

Project progress will be monitored via Intersect's delivery assurance function which will be communicated to the community.

Acceptance of the work will be supported by a 3rd Party Assurer, who will be responsible for reviewing and signing off the work completed at each project milestone against the corresponding milestone deliverables detailed within the Legal Contract. This work is funded from a portion of this treasury withdrawal.

Auditable Accounts & Fund Delegation

Budget Management Tooling

To administrate treasury funds on-chain, Intersect will utilize the treasury management smart contract framework developed by Sundae Labs. The smart contracts have been extensively tested including audits from TxPipe and MLabs.

Final mainnet validation test can be seen via the Disburse action within transaction: 0f591dc544ae14102dbb4a74d5311a6acffc1772b163d8b7a9656b9525950b17

This withdrawal will utilize Intersect’s 2025 treasury reserve contract with address being: stake17xzc8pt7fgf0lc0x7eq6z7z6puhsxmzktna7dluahrj6g6ghh5qjr
Funds will later be migrated to a 2026 treasury reserve contract once established.

Budget Management Specifics

Intersect will utilize a single Treasury Reserve Smart Contract (TRSC), with many Project-Specific Smart Contracts (PSSC), managed by Intersect. Intersect's management consists of three 'admin' and two Intersect 'leadership' roles. An Oversight Committee consisting of five external, independent third-party entities will provide checks and balances on Intersect, and safeguard against errors and unilateral control. The administration of both TRSC and PSSCs will be managed by Intersect, with external oversight on certain actions from the Oversight Committee.

The 2025 TRSC Oversight Committee consists of Sundae Labs, Cardano Foundation, Dquadrant, Xerberus and NMKR. Their role is to independently verify key administrative actions using on-chain logic, ensuring accuracy and consistency without exercising discretion over governance decisions.

For all details on Intersect's configuration please see the Smart Contract Guide on the knowledgebase.

The high level permissions are as follows:

• TRSC Fund and PSSC Modify
  
  • Two of the three Intersect admins, two of the five trusted entities and one of the two Intersect leadership sign-off must authorize
    
• TRSC Disperse
  
  • Two of three Intersect admins, three of five trusted entities and two of two Intersect leadership sign-off must authorize
    
• TRSC Pause and Resume
  
  • Two of three Intersect admins, and one of two Intersect leadership sign-off must authorize
    
• TRSC Sweep
  
  • One of three Intersect admins, and one of two Intersect leadership sign-off must authorize
    
• TRSC Reorganize
  
  • Two of three Intersect admins and three of five trusted entities must authorize

Processes

Upon enactment of this governance action, funding for this project will be directed into the TRSC's stake account. All instances of TRSC and PSSC can not be staked with a SPO and will be delegated to the auto-abstain predefined DRep. From here funds will be withdrawn into a UTxO remaining at the TRSC.

When a 2026 TRSC is established, the funding for this project will be migrated via the ‘disburse’ action.

When the Legal contract is prepared and Input Output is ready, funding for this project will be transferred using the Fund action to a PSSC. All milestones will be outlined within the metadata.

A dashboard will be available for the community to audit the TRSC or PSSC and track metrics related to this withdrawn ada as well as being immutably verifiable on chain.

Funding Denomination

All amounts in this proposal are denominated in ada (₳). The total Treasury ask is ₳13,103,039 . USD figures ($3,144,729) are provided for reference only, based on an ADA/USD rate of 0.24.

Refund Conditions

All funds not disbursed by the end of the delivery period will be returned to the Cardano Treasury. A final reconciliation will be published as part of the oversight reporting cycle. In the event of partial delivery or scope reduction, unspent funds associated with cancelled or reduced deliverables will be returned proportionally.

Prior Treasury Receipts

IO and its affiliated entities has been accountable for delivery of work funded by the Cardano Treasury. The total funds allocated has been ₳130,708,860 across a number of projects within Treasury Smart Contract, to date IOG has withdrawn ₳78,459,777.

**Note: for Catalyst this only reflects the workstream that focuses on the Hermes Infrastructure and UX/UI improvements, not the execution and operation of Funds 14-16. Per Info Action this is in the process of transitioning to Cardano Foundation.

Net Change Limit Compliance

The requested amount does not at time of submission, on its own or in aggregate, breach the applicable 350M Net Change Limit covering Epoch 613 to Epoch 713.

In accordance with the guardrail TREASURY-02a, this withdrawal does not exceed the NCL at the moment of submission.

Audit & Oversight

Audit and oversight costs are included within the overhead applied to this proposal. The Intersect administration fee covers administrative oversight and is reflected within the cost of this proposal. Independent oversight will be provided through Intersect and technically capable third-party, including reporting obligations and milestone-based disbursement controls.

Standardized Format & Immutable Hosting

Upon finalization, this proposal will be hosted on IPFS in an immutable format. The blake2b-256 hash of the document will be provided for on-chain reference and verification.