Abstain Treasury Withdrawals Committed

IO & Midgard Labs: L2 Scalability Initiative

2026-05-24

Summary

RCADA votes ABSTAIN on the IO & Midgard Labs: L2 Scalability Initiative Treasury Withdrawal proposal.

RCADA supports the strategic direction of this proposal and believes Cardano needs credible Layer 2 infrastructure to support high-performance use cases such as DeFi, AI-agent micropayments, gaming, consumer payments, and applications that require faster finality, lower fees, and higher throughput than L1 can currently provide.

RCADA also supports the three proposed workstreams in principle: Hydra production hardening, L2-agnostic infrastructure, and continued development of Midgard as a permissionless optimistic rollup.

However, as a single bundled Treasury action, this proposal combines workstreams with different maturity levels, risk profiles, delivery dependencies, and accountability questions. RCADA would likely have supported these components if proposed independently, while applying specific feedback and scrutiny to each.

RCADA’s abstention is therefore a governance-quality signal, not opposition to Cardano L2 scaling.

Key Considerations

  • RCADA supports Cardano L2 development and sees value in Hydra, shared L2 infrastructure, and Midgard.
  • Hydra production hardening appears practical, useful, and connected to live ecosystem adopters such as Delta DeFi and Masumi.
  • L2-agnostic data availability research and prototyping could help reduce future fragmentation.
  • Midgard is strategically promising but carries a higher technical and execution risk profile.
  • The proposal bundles mature, exploratory, and higher-risk workstreams into one all-or-nothing vote.
  • RCADA understands why the workstreams were grouped together, as they form part of a coherent L2 scaling strategy.
  • However, DReps cannot express differentiated support or apply different conditions to each component.
  • Budget and responsibility mapping could be clearer, especially given the multiple teams, dependencies, and workstream maturity differences.
  • RCADA would be more supportive of modular proposals or clearer internal gating and milestone-level cost attribution.

What this action does

This Treasury Withdrawal proposal requests ₳10,425,871 to fund three Layer 2 scaling workstreams led by Input Output in partnership with Midgard Labs.

The first workstream funds L2-agnostic infrastructure, including Cardano data availability strategy and prototyping.

The second workstream funds Hydra production hardening, including performance optimisation, operational tooling, reference DeFi implementations, documentation, observability, ecosystem support, and support for live adopters such as Delta DeFi and Masumi.

The third workstream funds Midgard’s path toward mainnet as a permissionless optimistic rollup, including work related to multi-operator coordination and mainnet readiness.

The proposal states that funds will be administered through Intersect-managed Treasury smart contracts, with milestone-based controls, third-party assurance, oversight mechanisms, public auditability, and refund conditions for unused funds. :contentReference[oaicite:0]{index=0}

Analysis Findings

Constitutional / Guardrails Assessment

  • ✔ The proposal specifies a clear Treasury ask of ₳10,425,871.
  • ✔ The proposal identifies the purpose of the withdrawal: Layer 2 scalability infrastructure.
  • ✔ The proposal includes defined workstreams for L2-agnostic infrastructure, Hydra production hardening, and Midgard mainnet progression.
  • ✔ The proposal includes workstream-level budget amounts.
  • ✔ The proposal includes refund conditions for unused funds or reduced scope.
  • ✔ The proposal discloses prior Treasury receipts for IO and affiliated entities.
  • ✔ The proposal states that it does not breach the applicable 350M ADA Net Change Limit at the time of submission.
  • ✔ Funds are to be administered via Intersect-managed Treasury smart contracts, with third-party assurance and oversight mechanisms.
  • ⚠ The proposal bundles workstreams with different maturity levels and risk profiles.
  • ⚠ Public cost attribution remains limited, with 86% of the total request grouped under “Development.”
  • ⚠ Responsibility mapping between IO, Midgard Labs, external contractors, and adoption partners could be clearer.
  • ⚠ Midgard’s transition toward decentralised multi-operator coordination is acknowledged as a high-likelihood, high-impact technical risk.

Assessment: Conditional Pass

Process & Governance Quality

  • ✔ The proposal addresses a real strategic need for Cardano scaling.
  • ✔ The Hydra workstream appears comparatively mature and connected to near-term ecosystem use cases.
  • ✔ The shared L2 infrastructure workstream could reduce fragmentation if delivered well.
  • ✔ The Midgard workstream could expand Cardano’s application-layer design space.
  • ⚠ The proposal combines mature Hydra work, exploratory DA research, and higher-risk Midgard progression into one vote.
  • ⚠ DReps cannot support one workstream while applying different conditions to another.
  • ⚠ The combined structure weakens the ability to assess each workstream on its own merits.
  • ⚠ Budget granularity and responsibility separation could be improved.

Assessment: Mixed

Impact & Risk Analysis

  • Ecosystem benefit: Potentially high
  • Strategic importance: High
  • Hydra execution confidence: Medium to high
  • DA workstream maturity: Medium
  • Midgard execution risk: High
  • Treasury risk: Medium
  • Bundling risk: Medium to high
  • Governance clarity: Medium

RCADA believes the technical direction is valuable, but the combined structure reduces confidence in the governance decision. The strongest support case is for Hydra production hardening, while the Midgard and DA components require more differentiated scrutiny.

Assessment: High potential value / Medium-to-high governance concern

Ratings (Decision Support Only)

Dimension Score (1–5)
Constitutional clarity 4
Governance quality 3
Execution credibility 3
Ecosystem value 4
Risk balance 3
Overall score 🟡 68% — Promising direction, but bundled structure weakens support

RCADA Rationale

RCADA votes ABSTAIN on the IO & Midgard Labs: L2 Scalability Initiative Treasury Withdrawal proposal.

RCADA supports the strategic direction of this proposal. Cardano needs credible Layer 2 infrastructure if it is to compete for high-performance use cases such as DeFi, AI-agent micropayments, gaming, consumer payments, and other applications that require faster finality, lower fees, and higher throughput than L1 can currently provide. We recognise that L2 development is not a rejection of Cardano’s base layer; it is a necessary complement to it.

We also support the three workstreams in principle.

Hydra production hardening is valuable and timely. Hydra has a distinct role in known-party, high-frequency environments, and the proposed work around performance optimisation, operational tooling, documentation, observability, DeFi reference implementations, and support for live adopters such as Delta DeFi and Masumi appears useful for the ecosystem.

The L2-agnostic infrastructure workstream also has merit. Shared data availability research and prototyping could help avoid future fragmentation and provide common infrastructure for current and future Cardano L2s.

Midgard is likewise a promising direction. A permissionless optimistic rollup designed around Cardano’s EUTXO model could meaningfully expand the range of applications that can build on Cardano, particularly open-participation DeFi and consumer-facing use cases.

If these workstreams had been presented independently, RCADA would likely have been supportive of each of them, while still providing specific feedback and scrutiny appropriate to their individual scope and maturity.

However, as a single bundled Treasury action, this proposal is weaker than several of the other infrastructure proposals we reviewed in this funding round.

The issue is not that the three areas are unrelated. RCADA understands why they were grouped together: they are all part of a coherent L2 scaling strategy and may share research, infrastructure, ecosystem coordination, and adoption pathways. Hydra, Midgard, and shared L2 infrastructure address different parts of Cardano’s scaling challenge and could reinforce one another over time.

The difficulty is that they carry different maturity levels and risk profiles. Hydra hardening is comparatively practical and connected to current production use cases. The data availability workstream is more exploratory and architectural. Midgard is strategically interesting but materially higher risk, particularly around the transition from a single-sequencer testnet toward decentralised multi-operator coordination. The proposal itself identifies this transition as a high-likelihood, high-impact technical risk. :contentReference[oaicite:1]{index=1}

This creates a governance problem. DReps are being asked to cast one vote across workstreams that deserve separate evaluation. RCADA cannot express support for the more mature Hydra work while separately applying stronger conditions to the more speculative or higher-risk components. An all-or-nothing vote reduces the quality of governance judgement, even when the overall strategic direction is sound.

RCADA also shares community concerns around delivery accountability, responsibility splits, prior milestone confidence, and budget granularity. The workstream-level budget is helpful, but the broader cost distribution still places 86% of the request under “Development,” which limits public review of staffing assumptions, contractor allocation, and precise cost attribution. :contentReference[oaicite:2]{index=2} Given the proposal’s reliance on multiple teams, live adopters, and future coordination structures, clearer public separation of responsibilities and acceptance criteria would have improved confidence.

We also note that the expected benefits depend partly on external adoption behaviour. The proposal explicitly identifies Delta DeFi and Masumi as important production validation partners and recognises that delays could put early adopters at risk. :contentReference[oaicite:3]{index=3} That is a reasonable ecosystem argument, but it also means the impact case depends on execution and adoption beyond the core technical deliverables.

RCADA does not want this abstention to be interpreted as opposition to Hydra, Midgard, or Cardano L2 scaling. Quite the opposite: we believe L2 development is important, and we want to see these efforts continue. Our abstention is a process and confidence signal, not a rejection of the technical vision.

A stronger proposal would separate the three workstreams or provide clearer internal gating, milestone-level cost attribution, responsibility mapping between IO and Midgard Labs, evidence of prior delivery status, and objective readiness criteria for Midgard progression. RCADA would be more comfortable supporting each workstream on its own merits with appropriate conditions attached.

For these reasons, RCADA votes ABSTAIN. We support the direction of travel and would likely support the individual components if separately proposed, but we cannot fully endorse the bundled structure, uneven maturity profile, and unresolved accountability concerns in this single Treasury action.