Evolving Algorand Governance - Governance Discussions - Algorand
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post by No-Cash-7970 on May 4, 2022
Kentmug](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Agreed. The incentives for participating in DeFi and participating in governance are dangerously misaligned. Participation in DeFi, as it is now, is mostly about yield-chasing, not about governing Algorand. On the other hand participating in governance is almost entirely about governing Algorand, and the governance reward system is supposed to incentivize for that purpose.
Also, who says that participating in DeFi is active participation? Much of DeFi participation is staking with some platform, just like so-called “passive” Algorand governance.
post by thezec on May 4, 2022
While I think that rewarding DeFi participants is important, I also would say that one thing that makes governance great is the fact that it is absolutely risk free. I would never trust all my Algos to be committed in DeFi as every DeFi project is still in its infancy and exploits could happen. Nor should a blockchain that wants to be decentralized makes its user having to trust a third party in order to participate - a point that Silvio makes every time he speaks publicly. What I think is a better solution is NOT a reward for DeFi users, but making harder requirements to participate in Governance or decrease rewards - or both.
What I’ve been thinking lately is that with the addition of xGov it could be implemented a system with 2 separate reward pools. 1 lesser pool for Governors who only have to vote and who have the same requirements as of right now, and 1 pooll with xGov. For xGov the only requirements would be to run a node - either a participation, an archive or a relay node. This way nearly everyone who wants to commit to the protocol could set up a node, and node runners would be rewarded. I also would strongly advise the Foundation to develop installers to make it easier for everyone to get a node up and running. That way everyone gains - the users who are involved get better rewards, the network grows more decentralized, the individuals who like the low effort - high security rewards still get some.
I don’t think that rewarding DeFi users is the Foundation job - this has already be done with the Aeneas programm. At the end of the day DeFi projects must find a way to entice users, and the only thing that the Foundation can do to help is making it a little less enticing to simply commit to governance, while still rewarding users who actively help the network grow.
post by umr on May 4, 2022
1
I support the idea of rewarding the users of dApps. To be a good governor, one must also be familiar with the Algorand ecosystems such as dApps.
- Passive governor: 1 seat
- Governor that participates in one of the approved dApps: 2 seats
- Governor that participates through dApp, e.g. Algofi Vault, Gard: 3 seats.
3 seats for this option because there is more risk involved. Also this will increase the TVL dramatically.
We need to figure out a way to exclude the centralized exchange wallets from the governance. Only the exchange benefits, not the Algo holder.
post by Michele on May 4, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
This is probably the best option.
I would propose to reward people staking assets on defi protocol instead of just rewarding liquidity for example
post by RonanLJH on May 4, 2022
Hello there. Thank you for the interesting feed. For background, I am a Algo user. I am mostly using Algofi and Lofty, also Folks Finance to a lesser extend. I am participating in the liquid governance of both Algofi and Folks. Developing DeFi and the ecosystem in general is a key step for Algorand development. Right now Algorand promote participation in three ways : participation rewards (to be discontinued very soon), governance rewards and Aenas rewards.
With the suppression of participation rewards, gov rewards are what is the closest to company dividends. In that regards, if we look at algo holders as shareholders, I believe that we should stick to the scheme 1 committed algo = 1 vote = 1 reward. To my knowledge, most of PoS blockchains work like that (via a delegation system, for intsance) and it is not preventing the development of the DeFi.
Allowing algos in DeFi to be committed is a great idea. Algofi (vAlgo) and Folks Finance (gAlgo) offer products that solve this issue. Imposing one standard directly at the level of the protocol seems to be going in the wrong direction to me.
That being said having some particular accounts play a particular role in the governance system seems also natural. Going back to the shareholder/company analogy, there are also corporate executives (in our case the Algo foundation) and non-executive directors. Those non-executive director are not directly link to the management but they are often consulted on some issues, have a voting power and receive a sitting fee.
From my understanding, this is what the xGov proposition is about even though the exact implementation is still unclear to me. Could it be possible to automatically allow to DeFi protocols a certain number of xGov seats (or another kind of special governor seat) ?
Determining which protocols have access to it is of course difficult. There should be of course some minimal requirements, for instance that the team has had some kind of doxxing, that it respects some good practice (open source), being on mainnet since n numbers of months and so on.
Then the seats could be attributed based on a percentage of the TVL rather than a hard cap but there should also be away to avoid very small protocol to get dust.
If this works correctly this could later be generalized to other ppl (developers, node runners, creators and so on).
post by Massimo on May 4, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Thanks Michel! A few numbers: 10.5% was the APY in Q1, 7.5% is the APY now, 4.5% would be APY if all users not yet in DeFi were Govs. We can direct some governor incentives straight to DeFi without killing Governance, which is our path to Decentralization, and without squeezing Governor hodlers.
A very basic example: even just devoting 1/10 of 280M Gov rewards to DeFi Govs means approximately +30% APY to current Defi Govs, and +10% APY even if they triple. We can discuss here to come to a solution which is fair to everyone.
post by D3G on May 4, 2022
1
permarugbear](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
+1 ser, what I’ve seen in the last year was foundation spending massively on worthless partnerships, grants, parties and so on. It was like these were promoted just so we can pomp a few pennies so the whales unload even more, and everyone can track easier this correlation by looking at the charts. Imo the foundation job should be to incentives the built and migration of dapps to Algorand, for this they need to engage with crypto communities more actively and stop the dumb promotions as carbon negative to attract devs and investors. A part of these 280m allocated yearly for gov can be sacrificed for defi dapps. Let’s not forget that Algo is advertised as a Futurefi blockchain and not just as the greenest gov chain. I personally, I considered useless this passive income with the depreciation of Algo 70% over a year, and when you’re seeing even VCs as Scarammuci promoting Algo as a blue chip but on the other hand saying that his holding only 100m from 250m in couple a months, than we have a serious problem around.
Yes Fifa it’s a corrupt system in some ways, but it’s the biggest partnership I’ve seen in 2 years pulled by Algorand and I do hope it’s not just another worthless sponsorship and some usecases will pop up from this one. The impact of this news and the hype it’s in charts and mc, lame if you’re asking me, and it only shows u that what happened in 21 wen Algo pomped without no news, was VCs and early backers game to get their AV faster in a bull run, and it also shows the level of confidence in Algo from investors.
Decipher, Miami, 500m fund announced by Borderless Capital and Co, and still nothing pooped on chain from these, what’s telling u? So, maybe the Foundation should change their approached audience if they really want to achieve dapps and users adoption. Otherwise, we will keep empty the treasury bag by promoting green horses on the walls for whales exits.
post by permarugbear on May 4, 2022
Like Silvio said, all you need is to be good at one thing so the team should focus on 1 fundamental issue to tackle. If it is DeFi then they need to know it requires retail, then focus on retail marketing and promotion but not with the current dinosaur marketing team.
Bottom line, stop spending on promotion from CBDC to Institutions to The World Economic Forum etc. It hasn’t worked and they need to draw the line, asking tokenholders to kiss their reward goodbye is just deflecting the underlying issue. Focus on a topic like DeFi and really work on it because every other L1 has and Algorand is already 12 months behind.
post by D3G on May 4, 2022
I think Foundation and everyone else, should realize eventually that “the tech doesn’t sells itself”
post by Gary1 on May 4, 2022
The “Defi” protocols shouldn’t get more support from the Foundation until they are actually decentralized.
post by pmd on May 4, 2022
Hi all,
I’ve been an ALGO holder and DeFi user for a year. I’m a strong believer in the tech. I also strongly believe that the governance incentives in place completely miss the point.
From a general standpoint, what are we trying to achieve?
We want to create an incentive structure that incentivises ALGO holders to help the ecosystem flourish.
What can it mean? Voting on decisions, participating in DeFi, running a node, creating NFTs…
Where should the focus be?
The main objective is to grow the DeFi TVL since is an obvious correlation between TVL and token price.
The focus should not be on incentivising voting, running a node, or creating NFTs since there are no real problems there. At the moment, the only problem to solve is DeFi TVL.
Should governance be rewarded?
In my opinion, governance should not be rewarded. The reward is the possibility to give an opinion.
What should be the guiding principle for DeFi incentives?
As much as possible, we should rely on the main DeFi players to create the correct incentive structure to grow their TVL. As always, competition will make wonders!
My proposal
- We replace entirely the current governance incentives with DeFi incentives.
- All trusted and big enough (I like the 10mio threshold) DeFi platforms receive incentives correlated to their TVL. They choose entirely how they allocate them to their users.
- These platforms allow users to participate in governance (it’s already the case).
- Since governance is not incentivised anymore, we can simplify the rules around voting. No need for a 3 months balance commitment, we can simply have a rule that prevents users from voting multiple times, such as: you must maintain you balance after the vote for it to be taken into account.
post by permarugbear on May 4, 2022
D3G](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
basically if the tech sells itself then why do you even need the marketing team in the first place. not that the current marketing team has done anything significant for the last 3 years until yesterday.
post by jtinvestsinyou on May 4, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I agree with Michel!
post by just_a_guy72 on May 4, 2022
Unpopular opinion - but I think someone should say it
I think the foundations proposal to evolve governance is a good one, as we do need a more equitable way to reward active participants in the Algorand ecosystem as compared to passive holders, but I think the focus is too narrow in scope. DeFi and NFTs are two use cases for blockchain that have caused multiple coins/tokens (layer1s and defi projects) to gain significant value in the last 18-24 months, but the use cases have downfalls that Algorand has successfully, thus far, avoided.
We should be focused on attracting the “right” users as opposed to the retail mainstream users who hop from protocol to protocol looking for the highest yield (this is an over-simplification but helps underscore my point). High yields are unsustainable, and when the liquidity programs, governance programs, staking programs, etc run out, you have an outflow of users and capital to the next “hot” layer 1. DeFi is not a long term sustainable model at this point in crypto’s evolution as most users are focused on yield farming and alpha generation as opposed to the financial inclusion and efficiency principals that it touts. This coming from an active DeFi user on multiple Layer 1’s, and as someone who has moved capital from protocol to protocol to capitalize on the highest rewarding liquidity program.
If we want true long-term value to be attributed to the Algorand ecosystem (and thus the ALGO token), it is my opinion that Algorand needs to differentiate itself as an institutionally friendly blockchain and do more to support entrepreneurs and projects that are building new use cases as opposed to use cases that were introduced on Ethereum (NFTs, DeFi, etc) and then copied to other layer 1s. Even though crypto is in a “cool down” period at this exact point in time, institutional interest and adoption has never been higher. People are starting to see past the “crypto = Bitcoin” narrative, more and more intelligent entrepreneurs are starting to build in the space, and more institutions are starting to dip their toes into investing. We are at a critical turning point that will allow layer 1s to differentiate the value add they provide to the broader ecosystem and Algorand has the ability to lead the way due to its ease of use and exceptional tech stack.
Instead I think the foundation should focus on rewarding (i) entrepreneurs and innovators who are challenging the status quo of projects built in the crypto ecosystem, (ii) Active developers who contribute to open source protocols/new use cases, (iii) non-crypto oriented institutions (read: not exchanges) who are focusing on building in the decentralized ecosystem, and (iv) community participants who actively help the brand of the Algorand ecosystem through contribution efforts (almost in a DAO type model). Rewarding DeFi holders and NFT creators, while important, should not be the main focus as we will become susceptible to the same hype cycles that are ongoing within the other layer ones (look at Terra - what use is there for UST besides anchor protocol). These are temporary cycles of prosperity; not necessarily leading to long term accretive value.
Instead lets focus on building an institutional brand around Algorand, focus on promoting entrepreneurs who are exploring new use cases that can benefit from a decentralized model and diversify the participants and capital allocation within the Algorand ecosystem, and focus on getting more participation from current, actively involved community members through workstreams/projects that can be rewarded with ALGO.
The NFT hype train and DeFi hype train are great for short term value addition, but do not equate to long term user attrition, developer attractiveness, or institutional adoption. In my opinion, those will be the key fundamental value drivers that will create ecosystem value.
This is where I would put a bunch of rocket emojis
post by Algorand411 on May 4, 2022
jaclarke](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
+1 couldn’t have put it better
post by Conscious on May 4, 2022
Conscious xGov Councillor 2025
1
I’ve written a long proposal viewable and formatted better here:
post by KennyG on May 4, 2022
Riley](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Great comment! How can we include Governance in TVL? My suggestion was to run Governance through DeFi platform vaults. Then holders can participate in DeFi if they chose and the Dapp registers the TVL.
post by JonP on May 4, 2022
I’d love to see some progress evolving governance.
Firstly the foundation is spending 70,500,000 Algo to ask 57,221 Governors an A or B question, that’s on average 1,232 Algo per Governor, it would literally be cheaper to pay a human to go to their house and ask them in person, it feels like a very inefficient system for that reason.
Secondly I agree that having a risk free rate of 7-10% drowns out the possibility of defi competing. What I’d love to see is a system where you can be both a governor AND use your tokens for defi simultaneously.
Thridly a suggestion I’d like to make is giving people 0.001 “Gov tokens” each time they make a transaction. That way the people who use the network can be the ones who vote on what happens to it and no locking is required.
Good luck with working on it
post by oysterpack on May 4, 2022
Heading link High Level Design Proposal
Design Goals:
- Link Governance rewards distribution to DeFi KPI metrics
- Empower and incentivize DeFi projects to innovate, grow, and add value to the Algorand ecosystem
Heading link New $GovALGO Reward Token
Two tokens are used for Governance seats with different weights: $ALGO and $GovAlgo. For example,
- 1 $ALGO = 1 vote
- 1 $GovALGO = 10 votes
$GovALGO is modeled as a loyalty reward token, e.g., airline miles rewards that can be redeemed. In this case, $GovALGO is redeemed for votes and Governance rewards.
Heading link High Level Design
- DeFi projects reward participation using $GovALGO.
- Governors can commit $ALGO and/or $GovAlgo to Governance
- When $GovAlgo is committed to Governance, then it is returned back to the pool.
- Governance commitment is a hard commitment enforced by smart contracts. Governors can withdraw with the following penalties: All $GovAlgo rewards are lost. A 10% $ALGO exit fee is applied and added to the Governance reward pool.
Heading link Benefits
- No change is required to the reward pool size. DeFi projects are free to innovate and integrate with Governance, e.g., AlgoFi vaults, Folks Finance liquid staking, AlgoGard vaults.
- This process aligns Governance rewards and voting power with the level of DeFi activity. Active and engaged defi Governors will be rewarded with greater voting power and with a greater share of the Governance rewards.
Heading link DeFi Project Roles and Responsibilities
- Projects must apply to be accepted into the $GovALGO program. They must be approved by Governors with a 2/3 majority vote.
- Each approved project is allocated a base budget. The project’s budget will be aligned with KPI metrics: TVL, on-chain value, accounts, transaction activity, etc. In turn, projects may delegate to their project Governors how to best make use of the $GovALGO budget to promote growth.
- Proposals may be submitted to expel projects from the Governance rewards program. A 2/3 majority vote will be required to expel projects.
- Projects are required to be fully transparent. Standardized reports on KPI metrics and $GovALGO distribution must be published quarterly.
Heading link Final Thoughts
The proposed high-level design is simply that. It is a starting point to model a solution. There are many details and specifics that require more thought and a deeper dive. The devil is always in the details.
post by KennyG on May 4, 2022
just_a_guy72](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Why can’t we do both? In my opinion, the Foundation has mostly been focused on institutional investment. I would say in the last 9-6mo they started focusing on Retail. Why? Retail investors do more that just hype the best yielding L1. They bring awareness, which brings innovation, growth and most importantly talent. Hivemind may be a good example, and what are the focused on? Gaming. I understand your long term point of view, but maybe we are in a race to capture innovative talent. Its not coming from institutions. Talent is leaving institutions to come into a retail driven space.
post by KennyG on May 4, 2022
oysterpack](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I like this and think it would be a great starting point. While I worry about creating Tiers, these ideas are more acceptable. Nice! thank you
post by pmd on May 4, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Fully agree with @michel.
A very basic example: even just devoting 1/10 of 280M Gov rewards to DeFi Govs means approximately +30% APY to current Defi Govs, and +10% APY even if they triple. We can discuss here to come to a solution which is fair to everyone.
I really don’t think it’s the right way to think about this issue. The point is not to be “fair to everyone”. It’s to allocate our resources where they will have the most impact.
The fact that we currently incentivise governance should not be taken into account. We should not be driven by inertia.
Governance is an interesting concept and one we should keep. The question is: should it be rewarded?
My conviction is that rewarding governance is useless and that we should allocate 100% of governance rewards towards DeFi.
post by oysterpack on May 4, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I agree with everything you said, except for the part about doing away with on-chain Governance.
I don’t think it is hard to align Governance financial incentives with DeFi ecosystem growth … high level design proposal
post by AlgoTrillion on May 4, 2022
1
Hello everyone,
This may echo some existing comments but these are my thoughts on the general governance questions.
Governors should be primarily motivated by the role of governance, not attractive low risk returns.
If they are participating in governance primarily for financial return then how much serious consideration will they give to voting and proposals, as opposed to not voting, voting with the foundation or the simple majority. This is not effective or nurturing of robust governance.
Additionally, I was concerned by the potential consequences of having xGov status that is basically “pay to play”, the more ALGO I commit the more weight I have to control the narrative by setting voting topics. This structure does not honour the principles of decentralised governance and particularly the ethos of Algorand’s model.
For these above reasons, I think that governance should be:
- A longer commitment (1yr)
- A fixed ALGO commitment per governor
- Penalties for breaking governance
- Fixed annual reward which represents attractive compensation for the job
This will dramatically reduce the number of people interested in governance but my expectation is there will still be a very healthy number of people, myself included, who would like to maintain the status of governor and actually do the job of governance.
Under the above model, the current resources allocated toward governance rewards (280M/yr) would be largely intact to be deployed in other ways. I believe there should be a number of areas:
Node operators – we should be incentivising the continued decentralisation of the Algorand network so resources should be allocated to reward node operators. Perhaps weighting rewards to new nodes coming online and then tapering off so the cost of setting up a node can be recouped over a realistic time period.
De-Fi participation – Growing TVL through active De-Fi participation is hard to argue with and the bulk of the existing governance rewards should be routed in this direction to reward the most committed De-Fi users. However, I have a few caveats.
Firstly, who decides which De-Fi platforms will be allowed to participate in this because having these rewards will act as “king maker” in what should be a free market dynamic.
Secondly, having these rewards to offer will increase the success and therefore the profitability of these De-Fi platforms which are privately owned enterprises. What commitments will they need to agree to in order to participate, for example, providing grants that give back to the community development or ensuring added security through insurance provision, bug bounty schemes, treasury accruals etc. - this shouldn’t be a free lunch for the De-Fi platforms.
Finally, resources should be retained to promote these rewards outside of the ALGO community. My impression, at least early on, with the Aeneas program is that it has mainly shifted the existing users around as they look to mop up the available rewards. Any new long term reward scheme has to make attracting new money its first priority and that means investing in proper promotion to other chains and off chain.
Passive ALGO holders – if an elegant solution can be found which offers a sufficient APR that bears comparison to other chains then rewards for passive holding of ALGO should be returned. If there are not sufficient resources to provide an attractive APR then we should not do something that can be used as stick to beat us with.
post by LuisERodriguez on May 4, 2022
myshkin](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Agreed on this. Participation on DEFI should not be forced. But governance should not override incentives to participate on DEFI. So the solution should be to count all ALGOs in governance including ALGOs held in other smart contracts, or ASAs.
post by ARO on May 4, 2022
I have used AlgoMint, Algofi, TinyMan, etc., and I have helped out with beta testing some projects. I’ve also been involved with governance since the beginning, and I’ve been an Algo holder far longer than that. That having been said, I am concerned about what is being proposed.
First of all, what is governance supposed to actually be? The governance page states “Earn rewards for your participation in the decision making.” Not, “Earn rewards for participation in DeFi.” So I think that we are possibly fundamentally straying from the purpose of governance with what has been proposed, and instead we are developing another Aeneas Program that is blended with voting.
I think that before we can address your question, we first need to clearly explicate what the ultimate goals of the governance program actually are. Do you just want to get as many votes as possible? Why do you want voters who are active DeFi participants? Personally, I would rather have a smaller number of thoughtful voters who are active on boards such as this determining the future of Algorand, versus 100,000 users pressured into DeFi and clicking “A” or “B” just to receive payment. If the reason is simply ecosystem health, then maybe we have to question the fundamental idea of locking Algo for voting, versus an active incentive program. Again, without clearly seeing a list of all of the major goals of governance listed in one spot, I have a hard time saying what I think is the best course of action.
I strongly urge the foundation to pause the drive towards these changes, and instead have a thoughtful, honest conversation with the community that doesn’t just ask for rules, but actually lays out clearly stated goals of governance and challenges that we now face. Then, we should have a serious conversation about how to best achieve those goals, and whether governance is even the appropriate mechanism for achieving some of the objectives.
post by jackiealley2 on May 4, 2022
jackiealley2](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
thinking I need to learn more about, thank all of you for all your work
post by michel on May 4, 2022
pmd](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I agree with @pmd, the discussion should focus on how inflation should be allocated into what can generate the most impact towards Algorand adoption. Any solution where not a single Algo is going towards inactive, non-value add stake is a much better one to the current system.
post by TJay_Sez on May 4, 2022
Hello everyone, I’ve never been a part of any governance before so this is a really cool experience and I’m no big bag holder by any means but I plan on being one day! That being said, I think it’s awesome that I was even eligible to be a part of this. I will say a lot of the stuff I’m reading here is EXTREMEMLY insightful and I can tell these are things that have been weighing on every one of you. So far I have to say I agree with the ideas that are trying to get AWAY from anything involving rewards to zero-value add stake. Adoption is key and if we can implement the ultimate hedge against inflation while also incentivizing active participation in the ecosystem; that’s what I’m likely to be supporting.
post by nsalgo on May 4, 2022
As someone who falls in the middle I feel we need to come to beneficial compromise. I came for the staking rewards and ventured into DEFI, but not risking my entire bag to hacks and rug pulls. I do both at a responsible level. We need holders and risk takers to make this work.
post by GoalDarn on May 4, 2022
While I agree that the current Governance rewards structure doesn’t incentivize active participation beyond voting, I don’t like the idea of DeFI participation being linked to rewards (‘official’ rewards—of course you can still get yield).
I do like the idea of incentivizing active participation in Algorand, but I don’t think focusing on those who add liquidity to DeFI is the answer. I think it could have unintended consequences and lead to neglect in other areas, and might lead to a very unnatural DeFI ecosystem where instead of cause (adoption) leading to effect (healthy DeFI/TVL metrics), one tries to mimic the effect and hopes it somehow brings about the cause. I would have no problem taking some significant Governance rewards away from Governors (that’s me too!) in order to aggressively advertise specific dApps to parts of the public, or to help assist in developing useful dApps to begin with so there exists something to market, but choosing “any DeFI with over $X TVL” as “the winner” doesn’t resonate with me.
Also, there is still no motivation for people to run consensus nodes beyond pure altruism, which seems important, so is there a way to add that requirement to Governance on top of the locking and voting requirement?
post by Conscious on May 4, 2022
Conscious xGov Councillor 2025
nsalgo](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Read my proposal here: I think you would like the strike in balance between DeFi and holding Algo in the wallet.
post by HolisticNicole on May 4, 2022
AlgoTrillion](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Excellent points. I especially like your ideas regarding governance model adjustments. I don’t feel like these adjustments are massive breaks in the overall spirit or idea of Algorand, but they adjust current function to address flaws in the system as it operates right now. This is a concept that I believe could be worked with. Thanks for posting this!
post by HolisticNicole on May 4, 2022
This. This is the center of this issue. Your entire post is 100% spot on. We aren’t discussing just altering governance with this proposal. We are discussing a fundamental break with the core objectives of governance. This is serious, and I think it warrants much more thought than 2 weeks, last minute, as a substitute to whatever they had planned for a vote prior to this.
Kudos on such an excellent, well articulated post.
post by TJay_Sez on May 4, 2022
I agree 100%. Governance is important for trust in this space and the only way forward (that benefits holders) is a REAL discussion on weather the original intent of governance in the first place is even still in sight here. We need not focus on how high of pressure we can put on the defi space to bolster our price. We need faith, security, trust, and true governance by and for the community if Algorand is going to be the stated currency it was intended to be.
post by jmob on May 4, 2022
I agree with Michel but I have some reservations. Yes, it’s hard for defi to compete with no risk holding through governance. However, I am in governance because defi has so many problems. Mainly, they get hacked a lot. I’ve invested a lot of money in Algorand and to think that an error in a smart contract could wipe me out is just unacceptable,
Frankly, it’s a big ask when you consider the poor price action algorand has delivered thus far. It’s a catch22. People, are in fact holding and not taking risks.
What I want to see and what I want to feel is certainty.
If you want people to participate in defi, you have to foster a space that can be trusted. Stop verifying ASA’s that are rug pulls. KYC should be mandatory for verification. Until that happens there is no way in hell I would ever participate.
That being said, I love Algorand.
post by oysterpack on May 4, 2022
HolisticNicole](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I think folks are missing the big picture.
Heading link What is the mission?
The mission is to maximize ecosystem growth and decentralization.
Thus, the question boils down to: Should more $ALGO be allocated to Governance rewards or DeFi rewards? The question is then: What creates more value for Algorand? What is more aligned with the overall mission? DeFi economic activity creates significantly more economic value. Thus, financial incentives should be significantly greater for DeFi vs Governance.
Heading link Simple Solution: Less Goverance Rewards and More Aeneas Rewards
Let’s lower Governance rewards by 75% and moving those funds to the Aeneas Liquidity Program … and call it a day. As a positive side effect, this reduces the wasted rewards that are sent to centralized exchanges.
Note: this has nothing to do with xGov. We should proceed with xGov as planned.
post by majicman42 on May 4, 2022
jaclarke](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
John, just wanted to say that I really love using Algofi, such a great platform. Have you guys considered incentivizing ACATs In transfers to Algofi from other chains with additional rewards or a one time bonus payout depending on the amount and time period (eg. 3 months) for the funds transfer? I think this would be a great use of some of the Governance rewards pool if it was used to bring more people into the Algorand ecosystem.
post by javier0rosas on May 4, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
@michel could not have said it any better. Deploying governance rewards through DeFi to reward developers and true believers who are willing to take smart contract risk for high APYs (also known as degens) is the right move. This will increase TVL and incentivize more developers to come into the ecosystem, creating a self-reinforcing network effect and hopefully causing more demand for $ALGO, which has been underperforming over the past 6 months relative to the Altcoin benchmark.
For some context, here is a graph of ALGO-PERP vs ALTCOIN-PERP over the past 6 months.
\ Screen Shot 2022-05-03 at 10.09.43 PM1920×1200 114 KB](https://us1.discourse-cdn.com/flex016/uploads/algorand/original/2X/2/285064df13cd21c0d2a9a38afef376da3132f34e.jpeg "Screen Shot 2022-05-03 at 10.09.43 PM")
Clearly, $ALGO has been underperforming the benchmark and this is unnacceptable given our superior-tech and novel consensus mechanism. Web3 developers should be flocking our ecosystem like crazy, but they are not (partly because Algorand is not EVM compatible), but partly due to the lack of governance & stablecoin incentives that other blockchains like Terra are hammering down on.
post by HolisticNicole on May 4, 2022
Yes. But I don’t believe sacrificing governance is a good idea, and if we transfer the algo distribution to effectively just pick winners and losers, are we really creating more decentralization, or less? Honestly, I think the answer (at least in part) is that governance needs to be given more to do, and have more “stroke” over decisions and direction. Maybe ultimately this will happen, but right now I think it’s largely unimportant… which is really too bad. I think instead of tying governance PARTICIPATION to DeFi, maybe we should look at tying the REWARDS to DeFi. Rewards issued through a defi platform smart contract, staked or providing liquidity and locked for a pre-determined amount of time (6 months? 12? I mean, maybe even longer! I’d lock my rewards for 2 years.) before they can be claimed. That gives you 280 million coins/per year that are REQUIRED to participate in DeFi, without altering anything else - including the vision or roadmap of governance. It would also prevent taking rewards and immediately dumping them - especially by exchanges.
Totally. And I think something needs to be done about this issue. I don’t think anyone is under the illusion that exchanges are going to vote with the best interest of Algorand in mind. For the love… Coinbase won’t even display $algo on a Top Movers list or post news/announcements (ZERO mention of the FIFA deal, which had to be one of the biggest announcements in crypto of late). Is there some way that Exchanges could be made ineligible altogether? Ultimately, they’re really a big part of our problem in a lot of ways.
post by fig on May 4, 2022
1
First off, excited to see folks jumping in here.
Algorand is in need of greater discussion surrounding governance and more visibility among the wider Web3 ecosystem - this is a great first start.
Passion is important but I would caution against a complete redesign of token economics. This change can be messy and complex, including arduous smart-contract work.
While the original sentiment is well-intended @michel a high reward on Governance is a great way to onboard new users to the network. It is similar to the other L1 incentive programs outlined by @jaclarke
I do agree however it may throttle and deter use across Algo-native DeFi protocols. Exploring a solution seems beneficial. Let’s look at some data to inform our decisions:
A whale, as defined by the top 0.5% of all accounts, participates at lower levels in DeFi.
95.5% of whales have not swapped on DEXes. Please see the distribution below:
\ 1416×964 50.7 KB](https://us1.discourse-cdn.com/flex016/uploads/algorand/original/2X/6/64219115e5de044e644c004c021df05ebaa73a80.png "")
You can take a look at the in-depth analysis here: Flipside Crypto - Algo Whale Swaps
Second, let’s look at rewards distributed via Governance for Period #2: Flipside Crypto - Governance Period 2 Payouts - Daily (unable to include embed because user level )
Looks like the average reward is 10-50 ALGOs, with 10,571 wallets receiving this amount.
Have we thought about 25% of total governance rewards being distributed to DeFi protocols? Based on past rewards this would be around 12,000,000 ALGOS. 50% would be 2x this number.
Returning to the OP - my fear is an approach like this seems very game-able:
It is reminiscent of “airdrop farming” - where users enter during a certain block to receive 3x rewards and withdrawal soon after the snapshot or time of capture.
This however, is doable, and Flipside Crypto can help with this if you decide to pursue it:
If you want to look into this list as mentioned above, we have the data that could be used to identify wallets that have engaged in DeFi activity.
A guiding question around DeFi participation & risk-reward: Does an extra 5% from staking incentivize one of these whales enough to participate in DeFi and take on smart-contract risk?
Excited to continue this important discussion.
post by Massimo on May 4, 2022
majicman42](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Thanks for the great discussion on this first day. Answering to @majicman42 because you may appear off track, but I think you are not. The main purpose of this discussion is getting as much as possible what @majicman42 is already doing: users talking directly to developers and entrepreneurs to find ways to bring more and more users to Algorand.
We are a decentralized ecosystem and this is what we all want. This is also why we have a Decentralized Governance, that needs to be more and more decentralized. As long as the Foundation has a role, we commit to help. We all agree here that we want Governors that are ready to bring value to Algorand, and reward them consistently, this was the spirit since the very first Silvio’s blog. Fortunately things have evolved since then and we see from this debate that we have different choices, even if I find that attention to DeFi is largely shared. Finding the right balance is the purpose of the initial questions we posted, and for sure @javier0rosas, we want to see the green line back to the right place.
For those who asked about xGovs, we have been working on that as well and will bring them soon to the discussion.
post by No-Cash-7970 on May 4, 2022
just_a_guy72](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Thank you for saying what I’ve been thinking and been wanting to say but in a far more eloquent manner than I ever could.
post by oysterpack on May 4, 2022
HolisticNicole](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
You gave me an idea … I still favor reallocating rewards from the Governance bucket over to the Aeneas bucket, but I would change Governance to liquid staking (like Folks Finance but zero fees taken). ALGO liquid Governance provides the following benefits:
- It enables the Governance $ALGO to be counted towards TVL
- It unlocks the staked ALGO value for DeFi
post by ARO on May 4, 2022
If @Massimo, @shaih, or anyone else at the foundation has a document that already clearly lists these somewhere within it, please just provide a link and I’ll read through it. Thanks!
post by HolisticNicole on May 4, 2022
oysterpack](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I’ve heard of Folks Finance, but I’ve not made it over to use it yet. Would you mind explaining what makes their approach unique?
post by oysterpack on May 4, 2022
Folks Finance explains it well: Algo liquid governance.
Folks Finance charges a fee for the service - 5% of the Governance rewards goes to the Folks FInance treasury. The Algorand Foundation version of Algo liquid governance would function the same way minus the fee.
post by D3G on May 4, 2022
It doesn’t happen the same thing now with the gov, 100k apes voting for A or B . And imo, the all point of decentralization it’s not to have just a hand of ppl to decide for everyone.
post by Rambutan on May 4, 2022
2
increase lock up period for governance to yearly basis instead of quarterly. Make governers run nodes or participate or do something besides just lock up tokens to get rewarded. - but whatever you ask them to do, you need to provide full tutorial videos on how to do it, step by step and I mean step by step. Like teaching a monkey. Assume users don’t know how to shut down a computer. This level of tutorial is needed if you going to make governers do whatever they have to do.
all liquidity providers on tinyman should get additional rewards. - have different tiers. Someone who has been providing liquidity for 4 months should be rewarded more than someone who has provided liquidity for 1 week. (Impermanent loss is a real issue so rewards for LPs is ideal).
Reward each LP address proportionate to their LP tokens.
Focus on making 1 main defi platform successful to the masses - tinyman is best, easiest to use, safe, secure, solid - we don’t need 5 different defi platforms - this will just lead to fragmentation. Encourage users and LPs to hop on tinyman.
Make tinyman the go to DEX of Algorand for users, institutions, banks etc.
post by ARO on May 4, 2022
D3G](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I have concerns about the current system too because I don’t like pressuring people to vote. I would like to think that the vast majority of current governors actually do care, but I’m sure there is a percentage who put virtually no thought into the vote and simply click to get the rewards. I fully support making voting as accessible as possible for people who want to do so.
post by dmclancy on May 4, 2022
1
@shaih , how has the Foundation studied other forms of stakeholder governance that leverage dual-class voting structures (ex. founder shares in the US, super voting shares in France, voting shares in Brazil) and the impact on rights to future earnings? Is there something to read about the major influences on the xGov proposal?
My primary concern with further stratifying direct economic incentives to vote is that it would further entrench larger players and that the administration will become increasingly complex. Both could be centralizing forces.
I agree with the DeFi builders in the ecosystem ( @michel) that they should not be forced to compete with the Foundation on yield.
post by GoalDarn on May 4, 2022
Strongly agree with that.
post by Algo_Cleanup on May 4, 2022
I just had a general thought. Algorand is the future of finance. A major aspect of that future is decentralized finance. That is why I fully support the foundation’s initiative to reward those that help forge the path into this future.
post by Conscious on May 5, 2022
Conscious xGov Councillor 2025
Made a twitter thread which may be easier for some than the google doc if you’re on mobile.
post by YSF on May 5, 2022
I think @ARO hit the nail on the head.
What is Governance supposed to be? What is its purpose?
I feel like Algorand has gotten too ideological too quickly, without consideration of the practical implications.
Communism is a great ideal if we were to look at it on paper. However, in reality, it didn’t work out even once.
Just what is the purpose of Governance? To create more coin inflation? Because currently, that is literally the only thing it achieves.
A few people in the thread mentioned how they were attracted by Algorand’s governance system and don’t want it to be changed. I want you to ask yourselves honestly, do you really care about voting either A or B on a single topic that has not been fleshed out at all so as to be completely meaningless, AND your vote doesn’t ultimately matter anyway because exchanges and the foundation together hold a vast majority of the Algos in governance, and exchanges by default always vote with the foundation…
There are so many things wrong with the way governance works today, so much so that it’s just a complete waste of time for everyone involved. And with the way governance is currently designed, important, specific implementation details would never get put up for vote, nor should it ever get put up for vote either.
The entire governance system as it is, is a huge nothing burger, only creating useless coin inflation while suppressing the other parts of the ecosystem.
The ideas of increasing the voting weight for DeFi users or node runners, is, in my opinion laughable because of the points above; the entirety of governance as it is right now is completely pointless and useless. So what’s the point of giving more voting power to DeFi users or node runners? It’s not an incentive at all.
Additionally, if we go with some of the proposals in the OP, doesn’t that actually create a lot of potential points of abuse and centralization in the governance system? We’d have to trust DeFi protocols to not game the system, fudge their TVL, fudge the numbers they report to the foundation, etc etc etc.
So in my opinion, incentivizing nodes, and incentivizing ecosystem growth makes much more sense. Any potential negative effects of incentivizing nodes, these convoluted governance structure proposals have the same negative effects. However, they have none of the benefits.
That said, I believe that ecosystem growth should be as sustainable as possible; if we were to simply allocate all of the governance rewards to DeFi like the Aeneas incentives, what happens once that runs out?
Therefore, I believe the rewards should be split into 3 streams:
Stream 1: Incentivizing Nodes.
This will be like the “risk-free governance APY” currently. If you want risk-free returns, then at least do something for the ecosystem. And no, taking 5 seconds to randomly click A or B every 3 months is not doing anything useful at all for the ecosystem.
These incentives could further be split between relay nodes and participation nodes.
Stream 2: Ecosystem growth
I think the vast majority of the money should be here. Instead of giving money to people rehypothecating on DeFi platforms, money should be given to developers to attract them into the algorand ecosystem.
Things like the $10 million EVM compatibility supagrant as well as the $10 million developer tools supagrant are great, but we could put a lot more money into similar initiatives. More importantly, by rewarding the developers in Algos as opposed to USD, it gives them much more incentive to stay in the ecosystem and continue developing for it afterwards.
Secondly, we need to encourage new innovations instead of always following behind and copying what Ethereum and Solana has. Thus, incentives could be given to teams that manage to create new innovations on Algorand, or teams that manage to attract a huge amount of TVL, to be determined every year or so. We could even actually have some useful governance, to determine which projects the community feel should receive these incentives by the end of each year.
We also desperately need to pay more attention to onboarding people who matter. There are huge alarms and red flags everywhere, when, in algofam chats, we here teams talking about how they cannot get VC funding despite having personal relationships with the VCs just because they’re building on Algorand; we hear people like Michael Cotton talking about the lack of institutional tooling to be able to safely deploy funds to Algorand’s ecosystem…
There’s also a huge problem with stablecoin liquidity on Algorand because Algorand based stablecoins are hardly accepted anywhere…
These are HUGE problems that need to be solved ASAP no matter how many millions they cost, and I guarantee they will give far more bang for the buck than wasting tons of money putting up 1800s style billboards and banner ads everywhere.
Stream 3: DeFi incentives
Finally, like @jaclarke and many of the actual devs in the ecosystem has so eloquently laid out, if we want to compete with other ecosystems, we need to have similar incentives. Thus, I do believe that in the near to mid-term, some more DeFi incentives like the Aeneas incentives should be given to help grow the entire ecosystem.
If Algorand really wants a governance system, it needs to be seriously reworked from scratch so that people can freely vote on topics they care and know about. And I believe that governance should not be incentivized, because incentivized governance creates far more problems than incentivizing node operators.
post by permarugbear on May 5, 2022
If the Foundation is pushing for DeFi adoption they need to guarantee a high degree of security by implementing hardware wallet integration and insurance for DeFi losses and the Foundation should be tasked with approving DeFi projects by performing its own security check on these DeFi protocols.
Without such guarantees and reducing the passive rewards whilst giving extra votes for governance is not attractive to current users.
But if this has to be implemented, the original amount assigned to DeFi users must be significantly more than the current Aeneas Rewards because even with the introduction of the Aeneas Rewards, DeFi TVL only increased by an insignificant amount (relative to other L1 chains). UST is paying 20% and ETH 2.0 is rumoured to pay out 20% as well. Given the market cap of ALGO, a head to head competition does not make sense but most crypto holders chasing yield will look at numbers only.
The underlying problem is not only the incentives, it is the opportunity cost of holding ALGO. The most important issue is to reduce the “structural selling” by the Foundation and to negotiate and reduce sales by early investors and whales. Even if you increase the APY to 100% but ALGO prices go down by 50%, it will not compensate investors (which has happened again and again). This is exactly why the ALGO DeFi space has not proliferated despite the speed and cheap transaction fees.
The ALGO ecosystem is small, shifting the rewards from users to other users does not make sense. The goal should be to attract adoption by acquiring more users.
post by umr on May 5, 2022
GoalDarn](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
That will make the governance centralized (similar to HBAR, although I do not know much about HBAR). We should aim to involve as many Algo holders as possible in the governance to make it decentalized.
post by Syzygy on May 5, 2022
I am a big fan of what algofi and folks finance are doing to allow Algos to engage in both defi and governance, however think it should remain as a ‘third party’ solution, and trying to incentivise governers to take extra risk for more votes is a really bad idea. The purpose of Algos is security: to secure transactions (nodes) and to secure the direction of the chain as a whole (governance). If people want to use their algos to participate in defi, sure go for it, but I don’t think it should be necessary to take the risk and complication to maximise votes. It would probably also be very unattractive to institutions wishing to buy algos to secure the chain, and we want buying algos to be an attractive proposition, raising market cap and thereby providing greater security.
Having additional governor rewards for going through defi, or in general participating in the ecosystem, I am not against. But extra votes/voting privilages (like xGov) I do not want to see. Regardless of what is voted on this round (if anything; no need to rush a poorly thought out plan) I would like the option of voting for changing governance to something similar to the system originally proposed by Silvio back in 2020, which I thought was fantastic: providing the right incentives and balances in a clear and simple way. This does not cover how to propose new voting measures, but as a system of normal (non-xGov) governance I much prefer it to the 3 month soft lock, which I find too short a commitment, too slow to respond to previous votes, and not keen on all algos being ‘unlocked’ at the same time. A rolling system makes more sense to me. A longer lock may also encourage defi interaction with algos.
For however the xGov system will work, I think we should vote on using the method proposed in 2020. It is important to get right, and not imperative to get done immediately. Something like having an online stake over a certain amount (e.g. 50k) participating in consensus is straightforward and encourages participation nodes. A small reward (e.g. 1%) to all online stake would also encourage participation - if I am holding algos anyway I may as well put them to work, even for only 1%. xGov wallets could then propose measures to vote on, and any measure that got over a certain threshold (e.g. 20%?) of support could be put to the wider governance community. Each xGov wallet can give their support, weighted by number of algos, to as many measures they think need voting on. xGov rewards should probably not be further incentivised beyond ordinary governance rewards, or the addition reward should be very small. In general, for the foreseeable future, I would be more than happy with the foundation choosing the measures based on what is being requested in the community.
For relays, I personally like the reward structure of deciding a number of relay nodes ‘required’, deciding what a fair reward is, then splitting the total reward across all performant relay nodes. E.g. if we want 100 relays, and think 2000 algos a month is a fair, reasonable reward, then share 200,000 algos a month between all perfomant relays. This strongly encourages setting up new nodes when there are fewer than 100, and cost saving and competition when there are more than 100. There should probably be some weighting relating to how performant a node is (based on uptime/availability/latency) as well as geographical location, if possible. This is to spread relays out and stop centrilization in one country/continent.
These numbers are obviously able to be changed through governance, and at some point will be paid out of the transaction fee pool. The remaining fees can then be used for governance rewards, and maybe for ecosystem incentives, should governors think that is beneficial.
Apologies for what is probably rambling, I’ve never been good at getting thoughts on paper. My main point is I want to vote on switching to the method of governance proposed by Silvio in November 2020. Also, 1 Algo = 1 vote is essential in my view.
post by Mr13 on May 5, 2022
What is the goal of governance rewards? To increase adaption or to increase participation in governance?
We can clearly assume governance rewards are meant to increase adaption in the Algorand ecosystem, hence the Algorand Foundation is looking for ideas of providing the rewards to Defi instead of passive holding.
To increase both defi and still providing rewards and increase adaption, I would suggest the Algorand governance rewards to be utilized as collateral in defi, for example in Algofi where the Algo rewards are supplied and then borrowed in Algo to provide the borrowed algo in rewards to the governors.
Why go through this? First of all, to increase adaption, the price has to be attractive. Just providing rewards will just inflate the tokens and reduce the price. Smart investors will see, in the end it’s not a reward due to the inflation caused. In FIAT terms, you are either worse or back at the beginning.
By using the reward in defi as collaterol first, Algorand TVL increases and being utilized. By borrowing ALGO for rewards, it means less Algo is available, instead of just inflating a huge portion of Algo is locked and another portion of Algo is being taken out of the circulation supply and being redistributed through rewards. All in all, this will increase Algo demand and increase the price of Algorand.
Increasing the price + earning rewards = real incentive.
Of course, each DEFI protocol should get a share of the governance reward to be used as collaterol. More creative ways can be thought of.
As of now, aeneas reward is somehow great, still the same problem resides. It inflates ALGO hence the rewards suppresses the price, which suppress adaption. The rewards should be used in a more creative way instead of just dropping it.
Happy to hear more thoughts on this.
post by bruno on May 5, 2022
2
I have the following plan to make sure that all of the the Algo’s that participate in governance automatically participate in consensus:
What if participation nodes will be used as a sort of ballot boxes. Imagine that each node can choose a voting option and lock in its decision. Then people can register their voting keys with a node that they agree with (or they can run their own node!). Then the nodes proceed to vote with all the Algo’s that they have voting keys of. In this way we can have all the money that is participating in governance automatically participating in consensus.
About DeFi: I do not think that DeFi users should get extra governance rewards. I find the liquid governance system of Folks finance elegant. It could be implemented natively in the blockchain (to not give too much power to individual dApps who run these liquid governance programs).
post by bruno on May 5, 2022
permarugbear](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I think selling by whales and early investors is a good thing, this spreads the Algo’s and makes the blockchain more decentralized.
post by Wizneber on May 5, 2022
I believe that the defi involvement should be voluntary and not mandatory and certainly not rewarded. Governance should be able to be independent from any 3rd party system in order to prevent undue influence and rewarded at a consistent rate. Also, while there are mechanisms that could be put in place to prevent abuses within defi I do not have sufficient confidence in any defi platform to create an additional reward for participation in any one platform over another. If there ever will be some governance incentive that involves DeFi it MUST be platform agnostic and in that sense I don’t see a clean way where any requirements are not eventually abused to favor one platform over another.
I understand the desire to provide more TLV into the DeFi ecosystem as opposed to the existing soft lock that governance provides today I do not thing they should be forcibly mixed. I applaud the efforts of platforms like AlgoFi and the vault and other similar platforms but participation in those systems should be voluntary and not required. We, as a community should let the greater market forces to drive the development of DeFi and not incentivise it via governance. There are other incentives in the greater market to push the development. I think the community and the market will create these solutions organically and the foundation and governance mechanism should not force them, there is no additional incentive needed. Also if it is the case that defi offers greater returns than governance then individuals can choose to skip governance if the greater returns are more important than participation in governance. Participation in governance for the sake of governance and the relatively simple governance rewards should be all that is needed. If anything I would more easily support significantly lowering the governance rewards in order to leverage market forces to push people to the DeFi ecosystem rather than intertwine the two more than they are already.
In summary,
- Governance should continue to be simple, open to all, and not require specific 3rd party apps or platforms.
- Voluntary participation in 3rd party platforms should not have additional rewards just for governing.
- Market forces are sufficient incentive for DeFi platforms to provide greater rewards with associated risk
- Governance rewards should match the effort, time, energy, risk, and opportunity it takes to participate.
- The market will create options and individuals can choose to use those based on their risk tolerance and desire for return including the option to not participate in governance.
post by the_BERG on May 5, 2022
Hello, I think the Governance is great but it does lock up secure ROI without needing smart contracts or interaction. Which does severaly lock us out of TVL. Defining who participates int eh DEFI or how to offer hire rewards is no clear cut and dry, for example, im a YouTuber I bring many eyes and ears to the defi platforms and projects. I contribute quite alot without actually building the DEFI space ( just one example) yes you should reward development in some way but you already do through grants?
IMHO a suer staking reward system was more attractive to alot of people. that 4% coinbase staking rewards were nice for people. You need a way to offere governance and staking rewards. If governance is say 8% split that up. 5% for staking and 3% for governance with an addittional 1% for defi participants.
I am not sure the exact breakdown, but I enjoyed the super staking and this is one of the reasons I found Algroand the 4% staking. Then I started deep diving into algorand.
We need a way to bring back GOOD staking rewads and governance IMHO
post by ARO on May 5, 2022
If voting really needs to be rewarded, governance could be changed:
Governance rewards could be placed in an Algo investment fund managed by the foundation. That fund could be used to provide low-interest startup loans for novel projects, and also to directly inject Algo into the ecosystem. Investment could include providing collateral through DeFi projects, buying NFTs that are likely to appreciate, etc. The goal would be to grow the fund while simultaneously improving the Algorand ecosystem. Transparency and fair, defensible investing would be key.
Governance voters would receive a governance token that would mature after X years and entitle them to a certain amount of the Algo investment fund. The timeframe would have to be considerable. Voters therefore would be the people who believe in the long-term success of Algorand, because of the lengthy timeframe and the fact that the investment fund would be tied to the success of the ecosystem. Significant challenges would still obviously exist here, and sufficient barriers would be needed to block bots and deter bad actors. Perhaps KYC would even be needed, which I know a lot of people would strongly oppose, but that likely would be the most effective solution.
I’m sure a multitude of serious problems exist with the above idea, but I’m just throwing it out there since the one point that most people in this thread seem to agree upon is that the current system of governance has considerable problems that need to be addressed. I’ll reiterate that I really think that we need to have some meaningful conversations about the fundamental goals, direction, and structure of governance that are likely to take longer than the next few weeks.
post by jmob on May 5, 2022
permarugbear](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Yes! I was saying something similar earlier. I have a decent amount of money in algorand and the risk of getting wiped out by a hack or a smart contract bug is unacceptable to me (and I suspect) most Algo holders.
A lot of us came to algorand because of the staking rewards and the low risk of governance. Most investors are not going to be keen on taking on those kinds of risks. They are going to need new investors with a taste for this kind of risk.
I guess you could say the foundation is a victim of it’s own success. While I agree that defi companies can’t compete with governance, Lowering governance rewards is somewhat of a broken promise. we were supposed to get these rewards until 2030. Defi can’t flourish unless these rewards are lowered.
The biggest problem that algorand has is if they put this to a vote, they will most certainly lose because most will not want to give up the high APY.
What they should really do is just go back to regular staking and remove voting. People are always going to vote for their own self interest when it comes to money.
post by YSF on May 5, 2022
There is no “regular staking” on Algorand, because Algorand works on a PPoS consensus rather than DPoS. If you’re talking about the free airdrops from last year, that’s just pointless coin inflation, pushing down the coin price, and causing more harm than good in the long run.
What you guys don’t get, is that you are already taking on huge risks by holding an extremely volatile asset that could potentially go to 0 if it never gets adopted in terms of actual usage.
Trying to safe-guard “risk-free returns” is, in fact, far more risky, because you’re essentially holding well over half of the entire ecosystem hostage and stagnant. That’s ultimately going to kill the entire ecosystem, and your “risk-free returns” will all be meaningless because they will be worth 0.
Cutting governance returns may cause a tiny bit of short term pain, but bowing down to a bunch of leeches who are only here for “risk-free returns” and don’t care about the success of the entire ecosystem is extremely short-sighted and bad for the ecosystem in the long run.
post by jmob on May 5, 2022
I think you know what I mean in regards to staking. That’s how most people viewed it before the start of governance. Let’s not split hairs here.
You can’t call them leeches. This is how the foundation set it up. They, and only they are responsible for this. You don’t want leeches deciding the outcome? Then they better not put it up for a vote.
What concerns me is that they didn’t see this current problem coming. I’m quite sure they know this and are going to make the necessary changes. Unfortunately, that means making these big decisions themselves and not putting them up for a vote.
post by YSF on May 5, 2022
In reality, if you’re talking about the voting process, the exchanges and the foundation itself holds well over 50% of Algos. Exchanges, by default, vote with the foundation.
Therefore, what anyone else thinks doesn’t even matter. The entire governance system right now is a farce, all it does is create coin inflation.
post by GoalDarn on May 5, 2022
But it doesn’t make a decentralized governance platform “centralized” if you have thousands or tens or hundreds of thousands of entities voting instead of 1M+ entities voting. It is still highly decentralized, just less so than the 1M+ case, but at what cost does that more “extreme” decentralization come at?
The argument here is that you don’t want to optimize decentralization, and decentralization only, at the expense of everything else. It is a multi-objective optimization problem, one in which decentralization is only one of the optimization objectives.
Let me be clear: I don’t think anyone should be shut out from participating in voting if they want to, but would stand by the argument that incentivizing governors to make thoughtful votes and take their job seriously is at least as important as decentralizing governance.
post by thingsname on May 5, 2022
Thanks for this, I also wasn’t aware of this forum. I’ll keep this brief and hopefully respond from a slightly different perspective. I only started investing in cryptocurrencies last year and have been steadily learning. I was attracted to Algorand for the reasons that so many have been, but suffice to say I love the stability, low transaction cost, and that the goals align well with my values, and I see huge long term potential.
As an investor, I’d be very very happy with rewards in the 7-10% range, I see the long term value in price appreciation, and rewards as more of a bonus and inflation hedge.
As far as DeFi participation – I will likely have to install the Pera app and dip my toes in a small way to see where I stand, but what I think may be important for “insiders” to know about DeFi adoption is that even the most established systems do a piss poor job of explaining what it actually is and how and why a newcomer would want to be involved. From the outside, it looks a lot like fancy lotto. Sorry.
Let me give you a concrete example of how and why I would want to participate in DeFi, and what I see as it’s actual promise:
I freelance. I sometimes need to bridge cash flow issues or slow client payments with a credit line or credit cards. This would be an ideal use case for ALGO DeFi, but the way this currently works is utterly inscrutable to someone not deeply steeped in Crypto lingo, and I can’t pay my vendors with a weird stablecoin. I know this is evolving, I’m just restating the (hopefully) obvious point that real DeFi participation is going to ultimately depend on seamless fiat bridging and plain language explanation of what this is and how to, you know, do it.
Related to above, I would contribute to a DeFi pool if I understood the rewards and risks better, but I use multiple Ledger Ss to store my keys, and that is not going to change. I don’t even like the idea of bluetooth and built in power source in the Ledger X, so my DeFi participation in the near term is likely to be strictly limited to a small bag of tokens that I’m willing to risk in a hot wallet. I don’t know how wide-spread this sentiment is, but I would love to see support in a DeFi platform for more wallet types, maybe using AlgoSigner or similar to authorize transactions?
I just received a payment from a client. He used Zelle. I love Zelle, it’s fast and free. What I don’t love is the centralization, and the fact that I’m stuck with a big corporate bank in order to use it. If someone can bridge this gap, make using Algorand “Zelle-like” for merchants and buyers, that would be the Grail as far as I’m concerned. I know it takes someone far smarter than me to know what this involves, but in use, it would mean that someone is able to pay in USD, have the funds seamlessly converted to ALGO and sent to the merchant. I know you’re all probably shaking your heads thinking well duh, what do you think we’re working on?? The answer is I don’t know, and neither do any of the countless non-crypto merchants who would sign up today in a heartbeat if we did know.
That’s my two cents, sorry this got lengthier than promised : )
post by jmob on May 5, 2022
YSF](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I would agree with you on that. Algorand needs some big wins. Large companies/governments using it etc. If that happens, things will start going our way and governance won’t be such an issue. I don’t think the foundation can count on it’s retail investors to turn the tide. It needs to come from adoption.
post by the_BERG on May 5, 2022
oysterpack](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Oyster you mean like G algo option?
post by permarugbear on May 5, 2022
bruno](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
you are buying right because you have confidence in ALGO in the long run, so what does that tell you about early investors who are savvy investors that got their allocation early and is selling now?
without adoption when the whales dump causing prices to drop it doesn’t spread decentralization because the only people that would buy ALGO are existing holders.
the Foundation should really only be selling and “cashing out” and at a higher price when they have sufficient demand for ALGO.
post by umr on May 6, 2022
1
Using the ideas from multiple posts, here is my suggestion.
Most of us agree that the Algorand DeFi ecosystem should be vibrant but should not force the governors to participate in DeFi. We can keep the existing (passive) governing system.
In addition, we can give rewards to wallets that participate in DeFi from the governance reward pool. We could give rewards for the following:
- Algo supplied to the lending platforms such as Algofi. Amount of Algos for the gov reward could be calculated as a daily average (at a certain time?) or low watermark? DeFi platforms are already capable of calculating Aeneas rewards. This gov reward could be calculated in a similar way. Not sure if voting is possible in this scenario. If voting is possible we can make the voting mandatory to get the rewards, otherwise the reward would be given without voting.
- Algo supplied to DEXes pools. Reward calculated in the similar way as 1 above.
- Most probably we do not need to modify the reward for participating through DeFi platform such as Algofi Vault. But if we really want to turbocharge the TVL, we could increase a few percentage of rewards for governors that use the DeFi platform for the governance.
post by Giulio on May 6, 2022
1
defidaddy](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I totally agree that participation nodes should be somewhat incentivised. I support the idea, promoted by Dr. Morini in a recent Medium post (Evolving Community Governance), that the new xGovs should be rewarded also for running participation nodes. In this way I would expect to see a significantly higher number of voters compared to the present ones (approx. 360), thus further decentralising the network.
post by oysterpack on May 6, 2022
the_BERG](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Correct - Folks Finance Algo Liquid Governance
If Algorand Governance implemented liquid staking then it would solve the TVL problem, i.e., since the committed $ALGO would be locked in a smart contract, then it would technically qualify as TVL.
post by AlgoBas on May 6, 2022
Kentmug](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I have to agree with the sentiment that governance is really about decision making concerning the Algorand ecosystem. Promoting DeFi, NFT development and projects in general is a different animal.
In a way we started to slide down this slope with the last vote. We made a decision that certain wallets should have more value or more weight based on the amount of Algo in those wallets. Thus beginning the creation of a heairarchy.
Now we are deciding that what certain wallet holders do is more valuable than certain others.
These are not governance questions. They are equity ones. They are trying wallet size and activity to individual value within the community.
I think we should not proceed further down this road. We will simply turn Algorand into Now-Fi. This is not future fi.
post by AlgoBas on May 6, 2022
majicman42](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I do enjoy and like to use AlgoaFi. And yes I think the should be efforts made to attract others to AlgoFi and Algorand in general. I do however think that incentive based governance is important. It helps to create engagement and it’s a good selling point to attract regular people to the Algorand ecosystem.
post by waterzilla on May 6, 2022
Can we just burn the remaining 3 billion algos?
post by SilentRhetoric on May 6, 2022
These funds should be redirected to better support people who develop apps and use cases on Algorand. I am thrilled to see the Foundation reach out for feedback on the future of governance, because rewarding passivity doesn’t strengthen the Algorand ecosystem. That said, rewarding DeFI “participation” (which is often quite passive) in certain protocols distorts markets and will effectively pick winners via short-term subsidies. It would be nearly as untenable as the high risk-free reward rate for governance. If we want a flourishing DeFi ecosystem, we should reduce the risk-free rate and further invest in the people helping build the ecosystem.
My perspective is shaped in part because I applied for a grant and was rejected. The story could be distilled down like so (these are direct quotes):
Algorand Foundation: “It is fair to say you have provided a pretty clear value proposition here.”
Algorand Foundation: Application Denied
Me: Any feedback I can work on?
Algorand Foundation: “At the moment our focus is different, if you want to work on your use case and also get funding, it might be better to look for another chain honestly.” (emphasis mine)
That is a concerning statement to hear as a developer, it should give pause to any participant in this ecosystem, and it brings into stark relief how urgent it is to rework how hundreds of millions of Algo are being deployed for the benefit of the ecosystem.
So in response to what @Massimo said:
The main purpose of this discussion is… users talking directly to developers and entrepreneurs to find ways to bring more and more users to Algorand.
Based on my experience, I would say as a developer to the user community: it is time to accelerate toward community-directed grant funding if the Foundation is telling developers to “look for another chain.” The Algorand ecosystem needs more and better developer/entrepreneur support to realize valuable and sustainable use cases that arise organically from the community, not just where the Foundation is “focused.”
I want to call out some other commenter’s remarks to voice my support to their suggestions, as well:
If Algorand does not help these builders they would build on other protocols. Web3 is the future but it is risky, so any help dApps developers can get is important to kick-start and popularise the protocol.
Instead I think the foundation should focus on rewarding (i) entrepreneurs and innovators who are challenging the status quo of projects built in the crypto ecosystem, (ii) Active developers who contribute to open source protocols/new use cases
I would have no problem taking some significant Governance rewards away from Governors (that’s me too!) in order to aggressively advertise specific dApps to parts of the public, or to help assist in developing useful dApps to begin with so there exists something to market, but choosing “any DeFI with over $X TVL” as “the winner” doesn’t resonate with me.
I think the vast majority of the money should be here. Instead of giving money to people rehypothecating on DeFi platforms, money should be given to developers to attract them into the algorand ecosystem.
post by HolisticNicole on May 6, 2022
AlgoBas](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I 100% agree with this.
post by AlgoBas on May 6, 2022
michel](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Michel,
Although I appreciate the sentiment to increase rewards to DeFi with the hope that we can increase TVL. I think DeFi is critical to the growth of Algorand but I think a part of the analysis should be rethought.
I take particular issue with this framing from your piece:
I believe Algorand Governance should be either shot down all together or drastically modified to change from the current negative incentives cannibalizing Algorand DeFi to positive incentives purely towards DeFi adoption of Algorand. I believe that done right, Governance rewards allocated to DeFi in a fair way can boost the ecosystem to a place where it can compete with other top 5 blockchains
As you know some of us came to Algorand for the technology and have stayed because of technology and community. Governance is an important feature of the community feel of Algorand. Last period we had over 50,000 governors. That is extraordinary and is a key to strengthen Blockchain adoption beyond early adopters and crypto enthusiasts. This ought not to be done away with. Silvio often talks about Algo governance in his talks and it’s a great draw when trying to attract new people especially the college students and young folks in the engaged web 2 generation.
I would also say that Algorand DeFi is just developing and can stand on it’s own. Many of us have been involved in Yieldly from first launch, and we have enthusiasticaly engaged with Algostake, AlgoFi and Tinyman. You can look at the Twitter stream at the launch of each of these and you will see the passion that we have for them. They are very viable. If they stay the course and continue to build out, they will certainly attract many different types of investors.
The fact is our DeFi sphere is young and developing. Institution investors are by nature guarded about their and other people’s money. Over the last 12 months our DeFi pools have been hacked at least 3 times. And we have also seen many small but observable rug pulls. That’s not too say we are not getting better and that we are not learning to police ourselves. But I don’t think we should be tying governance so deeply to business making DeFi projects. Continue to provide grants and reward pools but let us use governance to onboard more individual people. People who really are looking for and need a new financial lifeline.
DeFi projects, NFT projects, MFT projects and all other innovations can seek grants and engage with the community in order to develop.
We should also note that the foundation has awarded many grants and engaged with many partnerships that are rolling out over the next 18 to 24 months. Let these initiatives mature! In the meantime refine and preserve our governance around decision making and Algorand (community focused) direction.
post by ALGOnumberone on May 6, 2022
1
I thought Will fantasically summarizes what a native token’s true utility should be/coming from:
“As the protocol is used more and the network grows, the intrinsic value will be more closely matched with the price of ZRX. After this happens, the ZRX token will also become a viable governance staking mechanism. In order to be a viable governance staking mechanism, the unit being staked must carry with it some inherent value that is not specifically and majorly linked to speculative demand. Finally, a utility token that garners intrinsic value due to its medium of exchange properties will eventually become a currency. After a utility token is accepted as a currency, then and only then, can it be a store of value (future exchange).”
I seem to always come back to this article whenever decentralization or governance is in discussion in the affects of balancing short term yields vs. building long term prospects and value to the network, thereby the native token, $ALGO itself.
On another note, I am somewhat confused why these “DeFi” projects must create a token for themselves and not just use the native ALGO token. I think the AF needs to find a better balance in b/w financially supporting the start-ups to flourish and supporting themselves/the native ALGO asset to grow - one viable solution is to contract with them under a specific realizable return of value in agreement, some way(s) to peg the TVL to the intrinsic value of ALGO itself than letting ALGO just being used to dilute other assets’ fundings. For ex, how can you guarantee the newly created sub-economy of Liquid Governance will circulate back into the Algorand’s ecosystem without a way to guarantee the 1:1 returning value or with interest or partially, not USDT or other networks’?
This last one is kind of snowballing pitch, but I sincerely hope one day Algorand or someone will be able to offer a practical solution to vote to sustain the network as efficiently and democratically as possible WITHOUT the votes to be solely pegged to the monetary value, but also non-tangible talent and skills; algorithmically judging its non-monetary worth being higher than # ALGOs or $ #.##
post by Kentmug on May 6, 2022
1
RonanLJH](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
There should definitely not be “anointed” entities for xGov. xGov should simply be a lockup/longer time commitment. Their should be no need for the old executive structure in blockchain. The ease and power of voting and proposals is exactly what makes blockchain so powerful. There could be tons of proposals but with the power of voting only the strongest make the cut. The old structure is not needed.
post by Kentmug on May 6, 2022
pmd](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
This gets a big DOWNVOTE from me.
post by BenedettoFolks on May 7, 2022
2
Hello everyone,
I am Benedetto Biondi, CEO of Folks Finance, a capital markets protocol for borrowing, lending, and offering Algo Liquid Governance leveraging the gAlgo.
Firstly, we appreciate that the AF is asking for the community’s feedback and proposals. I want to thank them on behalf of the Folks community. I will try to summarise our team’s idea about a possible AF Gov design.
I personally partially agree with Michel, the actual design is wounding DeFi. Smart Contracts risk will always be scary for institutions. Indeed, we believe that a possible hybrid implementation could be done.
When we implemented the gAlgo, we have always been thinking about building a secondary economy parallel to Algo that the whole ecosystem could benefit from. In only a week, we were able to do it.
Around 12,5M gAlgo was minted and moved into the ecosystem, enhancing Folks, Tinyman and Pact TVLs. 12,5M Algo generated approximately 20M TVL increase across the ecosystem. A liquid asset that leverages the Governance rewards is powerful for increasing TVL. Look at Lido numbers: 18B TVL leveraging three chains Liquid staking.
Split the treasure with the hunters.
A minor % of governance rewards could be directly addressed to DeFi users (participating in governance through DeFi Liquid Governances). But we believe that this has to be done independently and that the Governance rewards should be distributed separately.
Let’s use numbers:
G4 Rewards 70M Algos
50M Algos distributed directly from the foundation ordinarily.
20M Algos distributed through DeFi Protocol that votes on Governance.
Those must be independently distributed from the 50M.
Exact mechanism but independent. Rewards/each Algo committed.
The APR would indeed compete strongly with the AF governor’s APR. Being institutions in much more significant amounts than DeFi users, the latter would be much higher even if the amount to distribute is smaller.
G3:
- 100M Algo committed to governance through Folks Finance, Algofi and Gard.
- Total commitment 3.9B
- Rewards APR 7.2%
- Rewards distributed to 100M Algo committed around 1.3M ALGO
If we were distributing rewards of 20M to the same commitment on G3, we would have
APR for DeFi governors is around 80%.
80% APR cost/opportunity makes the DeFi option much more attractive.
We believe that until the commitment is three times higher than the governance, the risk/opportunity makes it attractive to institutions as well.
Let’s do the math.
Suppose 50M to ordinary gov would get:
- 3,5B Algo at 5.9% APR (safe and pleasant for institutions)
20M to DeFi governors would generate:
- 500M Algo commitment at 16% APR (riskier but much better)
Consequently, 500M of liquid Algo commitment would potentially generate double TVL raise with DeFi strategies. Resulting in Algorand getting over a 1B TVL in a boost, meaning entering the top 15 TVL chains (with the actual numbers) on Defi Llama. This would result in more eyes on Algorand DeFi and new Algo buyers and holders, driving up Algo demand and price.
All of this can be achieved without changing the current Algorand governance design.
The numbers proposed are an example of what could be potentially aimed for the G4 as starting point. The strategy optimally could result in community growth and new active DeFi users from other ecosystems attracted by the incentives and the TVL raising. The percentage of rewards addressed to DeFi could be consequently rebalanced to keep the two APRs’ competition appealing.
Moreover, we believe that a crucial point could be enabling the protocols that guarantee the vote and commitment to distribute the rewards while running the governance with daily vesting that avoids the earn & dump.
Do we really need to incentivise any single DeFi/NFTs protocol/users with the AF Governance rewards? In our opinion, this is accomplished intrinsically, we enhance the rewards for protocol leveraging the AF governance, bringing TVL to the ecosystem, and value to the ALGO itself. This is already a benefit for everyone.
Economically speaking, that is our idea of how the foundation can integrate the Governance with the whole ecosystem’s growth. Participating in DeFi or buying an NFT is not the same as being a governor (delegated or not). The vote has to be done.
Every protocol/platform can leverage its strength and strategy to benefit from the Governance. It is up to the builders.
Technically speaking, we believe that official support of the Algorand foundation to protocols leveraging special AF gov rewards requires rules:
- Trusted Audits
- Code ready and non-upgradable/trustless smart contracts two weeks before the launch, allowing the community to review freely.
- Ecosystem bug bounties are open and supported by the foundation with strong prizes.
In conclusion, such a model, competitive AF Governance adoption through DeFi protocols, incentivises the ecosystem TVL and remains coherent with the decentralized governance mission that Algorand is pursuing.
We believe that the proposed or a similar solution could be coherent, correct and beneficial for the community, projects, protocols and the AF.
We are looking forwards to hearing the community feedback, and we are always happy to collaborate for the blossoming of the ecosystem.
Folks Finance Team.
post by Arximedis on May 7, 2022
Really appreciate this input and the insight. Please see questions below. These aren’t targeted at Folks, but (De)Fi in general, as I’m unclear how decentralized these solutions are, and have a limited understanding of the control they can exert on ALGO committed/staked in their platforms. Thank you in advance for considering these 3 questions.
Questions:
1.) How decentralized are platforms like DefiLama, AlgoFi & Folks Finance? (I.e. Who controls these platforms?)
2.) How do (De)Fi Apps prevent ALGO committed toward governance, from being used or manipulated? (For example: What would Folks recommend be the criteria that makes a DeFi app eligible to participate in this model?)
3.) Can any (De)Fi platform define “risk” of ALGO in their platforms, in your opinion?
post by Arximedis on May 7, 2022
IMHO - As a long-term advocate and supporter of Algorand’s approaches to solving the Trilemma, I think all suggestions, recommendations, and considerations should be carefully evaluated for their impact or vulnerabilities that could undermine decentralization, with regard to Governance and Ecosystem Creator Growth (DeFi, TVL, or otherwise). Forgive the length of this and any comments that might be aggressive, I may be too passionate about this
QUESTION: Any value in reviewing how PPoS consensus could help make Governance better?
Initial Thoughts: This discussion isn’t about governing dApps. Governance isn’t killing DeFi, but I see this topic indexing heavily on trying to accommodate dApp usecases rather than evolving Governance. I understand the opportunity cost of Governance may be seen as overshadowing DeFi, but I see no logic in giving “weight” to intermediary apps without clarifying criteria like; whether they are decentralized, whether they are open-source, how are they governed, what control do they have over user committed ALGO, but we dove straight into a discussion about how to include all dApps in Governance over the entire protocol. () Decentralization requires that individuals directly take part in Algorand. The discussion is about Governing the Algorand Ecosystem and Protocol. That requires dedication and focus to the topics related to Governance. I fail to see how we can consider relying on dApps without any Decentralized Governance model governing them, and, proposing suggestions to give any greater control, authority, or added weight to the users that rely on them. (Maybe I misunderstood, just seems peculiar). I admit it’s a bit mind-boggling to think: An ALGO holder in Direct Governance could receive less for remaining true to the decentralization thesis while an ALGO holder is Indirectly operating through a (De)Fi App + Governance, seems like a double-earn/spend by duplicating ALGO in the system, receiving more (2x-3x) the weight in Governance, and diluting the other “less active” ALGO. The incentive is Governance - the reward should be aligned… Rewarding users who use DeFi Apps is a very spicy recipe for a series of unknowns and unwanted outcomes imho.
Reminder: In the first Governance Period #1, the initial Algorand Governance proposal came forward with a significantly concerning vote:
(A) Keep current system of Rewards (Active=Receive, Inactive=Forfeit) [This won, thankfully]
or
(B) Implement a model where Inactive holders could forfeit Rewards AND Lose Holdings. [Lead to Centralization]
It’s still unclear WHO proposed this concept or how it made it to a Foundation Community Vote, let alone the FIRST vote, but - Governance worked ( despite pessimism and panic).
Option A Succeeded after receiving 56.58% of ALGO (also, 51.59% of GOVERNORS - which implies this was a majority on both fronts).
Since the Governance Period 1 -
ALGO committed Governance (Staked) has gone from over 1.7B ALGO to over 3.9B ALGO = 58% Gov/Circulating or 40% Gov/TotalSupply.
Between ~ 57-70K Governor Wallets out of 20-24 M+ Accounts (fluctuated over time).
ALGO Stats: 6.7B Circulating, 1.77B Consensus Stake, 10B Total Supply.
\ image1613×829 83.2 KB](https://us1.discourse-cdn.com/flex016/uploads/algorand/original/2X/2/249313c45c20ea8a8da7dc0915fb4126d8d56cb3.png "image")
Overview: # 1 & # 2 address Classification & Identification. #3 is responses to the hypothetical questions.
- Classify Participating Holders into 5 groups, and each should have incentives that are not capable of being gamed, manipulated, or, creating points of centralization, to the detriment of the ecosystem or other participants. Mapping Participant Group to (Activity) and identifying the activities that are on-chain, verified by a trusted-party or Algorand and/or visible/transparent, may help define “Active Participant”.
a. Spectator (Passive) = Hold/Hodl/Explore(on/off-chain?)
b. Contributor (Active) = Stake/Commit/Transact/Interact/Inquire/Test/Learn/Critique/Play
c. Governor (Engage) = Strategize/Discuss(on/off-chain)/Propose/Vote/Consensus
d. Creator (Produce) = Execute/Build(dApps, Projects,Tokens/NFTs)/Supply Liquidity/Design
e. Constructor (Compute) = Host Infrastructure/Network/Nodes/Validators/Relays/Archives or Develop Open-Source Capabilities
Caution: A key challenge witnessed on several protocols/blockchains is the potential for centralization to occur beyond “Constructors”, where even if the protocol solves Buterin’s trilemma, the mechanisms built and supporting the ecosystem can ultimately become points of centralization or a regression towards easy, like (De)Centralized Exchanges (DeX/CeX), Liquidity Apps (DeFi dApp) or (De)Centralized Stake Pools (DeP). For example: DeP resources can ultimately become a point of central power, failure, or vulnerability, especially if those mechanisms aren’t clearly decentralized or are controlled by few entities. Comparing to the potential success/failures of the largest player in the space, Ethereum has at least one example of Staking Pool, Lido, which combines Constructor & Creator concentration. For a deeper analysis (just so this doesn’t seem bias) - see one analysis here Blockscience Review
- Identifying Participation & Considerations:
a. Users/Wallets that commit ALGO Governance are beneficial for decentralizing the ecosystem, as this is the only true decentralized means of enabling individual stake (especially if each user were to run their own validator/relay)
b. Users/Wallets who commit ALGO to DeFi are beneficial for the scalability of the ecosystem, as this is the optimal way to provide liquidity, however these “Decentralized” dApps or Protocols become points of Centralization, much like CeX (Centralized Exchanges).
c. Rewarding Governance and DeFi simultaneously risks double-spend overlap and risks committed ALGO being pooled or disqualified due to concepts like impermanent loss (for LP) or other mechanisms. I.e. It may not be prudent to subsidize DeFi users with Governance rewards. Most DeFi protocols (regardless of chain), require locked commitment of the crypto/token, unlike ALGO Governance which uniquely permits Users/Wallets to commit without the ALGO being transferred from the Wallet.
- Original Proposed Questions & Answers: Hopefully, the prior comments have not offended or annoyed anyone, thus far. However, I have spent some time reviewing a number of other blockchains, programs, whitepapers, reading/researching vulnerabilities, and yes, listening to every public engagement I can of Dr. Silvio Micali’s (who is one of a few people responsible for my gaining interest, along with my best friend and brother).
- Question 1: How do we identify accounts that participate in DeFi?
Questions: To identify DeFi participants, an example like AlgoFi or Folks Finance, would be a good place to start in evaluating how to programmatically differentiate between Governors listed on Algorand Governance albeit not the only approach a dApp could take to supporting DeFi + Governance. This is not a critique or criticism of AlgoFi, as I do not have a substantial bias or position - this is merely an analysis.
- AlgoFi Vault for Governance (vALGO), Currently, as of 05/06/2022, has ~ 82.94M ALGO locked (or 2.1% of the 3.92B ALGO Governance staked) and 3.61K Governors (6.3% of the 57K Total Governors). According to the documentation is stored in Storage Account 1-to-1 with the User/Wallet. To the best of my knowledge, AlgoFi is not yet decentralized, so while this appears to be the optimal approach, there are unknown risks I am unaware of the specifics surrounding the control of any 3rd party vault/account/addresses.
- Folks Finance Currently, 05/06/2022, has ~ 12.5M ALGO in the Vault for Governance (gALGO3) or < 0.35%.
- Example using AlgoFi: One Transaction from a User committing ALGO to the AlgoFi Vault to Govern. This would be the first step in identifying the DeFi User/Wallet, as it may be the clearest method of identifying this. NOTE: When a user directly interacts with AlgoGovernance, Transactions have Note/Text that denotes: af/gov1:j{“com”:ALGOAMOUNT}.
- Suggestion/Idea: It may be prudent to identify when a DeFi dApp/Account that generates a Storage Vault Address (like AlgoFi) and it’s purpose i.e. AlgoFi Storage Vault - Governance, or, when that ALGO is committed to AlgoGovernance E.g. AlgoFi Transactions include a Note/Text like this Manager: mt for other transactions. Alternatively, an account flag or status note, might be another way to flag or remove interactions between DeFi & Governance.
<ALGO_TXN_ID>: 2XMKIU3NZ6FI6WOQUBQ6D6CVQ45NRJUWRRSWTBRL5EGXUL5JHKKA
<AlgoFi_Storage-Vault_Address>: RTIBT7HHAZFNEUXSLG42XOJKUDN7V2OAXE5BYIJM4HZ3BQ3RSV7HC4CS3Y
<ALGO_Wallet_Address>: LQG7RQGNQ5P7HQ56CDJ2IHVNDWWUNKWKQLCSUZAII5GFJIRTGJUOVXK3OE
- Question 2: How many governance seats should DeFi participants be permitted?
Opinion: 50% or 1 for every 2 ALGO committed or a % to adjust for the risks of Governance tokens being “unavailable”. Determining how much ALGO is committed to a DeFi dApp and having a simple mechanism that can audit or verify the “Total ALGO” by account holding it (classified or labelled, preferably, to avoid double-bubble governance). Next, aggregating and cross-checking sums v.s. voters. Why? Decentralized Governance should be an incentive and results driven goal or milestone to ensure opportunity cost permits people to dedicate ALGO to Governance, Directly. All too often, we’ve seen intermediaries that aren’t decentralized or built as robust as the core protocol, fail to meet commitments, whether unintentionally or otherwise. Expanded Rationale below
i. Native ALGO (ALGO native) = Holders “may” be able to commit ALGO for Algorand Governance either;
- Direct to Governance - User non-custodial wallet interacts directly official decentralized Governance program. (Most Decentralized)
- Custodial or Intermediary Wallet - User Interacts with Wallet which facilitates sync to Governance. ((De)Centralization Varies Per App)
- Custodial or Intermediary dApp/DeFi/Staking - User Interacts with dApp/DeFi which facilitates sync to Governance or provides alt wallet. ((De)Centralization Varies Per App)
- Custodial or Intermediary Decentralized Exchange (DeX) - User Interacts with DeX which facilitates sync to Governance. ((De)Centralization Varies Per App)
- Custodial or Intermediary Central Exchange (CeX) - User Interacts with CeX which facilitates sync to Governance. (Most Centralized)
ii. Liquid ALGO (ALGO liquid) = Native ALGO (ALGO native) Holders “may” be able to commit/lock ALGO in DeFi program/vaults that swap for alternative ALGO-pegged liquidity token, or, even any equivalent concept.
- ALGO liquid provides a user the ability to lock ALGO native, and then use both ALGO native & ALGO liquid, separately. This is typically a 2x increase - since there is tangible and intangible ALGO.
- ALGO native can be committed, locked, and deployed for governance AND act as liquidity collateral for use of ALGO liquid supported pools, swaps, delegated governance pools, stake pools, or any number of other ideas that can surface in the future.
- ALGO native = Committed + Actively Participating in Governance receives rewards for Governance. 1 ALGO native = 1 ALGO native = 1 ALGO
- ALGO liquid = Committed + Actively & Passively Participating in Liquidity earns rewards for Liquidity. 1 ALGO native = 1 ALGO liquid + 1 ALGO native = 2 ALGO
- IMPORTANT: At the time of this writing, I am unfamiliar with all the methods a program, application, DeFi, DeX, CeX, or, person(s), can pool or manipulate a set of ALGO native, whether they can transact on behalf of the users who commit their funds, have control over vaults/applications/signature authority, or other permissive actions to manipulate X amount of ALGO. I am also unclear of the possibilities for an application to permit ALGO native and ALGO liquid from being leveraged both from the wallet without committing to applications (interesting to explore for prevention of sybil resistance or other vulnerabilities).
- Question 3: How to reconcile changing participation levels over time? For example, how much weight should be given to a vote that happens sometime in the middle of a governance period, vs. how much to use for calculating rewards at the end of the period
Opinion: Eligibility criteria seems to handle this, unless I misunderstood it’s functionality. IMHO, No weights should be applied to participation over time, unless proposals are created with different time durations or priority/urgency levels, authorized by an xGov group/committee. If a Governor dedicates to Governance, commits ALGO native at the start of the Period, Votes, and then loses, sells, or transfers their holdings, there are too many dynamics that enable someone to game the system without restrictions (as far as I can tell). Invalidating votes for ineligible accounts handles the matter of participating over time.
i. 1 ALGO = 1 VOTE! All Votes should be equal in importance or weight, regardless of the subject matter. If it’s an on-chain Proposal, the Proposal needs to be evaluated properly, and should be considered priority for scrutiny. Anyone who votes, at any time, is a valued participant in the ecosystem and a required part of it.
- All Proposals are not equal. If there is a reward mechanism for them, this might be a place to scrutinize participation levels, success metrics for proposals, and, qualified majorities.
- ALGO Governance is unique it’s it’s model of “Commitment” v.s. “Locking” (everyone else).
- Commitment allows a user to define the amount they want to use at the start of the period, but then become invalid if they don’t adhere to the commitment is Brilliant (no change).
ii. At all times, All dedicated Governors should have equal rights, rules & rewards, unless their ALGO isn’t fully “committed”. Giving importance at different points in time turns Governance into a FCFS model, and can become an opportunity cost that impacts engagement, subjectively.
iii. Participation v.s. Quorum. (I’d rather not open this can of worms because I don’t know if it needs to be addressed
- Question 4: Should we have just a single governance rewards pool that is distributed among all governors, or should each segment have its own rewards pool? (E.g., 50% of the rewards go to DeFi participants and the other 50% to passive Algo holders.)
Opinion: This is a really difficult question to answer. All dedicated Governors should have equal rights, rules & rewards, unless their ALGO isn’t fully “committed” over the entirety of the Governance period. A single Rewards Pool for Governance, simplifies the incentive - as we want Governors. Typically, I’d say splitting Rewards Pools makes sense depending on the initiative or action - i.e. Proposals v.s. Votes, regardless of if it’s staked in Direct v.s. DeFi. HOWEVER, by separating the pools, it has both benefits and drawbacks for behavior. How? With a single pool, users will choose the platforms to use (which will most likely be more DeFi-centric), because the rewards would not limit the continued adoption of DeFi over Direct (which means staking centralization - no bueno). With separates pool, more people will be incentivized (forced) to use both DeFi AND Direct Governance simultaneously, until one becomes less profitable. If both, Direct ALGO Governance and/or Indirect DeFi Governance are to share a single pool, the governance weights and rewards seem a more logical natural incentive than 2 fixed pools. Separate Pools make sense if we could define the Target adoption of both Direct & Indirect Governance Participation.
Question 4 (cont.): Algo holders who commit to holding their Algos in their account for [three months], would get [one] governance seat for every Algo they commit. We are asking for feedback here, and the parameters are up for discussion. For example, should we modify the three-month period? Should we ditch the commitment altogether and move to a low-watermark system instead?
Opinion: I wouldn’t change the commitment, eligibility, or, 1 ALGO = 1 VOTE for Direct ALGO Participation. As for watermarking, log implementations on Zookeeper and RAFT (snapshot) or storage on Kafka (time), don’t seem to satisfy the scalability or decentralized nature that the current model seems to address.
- Question 5: DeFi projects that average at least [$10M TVL] as listed in DefiLlama would be tasked with providing the Algorand Foundation with a list of active accounts and their balances. These accounts will get [three] governance seats for every Algo-equivalent that they hold (using daily average).
Opinion: I’m opposed to any indirect participant receiving more power than a direct Governor. Just my 0.02 ALGOs. If anyone were to receive more voting seats, I’d wonder how this conversation would look if we were discussing a Constructor (i.e. validator)
Question 5 (cont):
“Each project will give the Foundation a list just prior to opening each voting session, and another list at the end of the governance period. The voting power of each account will be determined by the former list, and the rewards will be determined by [the minimum] of all these lists.Again, the above is just an example, quantities above like the $10M TVL and three seats are of course up for discussion.”
Opinion: Lists of users wallets are the result of no notes or on-chain instructions being captured in a manner that enables openly available transparent information for all to see or explorer-based visibility to determine how much each DeFi provider has accumulated.
Thank you so much for reading this far, and know that I will do my best to keep up with the rest of you brilliant people. We are lucky to have a great foundation upon which to start this convo - I just fear focus and distractions can undermine us.
post by thingsname on May 7, 2022
1
This may be a simple and obvious question, but if the underlying goal is to increase TVL in smart contracts because governance is locking up ALGO because it’s become the only “safe” way to earn rewards comparable to what competing L1s are offering, can’t we simply have a way to commit to a built in smart contract without needing to offer artificial subsidies to third party DeFi apps? I’m thinking of the way that AVAX for instance works, you just lock tokens for a specified time period in order to receive rewards. I know that ALGO is PPoS so delegation doesn’t make sense, but on the othet hand, if the underlying philosophy is PPoS then why aren’t all holders, who by definition are also stakers, eligible to vote by default too? Hypothetically suppose there were two options for holders:
Regular. This is just someone who owns the token. Because the fact of ownership in itself is staking and therefore supporting the strength and decentralization of the network. This already generates a minimal reward, and that’s fine.
Committed. Tokens would be locked in a smart contract for a given time period, on the network, no third party DeFi app needed. Rewards should ramp significantly based on time committed and be competitive with other L1 tokens, 10-15% at least probably.
Governance. Available with either of the above, no “lock” of either kind inherent, because again any holder is by definition a staker. Maybe Committed tokens have more weight though?
DeFi. This is just a thing that can be done instead. It has its own rewards and risks, people who want to go here can, there don’t seem to be any shortage of options, why twine it up with governance at all?
Again, just tossing it out there from the perspective of an investor and someone who would like to see Algorand fulfill its promise as a sustainable finance alternative to the unbanked, underbanked, artists, micro businesses, etc. In my opinion, many of these suggestions have an alarming bias towards a vision of DeFi that is a bit narrow, a bit myopic, a bit mercenary and not at all what I see as the promise of blockchain. Thanks for listening.
post by scholtz on May 7, 2022
Hi, this is Ludo from VoteCoin, AWallet, AramidFinance, DREM, A-DAO…
I read the whole thread quite carefully and my observations and recommendations are following:
Indeed. This is the issue. Actually I believe we should not try to incentivize everyone to make decisions on algorand network, but only those who has time to study it.
The main thing here is to know what is algorand governance going to be used for. As far as I know, the long term vision is to transform the algorand governance to a DAO type governance… In DAOs you need efficient way of decision making. One question once per 3 months is surly not how dao should be managed.
Also I would like to ask the foundation to make the fair rules. Just a simple hint… With VoteCoin token I am creating the DeFi on algorand reality… The 0,01% liquidity providers fees on pact fi for pairs such as Vote/Algo, Vote/USDT, Vote/USDC, Vote/GoBTC makes from the token perfect arbitrage token. We incentivize people to hold tokens in AMM pool with 50% pa vote coin token distribution program so that we can arrange this low fees and making the market efficient. We have not received any support from the foundation for this and I see other tokens to get Aeneas rewards at pact fi which has much higher fees.
I would like to pinpoint also what we have achieved with Vote Coin. Vote Coin was created on this very forum. With no reply from the foundation. I have implemented my simple proposal in summer last year and it won the Encode algorand hackathon. Still no reply from the foundation. Later you have implemented the algorand governance - in similar form - the data is being stored on algo blockchain in note field… Great. However my proposal was already much further… It has implemented the delegation of voting power.
Standard user does not have time to track the questions that DAO asks… So person can delegate his voting power to someone else. We have created a standard from the messages to be stored on the blockchain… I encourage algorand foundation to use the standard to cast questions.
Actually i would like to also pinpoint the issue of security of the voting… New algorand DAO should take strongly into consideration that open voting while duration of the voting session is bad. It reduces the value of a vote of those who vote first because it encourage people who are not satisfied with the current decision to vote. Encrypted voting standard solves this issue and preserves the auditable feature of having the voting data stored on the blockchain.
I agree to the point that the small group of people might decide the things in algorand DAO. We can see it in all algorand governance periods where on the last day some people have staked their positions just to have “final word” in the votings… I dont think this have been exploited, but open voting and open information on who is staking how much does not make this very fair… VoteCoin has implemented solution for this problem…
The same
post by rob_b on May 9, 2022
There seem to be at least 3 strands running through this discussion; (1) Governance and how voting and rewards should be handled (2) Strengthening DeFi provision on algorand and rewarding participation in DeFi by increased voting rights and/or rewards, and (3) Increasing TVL in Algorand with a range of measures including point 2 as a necessary requirement to drive increased participation. As it’s such a young project the on going evolution of Algorand is to be expected, but this does seem to be get
In the discussion these strands are being run into each other when they can be viewed as separate but complementary activities. AF should be careful not to get them tangled as its perfectly possible to have separate strategic programmes within Algorand all designed to build commitment, strengthen the utilisation of the chain and ultimately increase TVL. Furthermore, rather than running Algorand like a community project with everything voted on, you need a great team to lead and drive Algorand forward.
- GOVERNANCE
Frankly its pretty concerning seeing the possibility, only 7 months into the governance programme, of it being partially or fully altered. Some very clear promises where made to those making a commitment to governance which led to algos being purchased and committed. So it really concerns me seeing some of the more extreme points of view shared in this discussion which advocate shutting the governance programme down and directing the rewards elsewhere. This would not be smart. Keeping 1 vote per algo seems sensible and fair.
Regarding the rewards for algo holders participating in governance, the rewards are already getting less attractive as the total committed to governance increases. In G3 we have 3.9B algo currently committed against a reward pot 70.5 million algos. Compare this with G1 when 1.7B algo was committed with rewards of 60M, and G2 when 2.8B was committed with a rewards to 70.4M. While this can be seen as a big success for governance, if this trend continues going forward and the algo price continues to be suppressed to the degree it is at present, there will be a significant pressure to leave algorand.
This is an argument for increasing the governance rewards pool to achieve a pre-defined APR, rather than having a fixed rewards pool. This delivers the double advantage that governance continues to maintain its attractiveness vis a vis APR as more algos are committed, and it speeds up the rate at which algos are introduced into circulating supply thereby bringing forward the date by which all algos are distributed.
But in a nutshell, whatever the problem is that is being addressd here, I dont think the current governance voting and rewards mechanism is the cause of it. If you make it more complicated or introduce a governance token, you’ll see people leave. At the end of the day, governance is realy there to replace staking rewards and the vote itself is a pretty meaningless activity. Clear goals, strong leadership and effective delivery are what we need - not pages of dicussion and community voting on countless measures.
- INCENTIVISING ACTIVE COMUNITY MEMBERS/GROWING DEFI
I would agree that its important to incentivise more active members of the community. However not everyone has the interest, ability, risk appetite or resources to be able to be more active. There are those who will not want to participate in DeFi because of the risks implicit within it; we all know that Yieldly caused plenty of anxiety for investors when they started changing their propostion, the Tinyman exploit and so on…
There are many people who are simply Algorand investors and that, as a valued status, should continue to be upheld. They should not be be forced to particiapte in DeFi. As a result, the existing governance rewards pool should not be divided between voting and more active participants. There are 2 ways that investment can be driven to more active participants:
- Create an additional rewards pool for DeFi particpants to stimulate activity and new projects. The Aeneas program is one such example. Why not expand this? With 3B algos not yet in circulation there’s plenty of currency available to create new incentive programs without reducing the governance program. Speeding up the introduction of coins into circulation also brings forward the time when scarcity will occur thereby increasing the chance of upwards price action.
As far as the number of votes for people particapating in DeFi is conerned, I dont know enough about the implications of this but I’m concerned and I’d like to see more thinking produced by AF about the implications of skewing the voting in this way. I’d be concerned though that this is the start of a change away from rewarding passive governors to increasing rewards for DeFi participation.
- Private investment. The best projects will thrive and grow by addressing real needs and attracting community support. New projects raise private finance to build their project. That’s happening in polkadot parachains to great effect.
We need to see a mix of this used to grow the algo ecosystem. Again its not governance voting and reward that is the problem here. It’s finding the right mix of stimulus and investment to support existing activies and seed worthwhile new projects.
A few more brief points:
(i) Passive vs Active Participants. We need to be very careful we dont set up an artificial divide between so called passive and active participants. We are all in this together. We need to continue to reward voting algo holders but make it more attractive to go that step further into DeFi if people want to. Personally I dont feel passive at all locking up a significant number of algos for 3 months for an unknown reward while I watch the price tank! If I was in any way a passive investor I wouldnt have any money in crypto - it would be in a bank.
(ii) What’s Really Going On with Algo Tokenomics? If the downward price action - which has been terrible - continues, and if this is in significant part due to early entrants and the foundation dumping their algos when the price looks good, and the on going introduction of large numbers of algos into circulation as we trundle on towards 10B, then no amount of DeFi incentivisation is going to attract people to algorand. What is really going on to keep the algo price so low?
(iii) Governance. It’s really important that we are super clear here. This governance programme is not really governance. What is called governance is simply a quarterly voting mechanism which is pretty loaded to delivering what the foundation recommend. I’ve just had a look at the AF website and AF Board is made up of 4 people with 5 additional advisors. That’s pretty thin for an organisation aiming to oversee a mulitbillion dollar blockchain.
Real governance would involve a board with wide ranging, diverse breadth and depth. There would be a chair and NEDs drawn from outside who’s role it is to support and challenge the board. There would be functional expertise, for example there’s nobody with any marketing expertise on the board. Also real governance would expose the major sharehoders, their stakeholdings, their purchases and disposals. It would also expose and clarify the articulation between the Algorand Foundation and Algorand. From where I am sitting it’s all pretty confusing, it smacks of too much academia and it needs to get much more commercial and focussed on driving blockchain adoption. I dont want to be too harsh here, maybe the website is out of date, but I think the AF snd Algorand organisations really need to make sure they are structured to deliver ecosystem growth, and be iterating this organisational design as things change to maintain the edge.
(iv) There will be much to learn from other L1’s about what did and did not work in terms of growing adoption. Are lessons are being gathered and learned.
Algorand is a great project with fantatsic potential. Growing new projects is always challenging and we all have differing perspectives as a result of our differeing levels of knowledge. I definitely want to learn and contribute more.
post by Burninglight on May 9, 2022
Good morning,
First, want to say thanks to the foundation for opening this discussion, as well as a thanks to everyone I’ve seen post here and on social media. This type of discourse is exactly what got me excited about Algorand. In thinking about the original post, I wanted to high level consider some of the issues that Algorand as an ecosystem and as a governance model are facing. Based on what reading I have done here, twitter, reddit, etc. It appears that:
1.We have at least a perceived issue with large exchanges, that have large voting block power, which can minimize the voting ability of smaller individual holders, such as myself (1-10k total algo).
2.The current governance system, with only one vote a quarter, is in need of further fleshing out so that it can become more vibrant (more votes, individuals that can propose, etc.). Not as pressing an issue since this is new but still discussed.
3.Most importantly, there is currently a very large amount of ALGO being constantly locked into governance, due to the reward rate being considered greater than that in Defi, once accounting for the risks. This is causing an issue where someone like myself has really no true incentive to go look at Defi, because I can safely earn a strong return in governance.
While the original post indicates the foundation would like to award additional seats to those who participate in various Defi projects, I am not sure long term this is a good strategy. Creating this sort of set up, is more complicated due to the rules that will have to be set up in order to identify and assign seats accordingly. I will upfront admit my technical ignorance (I am but a number crunching CPA), I am not familiar with code and the chain’s capabilities but in my experience, anytime I have seen complexity added to a situation the risk of error increases, sometimes significantly.
Additionally, this sort of set up allows for the same increased voting block power that I hear so many complain about with centralized exchanges in governance. Such a system has potential to disproportionately award voting power to Defi. If Algorand is truly looking to set up a governance system that rewards all participants, I am not sure this does not simply marginalize certain segments of the user base.
Below are a few thoughts and proposals I have considered that could be implemented, including a way to still award additional votes.
1.I would recommend changing the amount of Algorand that is distributed by governance itself. I agree that Defi is very important, in order to grow the ecosystem. I also agree the current governance reward system does stifle interest in Defi. However I also believe that can be done separate from governance through grants/awards or other projects. Currently the annual APR is about 9-10% for governance. I do agree that current governors are taking price risk and do have to vote, but in cryptospace this is fairly low risk return. I would recommend reducing this rate.
a)I know some have mentioned inflation rates for fiat, and there is validity in that comment. However, as a very very rough analogy, governance is low risk, with a high yield, like a savings account. Few are going to go change returns elsewhere while that is the case. Reducing that yield rewards people going outside of that and finding other projects to earn return if desired.
b)As briefly mentioned above, if we want the foundation’s pool of Algorand to be issued to be used to grow Defi, why not just distribute rewards through a separate program to those users vs co-mingling with governance?
2.I would recommend capping the governance voting by a certain amount of coins that is somewhere above the average users holdings (e.g. 50,000 cap, so 35,000 wallet gets 35,000 votes, 100,000 gets 50,000 votes). In my opinion, this does a couple of things. First, this should give some assistance to the large voting block power for exchanges, however the cap could be set to where their size of holdings does give more voting power than a tiny user. Secondly, this frees up much of the TVL in governance to then be deployed to other projects, and in conjunction with #1 above, theoretically would allow for more Defi participation.
a)One issue would be someone that wants to make multiple wallets. I recognize that is an issue, though I do wonder how much effort centralized exchanges will make to have dozens or hundreds of wallets. Perhaps someone else knows a solution I do not. I also am aware that for larger wallets this reduces their voting power. I agree that it does, however I would argue it is not so sizable a decrease that they are materially marginalized by it, depending on the cap.
3.If we are going to award additional seats (xGov), it should be based on a lengthier lockup period. Let’s assume we keep the quarterly re-application for governance. For one quarter, I get one vote per Algo, up to the cap listed in #2. At the same time, offer me the change to commit for a full year, and get more votes per coin. I would say perhaps allow a small increase in the rate of rewards, but still within what is discussed in #1 above.
a)In response to the question posed by the original poster about ditching lockup, ideally I would prefer to see no lockup for accounts where 1 algo = 1 vote, but would like to see the ability for users to lock long term for more votes.
Along with the above, my hope is in the future we will see a mechanism that allows holders to bring forth proposals for voting. Most public companies as an example will allow someone with X number of shares to propose, and I think this could be worthwhile also. In fact, grants and awards to Defi could be handled under this, where a developer submits their plans and allows vetting by governance with a final vote to determine yay or nay.
Whatever is decided, my hope is that we will continue to see the ecosystem grow, and that Algorand can truly become what so many hope to see out of crypto. Thanks again for creating this discussion, I look forward to seeing where this goes.
post by oysterpack on May 9, 2022
BenedettoFolks](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
So far, this is the simplest solution with the following key benefits
- Requires zero changes to AF Governance
- Incentivizes DeFi projects to integrate AF Governance into their protocols. This spurs competition and innovation. DeFi projects must apply and qualify for AF Governance rewards.
post by myshkin on May 9, 2022
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What if instead of creating a complex voting and rewards system with multiple tiers/qualifications for defi participants, NFT creators, and who knows what else, we just revert back to simple participation rewards for all holders?
This would distribute funds equitably without favoring particular interest groups (whales) and would likely attract additional users to the ecosystem who would not need to learn complex defi or governance rules before investing optimally for their expertise and risk tolerance. These are the investors we primarily want, not degens.
Additional rewards and incentives aimed at specific projects or verticals (such as Aeneas or Foundation grants) can then be proposed and voted on discretely.
I’m sympathetic to the issues that defi founders are presenting, but liquid governance should theoretically solve the problem of locked governance liquidity without the need to introduce degen economics into the governance structure. Rather than create a labyrinthine system where a user must learn and adhere to multiple governance, governance liquidity, and defi requirements to get a decent return, we could instead create a model where even the most casual user can see an attractive return. This alone should spur price growth, which will also help TVL.
In the alternative, we will create a complex system where the loudest voices and deepest pockets dictate increasingly arcane rules that benefit their interests more than the chain as a whole.
post by ARO on May 9, 2022
We’re only a little over three weeks away from the scheduled vote now. I understand that people at the foundation are undoubtedly extremely busy, and that attending to this forum is not their highest priority issue. However, a lot of arguments, concerns, and questions have been raised in here, and I would really like to hear at least a little bit more from somebody in charge at this point. For example, I have requested a list of the foundation’s goals for governance twice, but nobody has responded. Providing that list should take seconds to copy and paste into here, and would help tremendously with focusing the conversation and providing more meaningful feedback. @shaih, @Massimo, or anyone else?
post by Bilal on May 9, 2022
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TVL and COMMUNITY are the two priorities for me.
MORE RISKS MORE REWARDS
When an Algo fam member trusts a DEFI protocol with her ALGOs by locking them into a vault or minting any kind of wALGO, she should be rewarded for that since the smart contract risk is a proof of long and short term commitment.
By improving DEFI gov rewards, we prioritize the community, our trust and our involvement over the CEXs and big institution wallets that would be reluctant to bring massive amounts in our smart contracts.
That principle would slow them down from earning and controling the govenance from their comfortable thrones. In fact, CEXs controling the future of our community govenance with the funds of their users is still unsettling to me so any system capable of reducing their voting power is, in my opinion, a good thing.
As for VC, investors and institutions, if they are committed to the future of Algorand they should join our DEFI liquidity ecosystem to prove their commitment and show the world how strong our protocols and Liquidity pools can be. Only then, they would deserve to have a bigger voting power and earn gov rewards.
BIGGER BOUNTIES
If some of our whales think it’s too risky, a fund can be dedicated to secure our protocol and setting up bigger bounties, leveraging and growing our DEV community.
EASY GOV VAULTS
Openness and accessibility for all is my second concern. New users should be able to join us even if they don’t understand how to use our DEFI protocol.
A soft and easy commitment to send a certain amount to a gov vault would be very educative, prove a certain commitment and, being set up as a smart contract, that would filter some of the big wallets that are still risk averse until no one is scared of our smart contracts anymore.
That said, I locked half of my stack into a protocol for this period and I feel super safe in it!
post by thingsname on May 9, 2022
This is sound I think, and it is much easier to add some sort of DeFi incentive program later if that’s really where Algororand is headed (I won’t be headed there with it if this is true) than to rush in now and have to walk things back later. DeFi is its own reward for those who want to take the risks, but it’s much too new and unrefined at present to try and graft it onto Governance in this way.
post by permarugbear on May 10, 2022
defidaddy](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
FIFA sponsorship is $70M so lets see how this is handled. on one hand AF is sitting on a lot of ALGO but on the other hand because the price is so depressed they need to sell 107M (at today’s price) to fund this exercise depressing the price further.
The whole “decentralization” objective of selling cheap ALGO to early adopters have killed tokenomics and adoption. If ALGO is at say $7 we would only need 10M ALGO (vs. 100M) to sponsor FIFA.
I love the sponsorship but the cost of further dumps because of the lack of understanding in tokenomics is just amazing. Now they want to take the warchest, previously allocated to Govenors on the roadmap, in order to sponsor AF’s DeFi initiative. Hello, if the AF stopped dumping 100M ALGO on market and we rise to $7 the value of DeFi would be at min.10x the current TVL. Just amazing the economic advisors employed by AF.
post by metigue on May 10, 2022
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BenedettoFolks](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I commented early on that deciding which DeFi protocols get to also distribute governance rewards based on TVL on those platforms is a terrible idea and this response takes that into account which is great.
I don’t think splitting the rewards into two pools as suggested will help much- as per game theory those pools are likely to find an equilibrium based on risk/reward and I think the risk with an audited DeFi platform is low enough that we would see some institutional investors come in to the “higher risk” pool and essentially negate the split. We would also still have a large amount of Algo’s locked up doing nothing in the first pool.
I hate to negate an idea without proposing an alternative solution but it’s difficult to find one where active participation is consistently rewarded more than passively voting on governance.
I think asking people to lock Algos to vote is very secure as you know they are definitely invested in the future of the platform but inherently problematic due to sucking up all liquidity and essentially locking billions of value doing nothing else than voting for the future of a chain they aren’t using.
The other problem with the current governance system is that it was always going to be controlled by a few centralised entities that hold the most Algo such as the foundation and exchanges.
I propose a fundamental change to governance.
What if instead of locking Algos to obtain votes every address had an associated “activity score” it could be as simple as the sum of their transaction fees over the last X months - When it comes to a governance vote you could be rewarded votes proportionally to your activity score. This can be modified in various ways depending on security needs / what you want to incentivise. For example, the easiest way to make this more secure is scale activity score with volume transacted but this will reintroduce the issue of large central entities receiving the lions share of the votes, although, perhaps to a lesser degree.
If you wanted to incentivise TVL on DeFi platforms with this system you would need a mechanism where smart contracts are able to reward activity score for locked Algos as they are “actively” participating in DeFi - This would need an approved auditing system similar to my initial suggestion for deciding which DeFi platforms get to issue governance votes.
On a seperate note I also see value in simply seperating rewards from governance.
This would free up the 70m Algos designated for governance period 4 which could be put back into participation rewards so institutions could maintain their safe interest rate.
This will have the benefit of separating institutions who just want safe interest on their Algos from those who actually want to take part in governance.
post by Daedalus_7401 on May 10, 2022
As the saying goes, be careful what you incentivize as you will surely get more of it. I don’t support a link between governance and defi, unless the goal is to encourage defi at the expense of all else. That is what people and their greed will do (Look at Osmosis on Cosmos).
I know there are lots of feelings on this topic, and I am just a new minnow but I’d like to share a few thoughts.
What if the governance structure utilized two governing entities. People have to make a choice for each proposal, they can participate in ONLY ONE of the two governing bodies. The first of those bodies gives a single vote to each wallet, that’s it. Assuming that vote passes, then the second governing body will allow each wallet to vote by the amount of algo held. But again, each wallet can only participate in one of the two groups. This is shaped after how the US congress should work. The important difference is that it is the algo holder that is directly voting and not via a representative (congressperson). Give people just enough reward to get participation, say 5-7% of their algo or whatever. Keep participation reward low enough to allow defi to do it’s own thing, while still providing a safer option for those that prefer reduced risk. Keep governance with governance and defi with defi.
The goal should be to keep them as separate as possible so they can both be independently successful. Thanks for taking the time to read this.
post by Remixed on May 11, 2022
Before you read it all, I truly believe Algorand is the best blockchain today. Please read all the way to end.
I do not fully agree with Michel from C3, If we look at Avalanche TVL (11.41B at the time of writing this), they currently offer between 9-11% for staking to nodes in a quite low risk setting and the majority of defi, if not all, does not offer the same rates. Currently Algorand Defi protocols as it is seem to offer better rates from what I’ve seen.
I am all for helping the Algorand Ecosystem grow, and I think it will grow with time as people start to realize how great this blockchain truly is.
I do think keep rewards at a good level for governance will help promote Algorand Goverance.
Potentially rewarding people extra who participate in the ecosystem is a nice idea, but how is the question being asked. I cannot see a really viable way that doesn’t play favorites over projects.
I think a good solution would be remove a small portion of the current rewards (0.5-2%), and place that towards more funding for projects that wish to start up. I know the Algorand foundation does give out grants currently, but this couldbe the community that choose which projects to fund additionally. You could remove even more and reward people for participating in this too.
I think an idea like Cardano’s catalyst would be absolutely AWESOME for Algorand.
In short how it works, is a snap shot is taken of your current balance in your wallet, and that is voting power to vote(maybe we can cap the voting power to lets say, 10,000 so whales would have a far harder time to manipulate votes, or keep halving power of each algo held so whales would really have to create a LOAD of wallets to manipulate it.). on community projects all sorts of sections whether its defi, education, infrasture etc.
I think real world adoption will come for algorand because we are having projects that are working on tokenizing what the world currently has and making it better and fixing friction points that current system cannot. I do not think focusing on just NFT projects of art and Defi because that isn’t going to inspire real world adoption compared to, digital Identity, providing voting systems for the world, infrastructure, education etc.
We have the best tech and great dev Docs to building on Algo, We will have more people building on Algo, they just got to discover it. Currently its all about EVM, once the benefits of Algorand’s like atomic swaps, fee’s being constant, nodes being cheap etc, I think people will start making the switch Algorand.
I apologize for spelling errors and grammatically errors, I rewrote this a lot of times.
post by ALGOnumberone on May 11, 2022
6
Has anyone looked into incentivising node operators and making them into possible electoral candidates to vote on, if they have projects aligning with your goals? (This is not disrupting with the decentralised operating mechanisms of PPoS, or at least is my intention) These “council” members’ can be contracted out to work 50% for solely Algorand blockchain dev and 50% for their own products within Algorand ecosystem in receiving additional incentives to run as “voted node operator”. If the system/people end up gradually only choosing the best (in terms of # production outputs, adoption activity, etc.) one or two councils and naturally centralises the development, the top council members or Inc/AF can perhaps allocate the workloads to the lower councils in a random manner to maintain the equal amount of workload ratio across all node operators as much as possible for the sake of decentralisation (Would likely need penalty system too if workloads’ objectives doesn’t meet). Inspired from experiencing the governance system in NEO blockchain myself Governance - Neo Smart Economy
Algorand Foundation ultimately needs to endorse devs as much as possible so they can grow the ecosystem, rather than just feeding ALGO holders for just clicking to “vote”, but also contract them out under specific realisable returns or caveats to use the grants than just opening the flood gates for liquidity exit. The ratio of incentives for ALGO holders who does nothing with it but still act as solid bottom supports (0.5-1yr lock-up?) vs. devs should be always near 2:8 or heavily sided to the latter imho.
p.s Has Algroand Inc’s R&D conducted a detailed comparative analysis on other networks’ governance methods vs. Algorand’s? Could we get this discussion more advertised to bring in more engagement and ideas??? We have over 56k so-called “governors” registered in Gov #3. Less than 150 replies here.
post by Justified_Ancient on May 12, 2022
“April 29th, 2022 - Recently, we have received extensive feedback from our community that the current governance structure, with its focus on rewarding passive Algo holders, does not incentivize development of the Algorand ecosystem as it should.” I’m quoting this from the website and whilst I might agree with the sentiment, the question I would ask is how many is extensive, as a number? Were people within the ALGO community asked or indeed invited to contribute their thoughts? If not then by definition the results are skewed as not all will speak out uninvited. Who designed the current reward system and what were it’s aims at that time? It seems to me that we have a large group engaged in ‘governance’ but what does it mean to be a governor if we are not assigned or assigning ourselves meaningful tasks. One proposal every three months is no way to conduct decentralised governance, irrespective of the rewards on offer. Similarly a governor with but one ALGO has ‘less skin’ in the game than a governor with multiple hundreds or thousands of ALGO, to say nothing of those who had the opportunity to become involved in the early days whose ALGO ‘cost’ is 1000% lower than those ppl who have put real dollars into the protocol. This scratches the surface of the issues that I can see from my ivory tower! I love the protocol and want to support it but I want my time to be valued. Having read this thread I can see that defi as a business model is considered to be being held up by the current governance system. Let’s see the evidence, weigh it and consider alternative solutions. I may be alone in finding defi an unacceptably high risk proposition. If that is the case I’d hope that my vote would still be seen and counted. I and many others have loaned capital to the project over more than a couple of years, without such ‘investments’ where would the project be today?
post by Kentmug on May 13, 2022
1
Arximedis](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Very well put. I would point out another reason that participating in governance through DeFi does NOT need additional incentive from the Foundation or using the governance dollars is because those users ALREADY have additional incentive through the DeFi governance/lending mechanisms. They deposit their algo…Receive Valgo or Galgo or whatever they call it and then those people can use that to borrow more algo which can then be committed again. This is increasing their voting power AND their rewards. Why would they need additional incentive and power beyond that?
In addition " Justified_Ancient "makes a great point about the lack of utilization of the governors. Why are voting mechanisms or polls not being utilized to a greater degree? Is this supposed to be decentralized or what? Making assumptions based on emails without polling the community seems an absurd approach when better ways of determining sentiment exist using the Algorand infrastructure. While for simplicity you can keep the voting to 1 mandated vote per 3 months…you should also be able to poll the governor community as well.
post by permarugbear on May 16, 2022
1
how about the Foundation provide some numbers as to how much it costs to onboard a new user by providing the sponsorship for SailGP and Women Soccer and see how many “potential” users joined as a result? If total sponsorship was $2M and only 2k new tokenholders that is $1k to acquire each user which is unsustainable.
lost interest and confidence in the AF long ago, hopefully the transparency report will shed some light. I would vote against AF stripping Governors of rewards and forcing them to use DeFi. AF pretty much has unlimited budget in attracting adoption but all they have done is to focus on Institutions and VCs. Now that it has obviously failed and TVL is low, they want the community go give up their rewards to boost and secure more TVL??
if AFs role is only on technical development perhaps they need to cut cost on everything else, especially marketing which attract no major users but have spent hundreds of millions. poor executed tokenomics and adoption strategy will not last in the bear market.
how about those sponsorship with WEF, CBDC initiatives etc. that have gone nowhere in the last 3 years. when do they draw a line not to pay those Central Banks, Governments etc. in hosting these events unless they commit to using Algorand in some way?
post by robert on May 19, 2022
1
Heading link Context
- Current governance is open, however it’s not efficient enough:
- users or groups can’t make their own proposals
- it’s slow: 3-4 proposals / year
- Governance is the most important feature of the chain, not defi. Governance steer the blockchain.
- Putting more rewards into DeFi won’t make it better - we already have good grants. We need to pull more funds into Algorand if we want to grow the amount of projects.
- Putting more focus and rewards into DeFi rather than governance itself, is dangerous - it will steer the governance and incentives towards DeFi and could create unhealthy disproportions.
- Finally, blessing few DeFi projects with more incentives coming from the Algornad governance and security (Algo secures the blockchain) is, IMHO, a wrong approach. As @LinxFit and @HolisticNicole pointed, it can create conflict of interest.
Heading link Proposal: more efficient governance
Instead of having a model where we try to push more gov power and more rewards towards some blessed DeFi projects, I would propose more open and more direct governance:
- Creating public good pools- they will have continuous income from Algo inflation, and maybe from tx fees later on? This should reduce significantly passive Algo income. Moreover, we should reward more accounts who vote. So we can have the following scheme:
- reduce overall Algo inflation
- from the Algo inflation, put 60% into governance pools and 40% for Algo holders and governors. Active governors will receive significantly proportionally more (2x - 4x) Algo than passive holders. We can have few tiers to measure the governor activity.
- the goal would be to have ~1-2% APY for passive holders.
- all the parameters are subject to the governance and can be modified at any time.
- Take some learning from Cosmos governance: let anyone create a proposal (that would require a bond) to do something good.
- Create a committee (selected by governance, and lead by the Algorand Foundation) to to judge a proposal execution (for proposals which passed).
A proposal can be:
- accepting an update (pull request) for the next go-algorand release
- advocating next features
- funding public goods
- funding communities
Proposal must be well defined, with proper scope of work and payment schedule. Proposal to pass must have a minimum support (total number of votes).
Heading link Why this is superior?
we will have more direct impact
we won’t have a problem of having a blessed projects with more power
we separate chain security from the capitalistic approach of creating more incentives
Incetives should come form institutions and project funds, hopefully created by communities etc…
post by bhaney44 on May 19, 2022
Generally, I stopped participating in governance because the timeline was unclear. It is tough to commit to governance when a central oversight decides when rewards are returned after the fact. I think one thing that is extremely important in evolving Algorand governance is that all dates are clearly marked ahead of time. There is no compelling reason why the start date, end date, and reward date should not be made public before votes are launched.
I also think there needs to be a valid way for the community to submit proposals. The goal needs to be to allow any Algo holder to propose a vote to the community. It’s difficult to find the mechanism by which votes can be implemented at scale for the entire network, but that will be an ongoing challenge moving forward.
It hasn’t been clear to me the proper protocol for voting, or what is required to vote regarding registration. I think the process could be a lot smoother and more accessible for the greater community with a more simplified model. I also think transparency in decision making and hierarchy is important, especially regarding higher level governors and how they earn appointment.
Finally, I think a final thing that can be improved is the overall consensus mechanism and documentation for nodes. I think the current documentation really fails in describing the types of nodes, what they are, and why people run them. To have a scaled and decentralized system, we need better technical documentation and clarity on how participation occurs. The problem with the technical documentation currently is that nodes are defined by reference, rather than from fundamental principles.
post by shaih on May 19, 2022
Thank you all for the well thought of replies, expressing a variety of opinions and options. The proposal that we converged on eventually is now available on the Foundation’s governance dashboard.
This is not the end of the conversation, however. We still want to to hear from you, at least on the following two questions
- What are your reasons to support option A or B of this measure
- Proposals to extend governance beyond DeFi: We would like to include also creators, node-runners, developers, and other groups as governors. We would like to hear your brilliant ideas for who should be a governor, and how to determine their stake (for the purpose of voting and rewards)
post by YSF on May 19, 2022
These proposals shows exactly what I was talking about earlier; the entire governance system is such a waste of time; the proposals are so vague as to be completely meaningless. No one actually cares about “voting power”, when the foundation and large exchanges can control the vote every single time.
You guys are just making things more and more complicated because you refuse to realize that the entire governance system as it is cannot be patched up; it’s completely broken and needs to be re-thought from scratch.
post by Burninglight on May 19, 2022
shaih](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
“What are your reasons to support option A or B of this measure”
I am opposed to the way Option A is structured. There are a few parts of the proposal that I find concerning.
“The Algorand Foundation encourages projects to allow their users to express their preferences individually, and vote the aggregate tally of their users. However, in accordance with the decentralization principles, each project will set its own rules. A project’s voting rules will accordingly become another factor for users deciding on project participation.”
Essentially each defi project can at the end of the day choose to do what it feels is best for the project owners, not necessarily the users in the project. I understand the Foundation can’t force something here, but I think people should be aware of this factor.
“Rewards distribution: Qualified projects that voted in all the voting sessions in the governance period will get governance rewards to distribute among their users.”
Similar to the above, we’re going to be reliant on the project to accurately distribute its rewards to the users.
Most disappointing though is the idea of assigning two votes to defi. This essentially tells me that if I want to place my own vote, I am disadvantaged against the defi project (especially since they are the ones voting, not the actual users in the project). Adding weight to defi projects is allowing for a larger voting block, no different from the major exchanges. If anything its worse because of the double voting status. Is this really the decentralization we want in governance? This aspect alone makes me support Option B, as Option A I just don’t believe is in line with the idea that everyone’s voice matters.
Why not just use this proposal but keep the vote at one? This would still allow people to put their Algo into defi and receive rewards, without giving the larger voting power. I would think the incentive to use defi would then exist, since theoretically I get my defi rates plus governance (assuming my project doesn’t go rogue as noted above). If Option A was structured this way, I would be more in favor of this.
“Proposals to extend governance beyond Defi”
In regards to including others in governance, I don’t understand how these individuals are not able to participate in governance already. You literally just have to have Algo in a wallet. If its an issue of Algo getting locked up, why not consider a wallet cap on how many votes you can have, as noted, or again something Option A based but with no voting disparity.
To me there is a difference in governance participation, and receiving rewards. We seem to be trying to make them one and the same, when they should be done separately (e.g. a vote specifically on giving rewards to a node operator, or a defi project, etc.).
I also would have liked to see a proposal given to allow for individuals to lock their Algo for a longer time period for a higher vote weight, IF we are going to go the route of giving additional votes based on certain characteristics.
Lastly, I feel there was very little feedback given to people in this forum who have posted concerns. I would have expected a bit more explanation from the Foundation on why they feel option A is their choice, given some of those concerns. Simply stating “we support the more inclusive option” really means nothing. I could argue its less inclusive, given the right of the defi projects to make decisions on their own about how the votes are made. It gives off a sense that the original post simply existed to say that we asked people.
I do want to give credit where it is due, and I support the Foundation’s second proposal which allows for the community to make proposals, xGovs to help guide what become items for final votes (subject to a final understanding of who can be an xGov, and assuming if is not exclusive and available to anyone willing to make a commitment), and a final vote by governance as a whole. This has potential to allow governance to move from a one to two vote a quarter system to a more robust model.
Thanks for reading. As always, appreciate the opportunity to see discussion on what has potential to be one of the best blockchains in the world. Look forward to seeing where we go from here.
post by thingsname on May 20, 2022
I’m feeling a little pessimistic. The Foundation supports option A which if I understand means that the exchanges will vote with the foundation by default, which means that this will probably pass, correct?
I’m in Algorand because it has always seemed to stand apart in being focused on solving real world prolems and making the world better, as opposed to the countless projects that have chosen a mercenary leaning towards DeFi/Gambling/risk.
Doing the math, my vote likely won’t be clicking a button, it will have to be a strategic choice to sell everything and reallocate to other investments. I’m a little fish, but pound to pound there are more little fish than whales in the ocean.
I’d love to hear thoughts from others thinking along the same lines as this, but maybe reaching different conclusions?
post by Algonaught on May 20, 2022
I’m in the same boat. I’m out if this passes. I’m so disappointed the Foundation chose to back A. They seem to be chasing TVL at the expense of broader adoption beyond the narrow confines of DeFi.
Let’s say a Visa competitor wants to start a blockchain payment system. They are going to want a say in the governance of the protocol. They would likely be willing to buy Algo to secure a defined percentage stake in voting. They will not, however be willing to achieve their voting power by dumping their millions into a smart contract liquidity pool.
If this passes, those companies voting power would be subject to 2x dilution, and, subject to further dilution from crypto price volatility. They aren’t going to go to the project with the mind of “oh well, we will just plan to buy a bunch more Algo if defi TVL goes vertical.” No. Instead they simply will not want to come in the first place, because they cannot be assured that they have a safe and defined voice over the protocol that their billion dollar venture could be running on.
The solution to the cannibalizing of DeFi was to address the imbalance of the ease, risk, and rewards between governance and defi.
Make governance harder (eg a node requirement) so some people just won’t do it and those that will are directly supporting the protocol. Or, propose a lessening of governance rewards and an increase in rewards for defi programs. Or, directly support the creation of mechanisms that allow defi users to also directly vote.
But, handing voting to defi platforms (instead of the holders), and then doubling their vote, just seems like a bad idea long term.
post by ALGOnumberone on May 21, 2022
Measure #1 from Governance Period 3 is good & bad in that the Foundation is indirectly educating ALGO ecosystem developers and liquidity providers to encourage incentivizing investors in a healthy, free-form manner to retain users as many as possible long-term, thereby securing the additional “rewards” from each gov period and the ecosystem continuing to be stimulated. That said, the doubling of voting power and qualifying them at avg TVL is inefficient and arbitrary for what it will achieve than exposing the network and its participants to another potential attack vector - witnessing the power of small corrupted wealthy VCs/Funds from Terra/LUNA mess, it’s questionable just how persuasive (crazy high incentives just b/c it can afford) and earnest they will be on becoming the largest voter to centralize the network. Even if they’re “good”, it’s not a good design and harms the intent to properly grow the ecosystem in a safe defi environment long-term, aka bad education.
Foundation would be better off just allocating a portion of governance rewards to ecosystem dev in a controlled manner (lock-up, periodic dist., per specific project via SCs, etc.), where the return to the value of ALGO, not some random made-up tokens’, is realizable and growing its intrinsic value to gradually become a true governing token backed with actual utility. Holding and doing nothing with it is not a governance (yet), nor a utility token imho.
The system reminds me of how Germany recently allowed its citizens to sell crypto tax-free, as long as they hodl for min. one year. This kind of indirect push towards defi adoption is what shy and uncertain investors just need to jump in, and more importantly stay. The planned action reminds me of Fed Res going brrrr though. It doesn’t need to be rushed, let’s piece-mill this and brainstorm more about the cause & effects of these incentives to encourage a win-win ecosystem.
I am on-board with Measure #2!
post by No-Cash-7970 on May 21, 2022
2
Measure #1 is unnecessary for us and for DeFi. It does more harm than good, especially in the long run.
It is said that Governance is hindering DeFi. I don’t think that’s true. I don’t think Governance significantly hinders DeFi. The biggest reason why people don’t participate in DeFi is that it’s not very useful as it is now, and whatever utility it does have is not worth the risk. DeFi, like traditional finance, needs other non-financial industries to be useful, and Algorand doesn’t have that much outside of DeFi yet. What DeFi really needs is other non-DeFi industries to come to Algorand and flourish. It needs Algorand to be adopted in various places.
As it is now, most of DeFi is for DeFi’s sake, which makes it have a ponzi-like nature to it. And that is a HUGE turn-off, especially to people who are new the crypto or not in crypto, including software developers. The ponzi-like nature of crypto is the #1 reason I hear why people don’t want to get into anything crypto related, and I think passing Measure #1 would make things worse in the long run. We need to consider Algorand’s appeal to people who are not in crypto because that’s where the real growth is at. We shouldn’t sacrifice Algorand’s appeal to non-crypto people just to satisfy the fleeting impulses of crypto enthusiasts. That’s what Bitcoin did and it made Bitcoin fail in its original mission in being a viable “peer-to-peer electronic cash system”.
post by defidaddy on May 21, 2022
YSF](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Agree. I can’t believe the lack of direction and leadership governance currently has. On top of that many good ideas we’re discussed here and somehow we end up with 2 bogus things to vote on? What the hell???
post by captainchow on May 22, 2022
shaih](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I understand the rationale behind Measure 1, but the current framing of Option A or B seems like a false choice that either gives too much power to DeFi projects or keeps Algorand stagnant.
I agree with @robert’s suggestions for incentivizing usage and streamlining governance: Evolving Algorand Governance - #160 by robert
post by YSF on May 22, 2022
shaih](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
I just want to reiterate, it doesn’t seem like you guys read ANY of the thoughtful replies at all. Not a single person suggested anything close to what you guys have in the proposal; only you yourself in the opening post.
Look, let’s face it. No one cares about voting power. Of all of the people here who supports governance, every single one talks about risk-free returns.
How many people do you think would participate in governance if it gave no returns? Exactly.
Let’s get our heads out of the sand and actually face reality here. No one cares about voting power.
So when all you’re giving to DeFi is voting power, that does absolutely NOTHING to incentivize DeFi. It’s like trying to incentivize a child to do chores with the reward of giving him more homework after he’s finished. It’s ridiculous.
Furthermore, this proposal will add a huge amount of complexity to an already failing governance structure, AND add so much unnecessary centralization risk in regards to which DeFi platforms get selected, whether a few bad actors can game the system by creating a “Defi platform” and funding artificial TVL to get it in the list so they can do bad things…
There is literally not a single benefit to the proposal that was made.
post by scholtz on May 22, 2022
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shaih](https://forum.algorand.co/t/evolving-algorand-governance/6646/160 "Load parent post")
Hi Shai,
i will not comment whether the option A or B is right, because we have DeFi project in testnet ( EVM2AVM multichain bridge) and I am the community relay node runner…
I would rather like to ask, how can I help with the algorand governance.
I have created DAO management platform - Vote Coin. It was encode hackathon winner last year, it was participating in encode accelerator, and recently i have received the grant from the foundation to implement encrypted voting. The standard is pretty simple, and right now we are in progress of upgrade to allow NFT DAOs to be managed by vote coin standard. Feat/eligible token list by scholtz · Pull Request #3 · scholtz/AMS · GitHub
The real discussion in this thread is not about the option A or B… It is about having efficient algorand governance… Not to ask one question per quarter, but rather have efficient voting system in place and allow quick and frequent decision making… You can quite efficiently incentivize participation by granting some algo for people that vote, and some people who have set their delegation of voting power… With vote coin standard you can mark some accounts as the Trusted accounts (for example DeFi projects or Relay note runners) and the Algorand DAO may have in constitution something like that 50% of 1 coin = 1 vote voters must vote for the option as well as 50% of all trusted accounts… Everything is running in a single voting session with onchain voting and the cost to vote submission is simply one algo tx. With consideration of the delegation even much less.
post by anon on May 23, 2022
1
I apologize in advance for a very long post, but the topics are too complex to be taken lightly. For readability, I’m splitting it into 5 parts.
Heading link Introduction
It is great to see that the Foundation wants to improve the Governance. That said, this discussion and the suggested M1 of G3 clearly mix a couple of important points that should not be mixed – i.e. voting power for Governance and incentivizing DeFi. While I completely agree with the representatives from DeFi ( @michel, @jaclarke and @BenedettoFolks) that the current Governance structure makes it difficult for DeFi to compete with it on the reward/risk ratio, the voting power for Governance must remain separate. I summaries my views on this in below section titled Should voting power for Governance and DeFi mix?
Further, this discussion has overshadowed another crucial issue – how new proposals should be put up to a vote. While the idea of having xGovs won with a vast majority in G2, I am of the opinion that a system for putting up proposals must be setup that does not require an intermediate layer as suggested by the introduction of xGovs. Additional layer increases the potential for malicious actions since xGovs present only a subgroup of all Governance stake, thus is easier to overtake. I have raised this concern already during G2, and asked for clarification from the Foundation why it deems necessary to introduce another layer to the Governance when solutions that fulfill the same requirements without the need of adding an intermediate layer exist, e.g. the one I outlined in the Counterproposal to xGov. While the Foundation still has not addressed this particular concern, I find it a step in the right direction that under the new measure M2 of G3 some concerns were taken into account, e.g. that anyone can submit a proposal for consideration and it is up to the proposer to gather the initial support for it. However, I still see the same downside in having an intermediate layer – i.e. a subgroup “who earned by commitment their right to promote community proposals”. That right should be with all ALGO holders. Why I think that should be the case, please see the section xGov – A step away from decentralization of Counterproposal to xGov. In the below section titled Update to Counterproposal to xGov I propose a refined concept, including concrete protocol parameters and their justification, which I believe would simultaneously improve DeFi competitiveness vs. Governance while also incentivize a more engaged participation in the Governance.
End of part 1/5
post by anon on May 23, 2022
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Heading link Preamble 1: Core values of Algorand
I firmly believe that the two core values of: 1 ALGO = 1 vote (i.e. equality of each and every ALGO) and direct participation should be respected in Governance as it is in the PPoS consensus – the core of Algorand. Consequently, this means that the maximum possible number of votes at any time should equal the circulating supply of ALGO. If there is a disagreement about these core values, it should be put up to the Governance vote in such a straightforward manner. Or perhaps paraphrased as: “Do you think non-ALGO assets on Algorand should get a right to vote in Algorand Governance?” and “Do you think vote delegation in Governance should be endorsed?”. Both of these core values are disregarded with M1 and M2 of G3.
End of part 2/5
Heading link Preamble 2: View on long-term goal of Governance
The question came up during this discussion what is even the goal of Governance. That is why I would like to state how I envision the Governance to evolve long-term before I address the current issues in detail.
I think the goal for Governance should simply be to replace the Foundation in making decisions about e.g. fee changes, structure for rewarding relay nodes, grant giving, marketing strategies, etc. The Foundation will still be needed to facilitate their execution. However, the decision making should be decentralized – as it is the case for the consensus. And our current decisions should build towards that goal.
End of part 3/5
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