A rational economic actor will seek out the highest risk adjusted return.
For instance if a country’s central bank offered 15% risk free interest on money then no one would invest in a stock market that offered 8% with risk, and over time all the companies would die due to lack of investment and capital.
This is what is happening with Algorand governance, it offers such an attractive, and low risk, return that it out competes other projects that try to launch on the network. All the rational money just flows into governance every quarter and does nothing else.
As an example look at Goracle and their launch of the GORA token, you can see their tokenomics here
"Adoption incentives are an extra pool of 2,000,000 tokens designed to attract early adopters with guaranteed 3 month APY for new joiners.
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APY will vary depending on the month joined.
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20% for the first 6 month, 15% for the next 6 month and 10% for the subsequent 6 months."
On the face of it this is a good return.
However taking the risk of joining a new and speculative project for 20% might be worth it, however once the interest rate falls to 15% or 10% then governance is better and no one rational on the chain would invest their money here. If the chain fails then goracle fails, whereas goracle can fail while algorand lives on so investing in goracle is always riskier than just holding native tokens in governance and the interest rates are similar or better.
Governance is actively stifling the ecosystem, this has been a known problem for more than a year, what are we actually going to do about it?
My suggestion is that governance be switched to having GOV tokens which are given to projects on the chain to give to their users which can then be used for voting.
That way when goracle launches they could be given a good amount of gov tokens so their interest rate is 20% of their own return + 15% of GOV tokens return. That way governance tokens stack with each individual project and can be used to create really attractive rates of return which pull people in from other chains, support new projects and create hype.
Currently all that is happening is there’s a flurry of activity while people sign up for a new governance period and then everyone goes to sleep for 3 months. This is not what we want, we want an active, thriving, chain where rational capital is flowing into high quality projects and funding them for the long term.
Can we do something about this please!!!