Algorand Governance Feedback: Decentralization Concerns

Governance
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TL;DR Decentralized decision making and execution is inefficient and ineffective and poses a great risk to the Algorand growth and competitiveness moving forward.

  • The goal of this note is not to claim that decentralized governance cannot be useful in any form but to encourage deeper discussion and research among the Algorand teams and the community before moving full-speed in that direction.
  • AFAIK there is not enough public information about how Algorand Inc., the Foundation and network are supposed to work and influence each other. For example I asked a number of questions here.

Staking Algos is just one requirement for becoming a decision maker. It only ensures there is some interest alignment with the network success. However, it doesn’t guarantee anything about the quality of decisions or whether they are part of a broader long-term strategy. First an important part of decision making is coming up with the decisions that need to be made, which is missing and is left to proposal owners and not under a unified strategical plan. Second, decision making for a global monetary/DeFi network is a high-profile job which requires dedicated time and effort, expertise and knowledge. The majority of participants (95+% if not more) are not qualified for this role. Also the governance reward is too little for the small group of qualified participants. Third, there are too many participants, with many different backgrounds and just ensuring enough information flow so they get to a common understanding of problems/solutions is difficult (if not impossible) and a slow process.

The damage is not limited to decision making and execution but also it causes a lot of unhappiness and sadness within the community, leading to many divisions and eventually brain/money drain. No sane expert would want to waste hours and hours his/her precious time discussing basics with random people so may or may not move the needle just a little bit. As much as people get excited when sometimes the process works, stepping back there is little justification for it particularly when a centrally govern competitor (say Binance for example) can move one hundred times faster. Decentralized governance is not a goal but a means so its cost should be lowered as much as possible or even alternative approaches are used when possible.

I had the chance to work with the Dash community very closely for a few months. I observed many of these issues in practice. Dash governance benefits from interesting ideas (for example there is a treasury and the network can own companies and central entities) however it still suffers from serious issues and fails in addressing real problems effectively and quickly. The result has been that Dash is not able to gain its deserved position and value in the market even when it still provides cheap/fast(1-2s)/scalable transactions. In particular not only the community has not grown enough but there has been a huge brain drain.

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@awesomecrypto

You do realise the objective of Algorand is a truly decentralized network, right? In order to be decentralized there are consequences and it means sharing the responsibility and decision making with people that you might consider inferior or have a different opinion than yourself.

Another reason why the network must achieve decentralization is because the SEC indicated that bitcoin is not considered a security due to their decentralized nature. If all decisions are governed by the Foundation the SEC might view the token as a security and every transaction must be scrutinized and everybody vetting for compliance reasons.

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Does it? Governance is about changing parameters of the protocol to be more in line with every participants values. You don’t need an MIT degree for that.

To make a point about that “elite” you’re talking about: There’s not a single currency in the world that has ever stood the test of time. These “experts” might understand monetary policies better, but they’re also more likely to manipulate them for their own gain. As far as I’m concerned, banks gambling on the market and getting bailout money don’t seem like geniuses to me.

Centralization is not the way to improve as a civilization. We need strong education with a focus on critical thinking and depolarization.

And also, unlike the real world counter-part, changing protocol details on Algorand is a LOT less dangerous. There’s no notion of a natural person for the protocol.

when a centrally govern competitor (say Binance for example) can move one hundred times faster.

You trust Binance with your money? Then why bother with crypto at all?

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Forgive me for ignoring your other arguments for a moment, but even if it was true that 95% of the participants were not qualified for the role, as long as the number of governors is high enough, then even 5% of qualified participants may be enough to produce good decisions per the “wisdom of the crowds” principle. And we don’t even need to know which ones are the qualified participants.

By “wisdom of the crowds” I mean that if 95% of participants vote randomly (and independently of each other) while 5% actually vote for the “best” option, then with a large enough number of participants the random votes will statistically cancel each other out, while the 5% of participants voting for the best option is enough for that option to win.

Of course, it is not quite that simple in practice due to various biases or group think that can influence the 95% of participants to not vote randomly (or independently), but in my opinion that is not a good enough reason to abandon the whole idea of wisdom of the crowds that works so excellently in many different areas.

It is certainly worth trying to get the most qualified people to participate in the governance too, but in the long term I fully agree with the direction Algorand is taking in trying to decentralize the governance of Algorand.

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The real problem is that Prof. Micali didn’t specify clearly enough the SCOPE of the governance.
Its scope may be “bicycle shedding” and getting good money (Algo) for it.

...Ethereum is moving forward very fast. There’s little opportunity for “bike-shedding,” an expression that means holding up development by arguing over minor details such as how to build the bicycle shed at the back of a nuclear power station. If you start bike-shedding, you might suddenly discover that while you were distracted the rest of the development team changed

From “Andreas M. Antonopoulos, Gavin Wood Ph. D. - Mastering Ethereum_ Building Smart Contracts and DApps-O’Reilly Media (2018).epub”

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Someone answer me this:
How is Algorand (or any proof of stake based consensus) going to stay decentralized when 1 Algo = 1 Vote?

It seems entirely possible that the decentralized nature of the governance protocol can be compromised by someone (or group) with lots of money who can buy more than half the supply, essentially making them the only vote that matters.
Not only that but if this person does vote, they’ll get even more power over the governance of the chain in the future.

@tebok mentioned the “wisdom of the crowd”; this would be true if 1 Account (Tied to a real identity) = 1 Vote, but this is more like a game of the " Wisdom Of Who Has The Most Algo".

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We can only hope that that the initial (secret, not too transparent) allocation went to parties Prof. Micali knows and trusts.Anyway, everything is on the blockchain, it should be analyzed, who is who.

A question: is it still considered a terrorist act to create and a new crypto in the US? Prof. Micali made his decisions (Foudation, Cayman Island etc) not without reason, I think. Or it is much more refined than that…

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they say that governance protocol is about managing the AERP fund… governors should have power to decide how many algos are distributed between grants and how many goes to relay nodes incentives…

governors do not decide on who receives the money… algo fundation has monopol in this… perhaps in 10 years when there will be fight only for some algos from fees, they will give it to public

so 1 algo = 1 vote means that the algo community believes in hypercapitalism… the founders of algo or early backers should decide whatever they want… they do it anyway, so whats the point to complain… right? :slight_smile:

@DangerDano … you should also believe in hypercapitalism if you are considering yourself as part of community… whatever Silvio (or his men) says is the word of God… :slight_smile:

But to be honest, I believe that from this type of discussion the algo leaders will not lock them selfs in their believes and be open minded and will start at least some discussion that will be beneficial for algo community…

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Yes, I was describing it purely in terms of “1 real user = 1 vote” (not 1 algo = 1 vote). But I should mention that in some conditions this criteria can be relaxed without losing the “wisdom of the crowds” benefits - best example being the betting market (i.e. prediction market).

In betting/prediction markets the most accurate predictions are not just a result of averaging the opinions of lots of participants, but also weighting each opinion by the the “confidence” each participant attaches to their bet (i.e. vote) through the bet amount they are willing to risk to back their opinion. And in these markets the bigger the bet, the more it moves the market (i.e. has more weight in the final prediction). (Of course the rich can still afford to bet more than the poor, but on average the larger the bet, the more confident that bettor is of their opinion.)

Now, does that argument apply to the algorand governance proposal and make “1 algo = 1 vote” the ideal approach, I certainly do not believe so.

My understanding of the the algorand governance is that the governors are not actually risking anything by committing their algos to governance. And therefore the governing weights are not based on the quality or confidence of each governors’ vote, but based on simply how algo-rich they are. So your characterization of “Wisdom Of Who Has The Most Algo” is quite accurate.

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To continue the “1 algo = 1 vote” discussion…

I personally want to believe that the “1 algo = 1 vote” rule is more a limitation of the current implementation and the fact that the protocol itself can only only see algorand addresses but not actual users, rather than as something that must always be that way.

Unfortunately there is no way around it without adding KYC or other major complications to governance approach, and therefore I don’t see it changing anytime soon, if ever. And quite possibly never, because once a system such as “1 algo = 1 vote” is in place where people with most algo have the power (and can stay anonymous while using that power), they are unlikely to give up that power by reforming the rules of governance. (Unless of course they are also idealists, but generally speaking most capitalists and major investors are not, though I don’t know about algo-investors.)

Still, I do want to acknowledge that if comparing the options in a vacuum, governance via “1 algo = 1 vote” is clearly better and more decentralized than if the Foundation continued to make all the decisions themselves. I just fear that it will forever be stuck in just a tiny bit more decentralized yet still highly centralized form.

Also, to me just as big of a concern is actually the way delegated voting was added to the governance proposal. While generally speaking delegated voting can be quite useful and a good voting method, in this case the users are incentivized to delegate their votes to the foundation, which in practice just brings us back to the centralized reality where we are now, where the Foundation makes the decisions.

In the community all hands meeting it was explained how in order for governors to receive rewards they need to either vote or to delegate their vote, and currently the only option to delegate one’s vote is to delegate it to the Foundation. I suspect most of the governors will do just that (delegate to the Foundation), in order to not miss out on the rewards. To me this incentive structure doesn’t seem like an accident, but suggests that the Foundation wants to appear decentralized, while in practice continuing to make most of the decisions themselves. (If I interpreted the Foundation’s intent wrong, I sincerely apologize.)

In fairness they did mention the possibility of adding other entities later that governors can delegate their votes to, but who chooses these entities? I can tell you from politics that every politician (even the crooked ones) is always willing to let the people vote, as long as the politician gets to choose the candidates (because they know that leaves no real power to the voters).

Apologies again if this sounded overly negative, and in order to provide more constructive critisism and concrete suggestions too, I want to point out the Penrose method - Wikipedia. Direct quotes:

  • The Penrose method (or square-root method ) is a method […] allocating the voting weights of delegations (possibly a single representative) in decision-making bodies proportional to the square root of the population represented by this delegation.
  • Under certain conditions, this allocation achieves equal voting powers for all people represented, independent of the size of their constituency. Proportional allocation would result in excessive voting powers for the electorates of larger constituencies.

At minimum, this principle should be applied to all delegated votes in the algorand governance (or alternatively the delegated voting should be removed), since that is the exact scenario where the delegate (i.e. the foundation) represents a large number of users, and in the current governance proposal, per Penrose, the “Proportional allocation would result in excessive voting powers[…]”.

Finally, Algorand is still my favorite cryptocurrency of all the options, and I understand things are evolving and that first steps towards decentralization are not necessarily the last.

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In cryptography almost anything is possible, but is it also likely to happen?

In proof of work, who is stopping a single person from buying 99% of the computing power? It’s not impossible.

With 10 billion ALGOs what is the chance that a subject owns 51%? And that this subject decides to damage the same coins he owns?

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You do not understand… Noone is talking about damaging it… The person who has a lot wants to have even more… And he does that even if someone else has better idea and he dont get funded because all funds got the rich person… It is about the efficiency of the economy…

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How do you want to persuade person to buy 1000 tokens for 1000 eur if you giveaway millions of the same tokens per month to yourself (or person in your circle of trust) for free?

algo funds do not work now… they are totally non transparent, and algo foundation does not want to do anything about it right now…

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How to convince a person to buy Tesla or Apple stock if these companies reserve millions of them for their CEO for free?

What I’m interested in is the opportunity to earn as well, not how much others earn. It’s pointless for you to reserve millions of ALGOs if the ALGOs are not trusted and valuable in the marketplace.

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Here are the current top account according to the Algo explorer:

Screenshot_20210422-215816_Chrome
Screenshot_20210422-215816_Chrome1080Ă—2280 219 KB

The top most account hold over 330,000,000 algos (which essentially is also the voting power).

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Here’s that account compounded at 6% over time:

Screenshot_20210422-221536_Chrome
Screenshot_20210422-221536_Chrome1080Ă—2280 251 KB

I know that the 6% is not going to last past 2022 but theoretically running this calculation would mean that this account will accumulate more than 6 billion algos (more than half) over 50 years (less than a lifetime) by doing nothing and automatically compromise the overall system through the power of the vote.

From my understanding annual percent will not continue past 2022 and the participation in voting will be incentived according to how many participants there are, giving a bigger % return if there isn’t a lot of participation. This still continues the perpetuation of the rich get richer fallacy where the more algo used to vote the more you’ll receive in return without risk of losing it.

@mmorselli mentioned that with cryptography, anything is possible, then creating a fair game at it’s fundamental level should be as well.

I can argue that there has never been a totally fair system in history… Yet. It’ll be a shame to think that we humans have everything we need to create a truly fair system and don’t.

In my opinion, a fair system itself can be an incentive need to get people to join, trust, and believe in the system that they live in.

Who wants to play a game of rich man, poor man where every new comer starts with extreme disadvantages?

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It’s not the number of participating users that decreases the reward, but the number of committed ALGO, the reward is a fixed amount, it can go to a user who holds 4 billion ALGO and decides to freeze them for 3 months or to 4 million users each blocking 1000 ALGO. What’s the difference? Each of them will be rewarded for 7% of their efforts.

I suppose the foundation doesn’t allow voting on something that doesn’t agree with the founding principles, such as voting to distribute all rewards to the richest wallet.

The question might be: are there foundational principles? Like an ALGORAND Constitution?

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I love the idea of “Algorand Constitution” for exactly the reasons you mentioned.

Another idea would be a community driven “Shadow Government”, with no actual governing power whatsoever, but voting on the same issues (and many more) as the real Algorand Governors. This would help identify issues where the “wisdom of the crowds” disagrees with the Foundation and/or the “wisdom of who has the most algo”, and allowed raising those issues for a deeper public debate.

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The Algorand Constitution should be the first document voted by the new Governance. Should contain more stringent mechanisms to modify itself (e.g. 75% of votes instead of 50%)

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@mmorselli I would have to disagree with your proposed mechanism for ratifying and/or amending the constitution.

While it is of course true that the constitution would need to be something that cannot be changed via a simple majority vote by the algorand governors themselves (or it wouldn’t serve the purpose of a constitution at all), in my opinion most supermajority requirements violate the “wisdom of the crowds” principle, and will simply lead to inferior decisions getting stuck for far longer than they should.

I also don’t believe the first algorand government should be able to restrict what the second government starting just 3 months later is able to do (or any future government for that matter), which is especially true given that the first government is probably the most centralized of all governments to come. This is because over time the governing algo will presumably represent a larger and larger number of people, who are less likely to achieve as large supermajorities as the very first government, and therefore shouldn’t be bound by any supermajority requirements decided by the first set of governors.

So, if there was indeed an algorand constitution, I think the constitution would need to be ratified (and later amended) by a body that is separate from the governance, and in some sense more legitimate. If this was a constitution for a country, I would say that it is all the citizens of that country who should be able to ratify (and amend) a constitution via a simple majority vote (or preferrably 50%+1 of all eligible voters being the threshold, so that even in the event of a low voter turnout there is no possibility of any minority group changing the consititution). But how to apply that to algorand where there are no citizens per se, that I don’t know.

Sorry if this is getting too far off topic of what’s actually been proposed for algorand governance, but I just can’t help myself when there are interesting issues to talk about.

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