Hi, this is John from Algofi (lending, AMM, NanoSwap). I’d like to briefly offer some thoughts on the Foundation’s proposal to evolve governance.
As a leading L1, Algorand is competing with Ethereum and other alternative L1s. Specifically, Algorand is competing for dApp users / TVL and their developers. Now, Algorand has a strong case that its technology is superior. (1) PPOS is a novel consensus algorithm that will enable Algorand to solve the blockchain trilemma, making the chain scalable, secure, and decentralized. (2) AVM is intuitive and safer to build on. (3) Algorand has never had downtime (unlike some other chains). (4) Algorand’s developer documentation is robust. So, as a developer, if you think these properties are important for your application, you should build on Algorand. But, as we’ve seen, the market is not so efficient and it isn’t just a matter of technology. Large incentive programs can tilt the scales in favor of a given chain if executed well.
Indeed, in the last year, L1s have taken advantage of their treasuries, propped up by marketing and network effects, to deploy large user / developer incentive programs:
- Terra’s Anchor Protocol pays users roughly 20% to lend UST, their asset backed stablecoins (this costs the chain ~$2bn annually after staking rewards)
- Avalanche has committed nearly $500mn to DeFi and multiverse applications through their Avalanche Rush and Avalanche Multiverse programs
- Fantom announced a 370mm FTM incentive program that pays out to developers directly as a function of TVL
- NEAR launched an $800mm grants program to fund ecosystem development with a focus on DeFi. NEAR has also launched a UST competitor, USN
- Elron launched a $1.3bn incentive program to support the growth of its native DEX, Maiar
These programs have greatly benefited their DeFi ecosystems with native token price appreciation more than paying for them. As Michel said, incentive programs help grow TVL which is empirically correlated with token FDV. Intuitively, it makes sense that larger, flourishing dApp ecosystems help their native token appreciate (all things equal). Then the more valuable token can be deployed into other verticals like the ones Shai noted (NFTs, node runners, etc.). It’s critical for the Foundation to take advantage of these early days of DeFi to get users / TVL, developers, and build network effects for Algorand. We need to compete at both the technological and ecosystem development level, not one or the other. The best framework in which to do this today would be to modify Algorand Foundation governance to support DeFi.
I’ll come back with some thoughts on a potential compensation structure and implementation to measure DeFi usage.
Overall, I’m very excited to see the Foundation taking the steps I believe are necessary for Algorand to compete and, ultimately, win the lion’s share of DeFi users and developers. I invite any follow ups, comments, or critiques of my position.