Evolving Algorand Governance

One concern is the lack of support among dapps for cold storage Currently very difficult to participate in defi if there is no ledger support.

Michel and the foundation make great points for rewarding with compensation and extra votes for those that participate in the defi space.

Two interesting scenarios come to mind.

  1. Rewarding a defi wallet based on the assets held, but this raises the question will the wallet that minted goBTC be treated the same as the one that swapped for goBTC on tinyman?

  2. Rewarding a defi wallet based on the value of the defi assets, but this raises the question of an individual holding lots of LP tokens, clearly participating in defi, but the value may have significantly dropped over the governance period.

Just a few of my initial thoughts.


+1 to Michel’s comments. I do believe that the exact return might change once we have exhausted the Foundation’s reserves and we start dipping into the FeeSink from the transaction fees, but in the meanwhile DeFi is being affected.

One thing that hasn’t been mentioned here is running a participation node. Accounts that are engaged in consensus are listed as “Online”.

Let me preface this by saying that I do NOT believe that participation node runners should receive rewards for running a node. Silvio has argued this before and it comes down to the fact that the cost is simply too low, the “work” (and hardware required) doesn’t really scale with the Algos staked. We’d be at risk of centralization. (I DO however believe Relay nodes should be rewarded, since running one is very costly. Preferably they should compete with each other to the point that nodes are barely breaking even.)

But I do think if you run a participation node so your account is online while you engage in governance, you should have more of a say. Maybe it should 2x your voting power, or something. This would be a good way to encourage participating in consensus, decentralizing Algorand.

(As always, we need to be careful to do this in such a way that whales dont just split their holdings over many smaller accounts.)


Governance should always exist as a form of shareholder vote just as regular stocks hold votes. If your holding shares between certain periods, you are eligible.

Now, I agree this isn’t worth much but that is why we have xgov which already passed the vote… this needs to be expanded upon to bring more value to the blockchain as a whole. We do this just like everyone else… staking, and what that means is you must run a participation node. With concerns around defi participation I would concede the longer lock up periods but it is absolutely vital that we start securing and decentralizing the network. We can worry about relay nodes later. They are already paid until a certain date. At some point maybe we make relay nodes another layer of governance with lockups and slashing to incentivize good node running similar to running a validator on ethereum.

So here is what I would like to do as a participant.

  • Have my whole stack backing a participation node. This would be a layer of governance.
  • Participate in governance voting. Same rules as stocks. Small reward.
  • Use something like algofi to do governance so real coins are locked up and receive wrapped tokens to use in defi. Ideally a non permanent loss pool.

I would do all this and be happy with all parts summing up to ~10% apr which anyone can do. This brings much more value than just doing defi rewards or just doing governance. If everyone did this it should count towards TVL and everyone is happy.

Abondoning governance and just handing out money in the form of government subsidies is distasteful and I would avoid at all costs. It only gets messier from here.


Created this new account, and leaving this comment just as a suggestion : Algo should really take a step back and think about how coherent their brand is… I almost missed the last vote because I never received a notification in my app… plus the app logo changed… plus the app drastically changed ( to pera )… I had thought my account was hacked… No direct communication in advance… No notification… No option to “vote with (majority)” so you don’t lose rewards…

I didn’t even know these forums existed until someone on reddit is linking to them - if you want feedback from the algo community - why can’t I leave this reply right inside the pera app? why didn’t I get a notification that the foundation wants feedback from governors? why was no “Welcome to algorand” email or text or splash page in pera or so on ever happen? Why don’t I know about most of your ecosystem, and why have you put so little emphasis on me ever being welcomed/invited/informed of any of it?

Im constantly told “you have to dyor” and “you have to contribute” and “you have to get informed, get involved” - as if it’s solely my fault that algo feels so fractured in so many ways… Meanwhile, entire counties, entire states, are protesting, rioting even - because someone couldn’t vote - because they didn’t update their drivers license for the last 20 years - and that HAS to be racist…

Anyway - “we are very new” seems to be the overall crypto theme - so many of these issues were never yours to solve in a day - but you really should put more effort into solidifying the “brand” and doing more to get your core community involved further, included better, and informed more meaningfully…


I am wondering why the governance dapp/smart contract could not read all the smart contracts a user may have opted in to .

. This way, all Algo tokens a governor or xGov holds should count towards governance .

. For any ASAs held, the foundation or through a vote itself, create a whitelist of other tokens that can count towards governance ?

Edit#1: Also note that the high APY is only high due to the number of participating tokens is not high enough. If we automatically count all tokens a user holds in a wallet or locked up in smart contracts then users can collect rewards for both governance and participating in DEFI/games etc, this should solve he issue.

I assume there will be different tier of rewards for xGovs ( time commitment required) versus just voting.

Luis E. Rodriguez

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i would be weary of giving too much power to the rich. although any dampening of wealth opens exploits to sybil accounts. to combat this, identity/KYC systems can be employed, but with the sacrifice of permissionless-ness. it’s a delicate balance.

a measure of breadth and depth of governance contribution is important. if you only vote on one item with 10,000 algos soft-staked, you are probably less valuable as a governer than someone who voted on 50 items, yet only soft-staked 100 algos. this of course assumes their depth level is reasonable – ie. they were diligent.

one way to measure this is to hold a peer-to-peer review of importance. the coordinape tool comes to mind, although it can be done in a plethora of ways. these reviews are notoriously hard to get right. beware.

ah yes… allocation of resources for public goods. i’m an active member in the gitcoin DAO and this is a problem we have dedicated workstreams to solve (like for example, the fraud detection and defense workstream that i am a leader in).

we are collectively building the 2.0 version of gitcoin grants where we are adopting a more modular approach for funding allocation. the goal is to provide all of the tools and processes needed to conduct resource allocation (based on the consensus of the community) without sacrificing legitimacy.

i would love to facilitate a collaboration between algorand and our fraud detection and defense workstream within gitcoin for fraud resilient governance fund allocations. this could be amazing!

this is called 1 dollar 1 vote (1d1v) and means that the rich potentially have unfairly amplified voices over the poor majority. we use quadratic funding, although it’s ripe with exploits so it should be proceeded with caution.


I agree DeFi participation should be the strong factor in governance classification. If the goal is to improve DeFi participation then communication improvements are a must, i.e. an announcement of new tokens or dApps in Pera wallet or an ad on Vestige would be a start.

Greater award will be based on the amount of Algorand held in an ecosystem wallet as well as the extent of dApp use/support. Not everyone has the creativity to design a NFT, coding experience or resources needed to run a node. These skills, should not be a requirement for taking part in governance.

Rewards should, of course, be based on the amount of Algorand held as well as the length of time one is willing to commit their tokens. However, if a minimum commitment is being considered, care must be taken so as not to ostracize those with less resources.


I missed the last vote.
For security all my crypto is done on a another computer which is normally switched off and disconnected.
Are mobile apps and the security of my phone sufficient for crypto?
The only way for me to keep up now is by subscribing to the Twitter account.

I was aware of the forum, but I thought it was just for technical issues and devs.

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How are passive Algo holders rewarded?
Apart from a possible increase of value of the token over time?

I’m committing my Algo every three months and trying to vote on governance.
Should most Algo holders even vote?
As we probably don’t fully understand what we voting for.

Am I in a minority or a silent majority?


Some really great ideas moving forward. I would first just advise to take as much time as needed before rushing out a change to Governance. It’s should be important to remember some of the qualities that Silvio has been pointing out, most importantly, inclusiveness. Creating Tiers may challenge this important aspect of the Algorand we have all come to love.

I think there can be a much simpler way to move Governance toward DeFi platforms without making initial massive changes. Why not run all Governance through DeFi platforms. It is essentially being done now. Stake Algo on your platform of choice for Governance, and then borrow to participate in DeFi. I believe if given more time this would have eventually happened.

Now, platforms should have some parameters. First, participating platforms should support cold wallets. Second, platforms participating in Governance must have PUBLIC auctions for liquidations.

I think this would be an acceptable next step in the evolution of the current Governance system that has been identified as the largest and most successful.

Great discussion. Thanks


agreed. these things take time and are brittle.


I will start by saying that this is a damn great post and I’m glad someone started this. I am sick of staking and governance systems. The majority of exchanges (these leaches) using the funds of others to participate in every single staking/governance and for this to stop, we need to get rid of this airdrops mentality… Nothing it’s free on this world, and as it was designed Algorand, it doesn’t need to attract billions of tokens staked for security. Algorand needs to attract investors, retailers, etc. through defi dapps, not through a fkn governance system with free Algo airdropped for nothing basically.

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I agree with Dapps supporting cold storage.


I think this is a great post and very well thought out. I’d point out that governance rewards will continue to decrease and that perhaps some changes could be made via proposals rather than a dismantling from the top down (although exchanges and Algorand Inc will decide right?).

I don’t dislike the governance program and I think that some goals may not be the same for everyone, but to be honest I’m not knowledgeable enough to have an opinion on this. This sounds like a good idea, but Algorand governance also seems to have benefits to me. It does at the very least seem that the TVL argument is correct but I can’t synthesize that into a particularly strong opinion.

In any case, just some thoughts. I appreciate the post and think this is an important discussion as somebody who wants Algorand to achieve the success it deserves.


Hello all.

If the question is how do we reward active participation in the Algorand ecosystem to foster growth then I strongly disagree with rewarding participation in currently popular defi platforms with more than $10m TVL

This would only lead to pooling of funds on these already established platforms and make it harder for new projects to break into the space. Why would anyone try a new DeFi platform when they would lose their extra governance votes? It kills the potential for innovation and cements the status quo.

We need to reward all active participation equally or not at all - The problem is we can’t just count the smart contracts someone has value locked away in because not all smart contracts could be considered “active” participation.

I believe the solution to this lies in the auditing of smart contracts - If we included a simple standard flag in TEAL for “This account is actively participating with X amount” that could be added to contracts either by developers but only enabled after a short approval process or only added by approved auditors. This would be better than having a minimum TVL requirement because any project could potentially benefit and it would be easy to widen the scope of “active participation”


I rather see the governance rewards and voting power, distributed among all defi projects running on Algo based on their TVL/Ape - Value/Algo contribution, than airdropped for free in a gov. After all, the projects, devs, active users should be rewarded, not exchanges for participating with ur share, neither the lazy VC whales which votes are always pushed in their favor. I really hate these systems designed to grab a penny for nothing. If the only utility of a token, it’s to get u more tokens, than that token it’s useless…

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So, it’s hard to disagree with most of your comments. I don’t think you can just dissolve the current Governance system. This would be very risky in that most current retail investors are growing weary of the ever-changing Algorand ecosystem. I for one would be frustrated with an immediate change that drastic. It’s already hard to go long in this current environment due to the constant changes. Slowly evolve the current system.


I’d also point out that even if there are valid concerns and what seem to be obvious solutions to seemingly obvious perceived problems, that the people behind governance have put a lot of thought and care into it for their own reasons and goals.

Silvio Micali speaks about the difficulty of creating the right incentives for a system to function well and discourage bad actors. Certainly we’ve seen our fair share of bad actors already intention-wise, but it’s worth asking the question of whether TVL is everyone’s primary goal, and if prioritizing it would be detrimental to other goals.

As I’ve said I’m far from a genius on these topics, but for those of you that are, at the very least remember to respect the hard work and serious thought put into this system in the first place by some brilliant minds. The OP was not particularly disrespectful but a few comments seem a little pointed.


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.



I think you need to be careful with this. Trying to tie governance with other projects can cause issues with market volatility. Also I think being in actual governance such as Algorand’s governance isn’t “passive”. You still have to join, you still have to make a decision else you are dropped. There is something that has to happen to also the position is still liquid the person is actively locking the token.

While I understand 1 algo=1vote makes sense and is the easiest to follow. As for time, I think that(time) is the best standard as it rewards the patient and not the ones looking for right now yield. There is a reason token locking and slashing has been implemented in so many protocols, those willing to take the risk are typically willing to contribute.

I think there are several issues and they need to be laid bare in many systems and talked about:

1Q. Does staking an L0/L1 token really help the core ecosystem? Especially if that core ecosystem is limited by scarcity (Limit of total available tokens and limited to unlocked/unstaked tokens)?
1A. From a L1 perspective you would want that token to be used a lot and traded around a lot. Basically your L1 token would be worth the usefulness of your ecosystem. Locking it away in a staking mechanism while may temporarily increase it’s value. That would be lost if lets say a lot of people just stopped staking and started spending.

2Q. Does TVL really mean have value? What would 10M TVL mean if it never moved or if it only moved during a market crash, like we are experiencing now?
2A. Probably not. That TVL is still locked to the wallet that deposited it so it isn’t going to get used unless it is some sort of AMM. I think being able to move volumes cheaply or provide a unique use case would be better to incentivize over pure $ amount. An example of this is lending collateral. Large TVLs because people are dropping their LPs into the protocol and then borrowing more to get more until they reach a certain point where inevitably a liquidation cascade happens.

3Q. Would it be better to lock a token for a certain amount of time, 2w, 1m, 3m, 6m, 1y, 2y, 4y? Maybe cause slashing?
3A. I think people willing to take a risk is a good thing. Locking for a certain amount of time does provide some stability to the protocol. I think you could possibly build a liquid locked staking mechanism allowing your position to still be liquid. Then falling outside the rules of locking causes you to get slashed.

I think there are a lot of possibilities. As for just owning the coin to gain staking isn’t healthy for the ecosystem. I think offering input into gov similar to now, building new/innovative dapps, time holding/active staking, and producing governance proposals would be a more healthy mechanism. I think you could follow all of the above on chain.