Evolving Algorand Governance

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.

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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.

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“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?

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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.

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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?

Context

  1. Current governance is open, however it’s not efficient enough:
    1. users or groups can’t make their own proposals
    2. it’s slow: 3-4 proposals / year
  2. Governance is the most important feature of the chain, not defi. Governance steer the blockchain.
  3. 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.
  4. 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.
  5. 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.

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:

  1. 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.
  2. Take some learning from Cosmos governance: let anyone create a proposal (that would require a bond) to do something good.
  3. 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).

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…
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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.

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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)

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.

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“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.

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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?

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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.

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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!

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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”.

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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???

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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

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@shaih

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.

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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.

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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.

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

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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

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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