Evolving Algorand Governance

@anon - I have one caveat to your proposal. I think it is too restricted. Having such a long gov periods make the whole process slow and inefficient. In Cosmos, we have:

  • proposals should start with forum discussion
  • no gov period
  • default 21 voting period, however many projects are moving into ~7 days voting period.
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If the goal is to increase TVL by attracting new investment with attractive yield and extra votes, I don’t think this plan will be particularly effective.

  1. Rewards would still be issued on a quarterly basis, likely prompting defi platforms to require locks similar to the current governance soft-lock – not a simple or attractive option for most users, especially if tied to volatile defi pools.
  2. The yield will soon be so diluted by both governance and defi participation that it will not be attractive for either option
  3. Algorand defi platforms have not been particularly good at explaining how existing incentives apply to various pools. How much more complex will their UXs be when accounting for votes and interest derived from any and all defi participation? This will not attract new users IMO.
  4. Governance votes are not a realistic incentive for investors chasing yield

It may make more sense to drop governance rewards completely and use the remaining reward balance for targeted grants and/or general participation rewards.

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I like the analogy, but what about the following counter-example that goes against the point made in your country example:

If instead of countries we look at local governments like cities, counties, etc, where only the current residents can vote in local elections and only current residents have a say in the future of the city, it can easily lead to massive problems too.

Take Silicon Valley or San Francisco (California, USA) as an example, where extreme zoning laws largely prohibit new home construction, which then massively increase the value of existing housing in these areas. Rapidly increasing housing costs are of course benefiting all current homeowners and landlords in the area, and therefore they, and their elected local officials, continue to support such harmful policies. But at the same time a large number of “potential residents” who would want to move into the area for very good reasons (reasons that are at least as valid as those of the existing residents), such as wanting to be closer to work and to reduce their commute by several hours each day, may be priced out.

I think the above example makes a point that is valid for the Algorand governance discussion too, as current Algorand holders could be seen as “San Francisco residents” who benefit greatly from prices going up, and therefore prefer such policies even if it harms the larger economy as a whole. And at the same time a large number of potential Algorand users, who want Algorand to be successful not for it’s investment value but because of the utility it’s technical superiority would bring to the whole economy (faster transactions etc), and whose goals may therefore be even more aligned with Algorand’s long-term goals than the current Algo holders’, have no say in governance if they don’t already hold a lot of Algo.

This is not an argument for or against in the the current DeFi discussion, but just wanted to point out that using “1 algo = 1 vote” for everything may not be as trivial as it seems. Though it might still be the best that we have…

(I also have nothing at all against San Francisco, just happened to pick one city that I know of where housing costs are a major problem due to their zoning laws.)

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Here are my thoughts, sorry to link out…but I wrote this straight onto twitter.

It must be said, that the intentions of this proposal are not totally clear to me either. Is 3.1 more about growing TVL or shifting governing power from exchanges to DeFi participants? I really think keeping things simple makes more sense, especially at the beginning. We have so many people to onboard onto Algorand and trying to make it more complicated without very clear positives seems like we are just muddying the waters.

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I think this is the right direction. The voting periods are restrictive and odd. I don’t know much about cosmos governance but I’ve heard good things. Let’s not reinvent the wheel or stick with some original idea that doesn’t make sense. This is what I see happening currently. The foundation doesn’t want to admit someone was wrong and start over. This needs to happen.

If shaih doesn’t want to change, he needs to go.

A few thoughts as an active observer of the Algorand ecosystem. The 1 ALGO = 1 VOTE has been heavily marketed by everyone on the Algorand side and is a nice feature that is obviously as fair as it can be - given that algos are seen as citizens of Algorand. Even with this simplest definition of voting, governance will already be really hard to keep fair in the long run because wealth distribution, as in any other asset, will end up being really bad and the rich will eventually collude.

We started governance in Q4 2021. Less than a year later, we’re proposing to move away from our fair governance model to something that nobody really knows what it will look like.

Registering with the Algorand foundation, providing some administrative Algorand accounts for the purposes of voting on behalf of their participants;

This suggests going from a trustless fair democratic process to one that introduces Algorand Foundation as a middle-man for an additional part of it. Will we have a person hired as the “Head of governance approval” on Algorand foundation approve the defi projects? Who will be this person and how much do they need for getting bribed? Governance voting today is trustless and verifiable, are we sure we want to open all the possible attack vectors and introduce a middle-man? This seems like a step in the opposite direction that blockchains usually take, blockchains are supposed to remove the trusted intermediaries. Governance on blockchain should be no different.

Maintaining daily TVL on Algorand of at least 10M Algo-equivalent, on average over the two-week signup window for the governance period. For the 4th governance period (3rd Qtr 2022), we will use the TVL amounts as reported on DefiLlama

The numbers here seem rather arbitrary. Why 10M and not 20M? What if the marketcap of the cryptocurrencies explodes to a couple of trillion dollars marketcap, do we have another vote to update this parameter? What happens when defilama is down or gets shut down indefinitely? What if they report false metrics to gain advantage in a vote?

I would honestly expect that any attempt at moving away from the 1 ALGO = 1 VOTE would come with a research paper backing up the game theory behind the new improvement proposal. I believe this was done in good faith, but this unfortunately doesn’t make the proposal any better. I know this will sound harsh, but if the governance is to survive and stay relevant, we as a community have to shut down all weak proposals. It’s the only way this scales in the long run and it gives immediate feedback to those making the proposals. I’d keep quiet if the proposal was for something rather irrelevant, but this is a proposal to make a drastic change to one of the core invariants of governance system (1algo = 1vote) accompanied with the level of description similar to reddit’s “trust me bro” comment. It sets a terribly low standard for the upcoming proposals for big changes. If this is not improved, it will inevitably end up complecting the system and will result in the usual “orbits upon orbits” method of fixing the mess created by previous proposals. Ethereum took that path and it did not turn out well for them in terms of maintainability of a system that makes sense.

I’m not saying the direction is necessarily bad, but the severity of the change should require a magnitude more serious take on it. We can’t push forward a change like this through a blog entry with 2 bulletpoints in a layman language. I do understand not all governors will be able to comprehend research, but that’s not an excuse to avoid showing that the path has solid grounds. A change like this requires a better specification. It’s better to not give anything to vote on than to give an option for an unknown path just to have something.

Given that 1 ALGO = 1 VOTE was heavily advertised, the fact that we’re willing to change it in 6 months after the governance started should be a big red flag for any serious investor. It may be good to have the system evolve over time, but to flip such crucial invariants like this in half a year makes the financial/governance system unpredictable, which can drive away investors.

I apologize in case the details were provided and I managed to miss them.

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I think Foundation and Saith are doing a good job - they elaborated one idea and are seeking community for opinions. We can’t build the best governance system over a night. It requires good engineering team and evolution.
That being said, I don’t agree with the current proposal but I trust it will evolve in the right one.

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I would be very surprised if this (daily average) can’t be gamed in which case it’s not a safe solution (you also need to trust the source of this daily average, which is another issue). I believe that raising TVL by centralizing the system is not the right way to do things.

Also who’s responsible when things go wrong? Let’s imagine this happens: selected group of people say “dapp X is part of governance”, people then put money in X, someone hacks X and steals people’s money → what do we do now? We know there’s no way to guarantee that a software has no bugs, even if it’s checked by 5 different companies and dapp is formally verified. This is going to happen sooner or later and people will not only lose faith in the hacked dapp but in this case also in the algorand team for including such a project in the governance.

I believe that if we want to raise TVL we should do it in a proper way, not by centralizing the system and making the main algorand team a target for other people’s mistakes. We have the team that came up with the best pos consensus and with state proofs, so i believe they’re more than capable of coming up with a decentralized solution where algo stakers decide which dapps to add/remove from the governance (if we decide to go that way). To me a much better quick solution to raise TVL is to lock the coins that are staked and then over time figure out a decentralized solution to incentivize people to use defi. Let’s not forget that decentralization is the main reason why blockchain is a powerful tool and that decentralization is what enables us to make the world a better place.

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This language isn’t appropriate and explicitly attacking individuals is not the way to solve this. I believe the issue may be the incentives and the strategy that the Foundation has which right now, with my limited understanding, seem to be “we have to maximize TVL”. This is why slips like this one can pass through. This proposal maximizes for a metric that’s been relevant for a year or two while introducing some very shady (at best) additional democratic votes with a pinky promise that the added third parties will be fair and can hence be trusted. The side-effect of this change is that serious investors that are in it for the long term will see this as a panic move to become/stay relevant because the described change has no solid grounds. Rather than introducing trusted third parties, we need to keep the democracy fair and verifiable by everyone. Regardless whether the party would be the Algorand Foundation, defilama or Jesus himself - not even he is trusted by everyone. Let’s try to keep the democracy clean and simple and if we must add something, let’s at least do so through research.

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The way I see it, governance (even of a platform/ecosystem) goes hand in hand with politics (of the platform/ecosystem). This is not to say that we should bring into the discussion the world politics. However, we do not have to reinvent the wheel, and I believe it helps to have analogies from daily life to help us see this.

I think it is quite clear (at least for the Foundation) what the Governance is supposed to achieve. See this from the recent Community All Hands event. I completely agree with this vision. Here are my thoughts on a bit more concrete goals for Governance.

The road to that vision is in the first step the implementation of a decentralized governance system, which is what we are (or should be) addressing. In my personal opinion, the most decentralized, transparent and fair way is direct participation, which are also the core values represented by PPoS. That’s why I suggested to implement Algorand Governance as referendums.

However, the current discussion seems now to focus on even the right to vote and the voting power, which has completely overshadowed the discussion on Governance implementation.

What I find most baffling by all this discussion, is that the right to vote and the voting power was already decided at the initial network-wide referendum on the governance program. In the details of that referendum “Decentralizing Algorand Governance”, accessible e.g. here, it is clearly stated at page 4:

That referendum passed with more than 90% of online stake.

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It seems to me my message might not have been clear enough.

The only asset that I consider that should have the right to vote on the future of Algorand, is Algorand (i.e. ALGO) alone. No other assets. Allow me to try to elaborate again on why.

ALGO holders have a stake in Algorand, thus are inherently incentivized to do what is in the best, long-term interest of Algorand. Any other assets that come to Algorand, require only a minimal ALGO stake. Therefore, they lack such an inherent incentive. Hence, if they were given voting power, others would need to blindly trust them to do what is good for Algorand.

However, the only premise that should be required from the ALGO holders to have is that each other user will do what is in their own best interest (i.e. that they will not be self-destructive). This is the basic assumption of PoS that guarantees the security of our funds. Trusting in nothing else should be required from us, regardless of how good we think non-ALGO assets might be for the ecosystem.

Further, the idea of 1 ALGO = 1 vote, was also already decided at the initial network-wide referendum on the governance program. In the details of that referendum “Decentralizing Algorand Governance”, accessible e.g. here, on page 4:

That referendum passed with more than 90% of online stake.

If that were not enough already, M1 is suggesting the assets to be given voting power to be completely liquid, further minimizing the required commitment towards Algorand.

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I agree that having long governance periods is slow and can be inefficient. However, we do need to have them. We cannot have a completely liquid governance because voters should be required to have a commitment to live with the consequences of their votes.

Further, if you had too many voting periods, many would not want to participate due to it being too much work. While some might say that is a good thing because only invested and informed governors would remain, I think we should rather try to make it as accessible to as many as possible. This is the only way of making it “very” decentralized. With this in mind, I think we should try to keeping it simple and inclusive.

Not having governance periods is not an issue in Cosmos because they use bonded PoS.
Having too many voting periods I think is already being seen as an issue in Cosmos. Some chains have really frequent votings, and also on very specific issues on the protocol level. That is why a lot of people simply automatically vote yes. Rarely I see people admit they are not informed enough or interested enough to abstain from the vote.

Therefore, I currently think quarterly governance is a good compromise for both of these aspects, and the updated suggestion as its implementation possibility.

I would not set this as a requirement because it could turn out as a single point of failure. But it could be a recommendation. And in practice, if a proposal would not be discussed first, it would most likely not gather enough support to even come up to a vote.

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Very frequent voting may come with big downsides. Fast decisions lead to poor choices and each implementation adds new elements to the system which make the system a spaghetti in the long run.

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I think there needs to be a serious re-evaluation of everyone’s role at the Foundation who was involved in finalizing measure #1 option A. There’s plenty of discussions around how potentially detrimental the option itself could be, but not enough concern about how it could even pass deliberations to begin with. It’s not something we should overlook as simply the worse of the two options. It shows a very worrisome level of negligence and poor thought process. This is a cut-throat space in which we should not settle for anything but the best, and therefore we should not allow the same people to continue having an influence at the Foundation, especially in areas which they clearly do not have a firm understanding of.

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@tebok That is an excellent counterpoint you make.

Just to make sure I understand it correctly, as a concrete example, you would argue e.g. that current ALGO holders might not want to decrease opt-in costs for an asset at a point where the price of ALGO is high, because new users would be forced to buy a larger ALGO stake in order to be able to participate, driving the price of ALGO even further up?

I do see something like this could indeed happen, but I think such a situation would naturally resolve itself. Because if existing ALGO holders were to start doing this, new users/projects would seek other platforms to rather build on/use, decreasing demand for Algorand and forcing it to again become attractive for users.

This is actually similar to what is currently happening to Ethereum (there you have the miners resisting change instead of existing holders). But as you see, competitors are emerging that provide better solutions (e.g. Algorand), forcing Ethereum to upgrade. You could argue that Ethereum has had issues already for many years and no one has managed to overthrow it yet. True, however, I imagine that in the future it would be much easier for a competitor to raise because the switching between platforms will be made much easier through development of blockchain interoperability. This interoperability will drive competitiveness, preventing what you mentioned in the first place. That would be a problem only if one (i.e. Algorand) were to dominate the crypto space. But as Silvio frequently says, I do not believe one blockchain will dominate the space, but we will live in a multichain world.

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@omniwarp, you mentioned a research paper, we actually came out with one around two months ago

There we mentioned allowing governors committing algos in Defi for a term (via vaults, liquid governance or possible DEX commitment) to make voting proposals, and receive rewards suitable for their term commitment in an economic activity. Before and after that there was a large debate till this proposal, but the background motivation for the involvement of DeFi in governance, given its economic relevance, should be strategic. With all the improvements we can bring in the process.

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Thank you for bringing attention to this article.
@Massimo, in the article you wrote:

Could you elaborate on the reasons why you now see a need to change these fundamentals by allowing other assets to participate in our common resources and our governance?

Such a move seems to me to be driven purely based on short-term economic speculations, and by far not in the best interested of Algorand since it can even be extremely damaging to it - as I have argued and demonstrated.

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I think the Foundation ought to have a team whose sole responsibility would be the Governance.

There have been too many issues with Governance so far - e.g. incomplete proposals both during G2 and G3, not announcing the topics to be voted on before the start of the governance period, changing the topics as in G2, and now last-minute changes to a proposal before the vote. Based on just looking at the number of responses in this forum from the Foundation compared to the number of well thought of comments/concerns raised by the community, whoever is currently responsible for it at the Foundation seems to be overwhelmed.

Massimo is chief economist, Shai a research fellow on cryptography, and I am sure their talents are utilized on their respective fields.

Hence, I think a dedicated team (of the highest integrity) could improve the situation drastically. Its top priority ought to be the transition of the Governance from the Foundation to the community, and its continuing mission later to ensure the execution of the Governance decisions.

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I had assumed that the Foundation already had a team that was dedicated to governance, but if they don’t, you’re absolutely correct that they need one. The xGov program will undoubtedly take a significant amount of time to fully implement, and the Foundation will still need to take a leading role after it is in place. I’d maybe even apply if they opened up a few governance team positions.