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.
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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.
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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.
Links:
https://medium.com/avalancheavax/avalanche-foundation-announces-180m-defi-incentive-program-d320fdfafff7
https://www.coindesk.com/tech/2021/10/25/near-protocol-offers-800m-in-grants-in-bid-for-defi-mindshare/
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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.
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I agree the risk-free rate of return for governance is too high and it is smothering Algorand DeFi. Just look at the numbers, currently there is $2.6 billion locked up in governance and just $186 million locked up in DeFi.
I think this is very important and needs to be addressed, however, I think this can get very complicated very quickly.
I would propose a simple solution. Instead of needing to worry about governance seats and how to award those, for which participants, and how to track it, how about we cut the governance rewards in half and divert the cut funds to a new program focused specifically on rewarding DeFi users, NFT artists, developers, etc, similar to Aeneas. This accomplishes the goal of keeping governance simple, reducing the governance reward to make DeFi more competitive, and having a new source of funds to incentivize users of the ecosystem. The parameters of this new fund could even be voted on each governance period.
I believe this is the best of both worlds and keeps everyone happy. I understand the desire to change governance fundamentally to be more inclusive, but I think relying on community built solutions like Gard, Algofi Vault, and Folks Liquid Governance might just be easier to run with for those who want double exposure.
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I’m glad you posted. Algofi is an amazing product. Some insight into how Algofi’s Vault is doing would be interesting. Maybe Governance could be done through collateralized vaults, and participants rewarded in the platforms token. Governance Vaults could be standardized modules for any platform designed by the Foundation?
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Can governors just get paid from transaction fees and
partial from rewards reserve maybe burn part of reserve higher price per algo less rewards needed to keep govenors happy…more defi transactions may= more rewards.
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There is currently no such thing as a passive Algo holder. Everyone participating in governance has Algo price exposure and therefore market risk and the governance program is no different than a staking pool where one earns a reward for locking up their exposure for a 3 month period of time. The fact that this isn’t currently considered a part of the Algorand TVL is an administrative issue and not a real problem to solve because everyone participating in governance is exposed. There is also a great upward price benefit to people permanently locking up Algos for an extended period of time.
We should not be creating a dynamic between Algo governance participants and other forms of Defi. We should expand governance rewards and increase the hold time significantly so we have extreme upward pressure on the price AND SIGNIFICANTLY increase the incentives provided to the rest of the ecosystem to drive increased utilization on Tinyman, Algofi, Pactfi, Humble, Yieldly, Folks Finance and etc.
We also shouldn’t just assume that all the capital sitting in Algorand governance will just flow to the rest of the ecosystem if the program changes. The capital may permanently leave Algorand because there are people there who have been hurt by the hack in our ecosystem and from the collapse of some tokens prices in our ecosystem. Don’t just assume they won’t leave Algorand.
In summary, we don’t need to create an us vs them mentally in Algorand. The Defi utilization problem, the TVL problem and governance are three separate issues that can be resolved without anyone losing. Algos are not scare resources at this time and we need to make them scarce.
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So, I was asked by Staci W to post some of my thoughts here that I originally posted on a Twitter thread that Michel posted there. When Staci says jump… Ha.
For reference: This Thread
I’m looking forward to an honest and open discussion on this. I’ll be very honest, my gut reaction to this is to be pissed off. Kind of viscerally, I feel like this is a betrayal to the promises and guarantees that Algorand made with it’s widely promoted Governance pathway to 2030. These guarantees are what brought a huge number of people into the algo ecosystem to begin with. As Michel stated, very low risk with huge up-side potential, & a chance to be tangibly involved with a project so promising IS one of those once-in-a-lifetime opportunities that everyone wants to find.
I feel like Governance participation at an individual level is important, if the goal is to have a truly decentralized blockchain. If Algorand still feels that way as well, they have to make it worth people’s time and attention. No one wants Monster Exchange controlling Algorand, but you can’t make it a waste of time for everyone just to try to keep them out of the playground. Governors, by and large, want to help. We want to participate. We want to engage. But many of us are investors, not necessarily blockchain experts or NFT creators. I don’t really think one is more important than the other - just different. If Algorand really is for everybody, let’s make sure we act like it. This draft proposal doesn’t feel like that.
On that note, Governance is brand new. We’re coming up on our 3rd vote this quarter, and 2 out of 3 have been delayed, w/ the proposals changed to introduce sweeping changes to governance, virtually straight out of the gate. After so much promotion that Algorand had the gold standard of governance, shouldn’t we be giving both the governance model AND the ecosystem some real time to function as it was envisioned before so dramatically revamping it? I think it makes Algorand look unstable to do such abrupt u-turns so quickly out of the gate.
Further, the hypothesis that defi platforms could give The Foundation wallet addresses participating on their platforms and their respective balances in return for 3 seats in gov for each algo-equivalent those wallets hold is very concerning to me. Independent companies sharing customers’ engaged wallet addresses and active balances, so that their trading or liquidity is rewarded in exchange for influence? That just sounds shady when I type it.
This is also insinuated in places/posts to be a way to thwart whales & exchanges… do we not remember DENA? These exchanges/whales can and do participate - which is good - but I feel like any kind of argument that this adjustment to the way governance operates will deter them is dangerous and false. I worry that doing this could actually have the opposite effect, and allow whales and exchanges to fully take over governance if they get something akin to triple the seats at the table for each algo, because they “participate in the ecosystem”.
Additionally, tying governance to node running will introduce other complications. Personally, I live in an extremely rural location. No cell service, only satellite internet with slow speeds, high latency, and very, very low data caps. Running a node is not an option for me (as cool as that would be), and a huge chunk of the world population is in a similar situation. For that reason, I’m not opposed to incentives for node runners, just tying it to governance. Just food for thought.
I understand the arguments to stimulate innovation, growth & participation in the ecosystem. Those are obviously critical issues that need to be addressed, and they should definitely, unequivocally be a main focus. However, I don’t think blowing up a plan before allowing it to even try to work & reneging on the vision that was so enthusiastically sold to early supporters is the right way to do that.
I also don’t agree that 9-10% is outrageously high, or that the roughly 4% inflation is so cataclysmic to the price action. I mean, we’re all looking around at fiat right now, right? As a historically traditional investor, even I-Bonds are over 9% now. While the risk:reward ratio is obviously relevant, I think in this case it’s kind of a cop-out. It’s the very thing that was used to spur interest in the 1st place. It feels a bit rug-pull-ish, to be honest.
Lastly, here are my questions. (Warning: Crypto newbie opinions incoming.) Last quarter we voted to start an xDAO. I fully support this. Is there a way to make the actual xDAO a full fledged platform that we could physically deposit our tokens to and lock, similarly to some defi platforms? Could our governance payouts have to ‘vest’ in some way that is actually invested and involved in the ecosystem via this platform before they unlock and we can have full access to them? If not, and these things could only be done through defi platforms, what do we do about forcing people to make their investments vulnerable to security breaches, hacks, etc.? What about hard locks, extended durations of commitment, etc.? I feel like there are solutions that will benefit everybody here… we just have to be creative enough to find them
I’ll step off my soapbox now… I’m looking forward to reading others’ thoughts, though. Cheers!
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+1 for “Why not run all Governance through DeFi platforms?”
Today, for a Governor to earn their reward, they must be active, i.e., vote.
Why not expand the eligibility criteria so that a Governor must vote AND participate in DeFi (or hold NFTs / ASAs)?
What if a Governor could only vote tokens that were held in DeFi?
What if every ASA got a vote? Or 10x vote?
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This seems like a drastic move just to chase last year’s Defillama success stories. I think it will create perverse incentives and make the reward and governance structures unnecessarily complicated and cumbersome. Eventually, all governance proposals will devolve into a scrum for remaining Foundation cash, ruled by the few with the deepest pockets and loudest voices. Please do not go this route.
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@myshkin
I’ve feel similarly but I was thinking it made sense to incentivize participation nodes. Silvio and other smart people here think otherwise. It doesn’t make sense to me because validators on eth are / will be rewarded about 5% + whatever fees are associated. Why shouldn’t we reward validators?
If we broke down governance into tiers of participation it could be voting, extended lock up periods, and node running (participation/ relay). That could maybe account for 5-7% APR then some of the dapps implement a way to lock up your real Algo while doing the above, and give you wrapped tokens which can be put in pools…. Maybe that’s another 3%. So we get the best of both worlds and still get a good rate.
Strictly giving the majority share of rewards to participants is a weird way to run a blockchain and is short sighted.
If we want to incentive defi the foundation can launch a stable coin program or fund more devs etc. which is not what is being discussed here.
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Fix issues with hardware wallets so DeFi can be safer, no Algonaut that treasures ALGO will use ALGO DeFi without better risk management.
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Foundation needs to actively promote to crypto community and not to the general public that knows nothing about crypto. Marketing needs to be targeted, with finite resources adoption needs to be now not 10 years down the line. It’s a noble act to educate the general public and university but remember this is a dog fight. There are L1s popping up every day which claims to be better and adoption NOW is key.
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Work with whales (early investors) not to dump tokens - yes, believe or not price action is important. No investor wishes to hold an asset that is risky and has negative absolute returns. Any savvy investors looking at the ALGO chart knows to stay away. If the Foundation are the ones behind selling large amounts of ALGO, they need to think about cutting costs because literally no APY is going to compensate for 90+% drawdown against ETH.
Until those issues are solved changing the current structure is kicking the ball down the line and should be rejected. The Foundation is deflecting the lack of adoption and basically saying its because the APY is too high without comparing to other APY in the crypto market. Yes, 7% is high for traditional investments but believe it or not, crypto is still a risky asset with 50% drawdown (especially for ALGO) time and time again. The Foundation should really do its job and grow demand not by changing the current incentive structure and benefits of token holders but by managing the Foundation and Inc better.
The brutal truth is that Silvio and the tech team has laid the foundation for the team to build on, if there is a lack of adoption it is because current management - don’t try to blame it on anything else.
Hire better economic advisors, change the marketing team from old dinosaurs to ones with crypto experience. Anyone in the Foundation who hasn’t figured the above themselves should also think about going back to traditional brick and mortar business because this is a high growth industry. Other L1 understand it is cut throat competition and has already rolled out killer apps with high APY to attract users. ALGO now voting this ridiculous change taking 6 months to implement and another 6 months for adoption will spell the death of the chain.
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Tiered rewards have merit…Exchanges need to be kicked out of governance however possible, if defi provides that path than so be it, their long term interests are not aligned with the success of Algorand. Perhaps the long term rewards and Algo distribution schedule could be reworked. Are we at the crux or some crucial moment in time in the race to being a major L1 with the MC to back it up? We had better figure this out soon with all the light the World Cup will bring and potential lookiloos exploring the system. But I support reworking the system to require greater participation and however possible to get the exchanges out of deciding it’s future
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@permarugbear
Yep. This is just noise. Drone racing, expensive yacht clubs, chess tournaments, Times Square, dumping 14 million in Algo (for the environment, so fucking dumb btw), most of the non dev salaries…. Dumping against the new adoption. The only thing good, because it involved adoption, was this FIFA deal.
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and here they are trying to change the incentive structure for current tokenholders, tbh they just need they need to do a better job and stop the dumping. even if they increase the APY to 100% but your token dumps 50% it still makes no sense holding ALGO. fix the fundamental problem of supply and demand, its just maths and I m sure Silvio can figure it out.
artifically pushing people to DeFi is not going to improve the situation if the Foundation and whales keep dumping. build some demand not by just increasing APY but actually doing some real marketing with immediate effect.
FIFA is a good start and even if they dump tokens to sponsor it, it still makes perfect sense. But SailGP, Woman Soccer what is the KPI for measuring the $ spent? Do they even have one?
Turning lights off at Times Square created literally 2 days of discussion then tailed off. How much did that cost and did the number of wallet grow exponentially? So where is the effect of throwing millions on these “advertising” apart from the team taking photos and Algonauts discussing it internally? The media basically moved on to other news, money wasted to satisfy and to prove Algorand is doing marketing. Crazy whoever thought about this concept and the people that approved funding for it.
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The Foundation should maintain a Qualifying DeFi List and corresponding smart-contract addresses for each governance period. Qualifying DeFi projects that launch during the period should be updated on the list and their participation should be rewarded at the end of each period.
It’s extremely important to have a path to get multiple seats or increased weights for every type of Algorand user:
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passive governance staker: should be able get multiple seats or increased weight if they commit their ALGOs for longer periods of time (1 seat for 1 period, 2 seats for 2 period, 3 seats for 4 periods) - these participants take ALGOs out of circulation and should be rewarded for longer commitments
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node operators with sufficient uptime during the period: participation: +1 seat, relay: + 2 seats
Vote weight should be time prorated for voters that casted votes but then disqualified themselves before the period officially ended.
For DeFi participation you could integrate balances over time (i.e. every 24 hours) locked into approved smart-contracts, the balances (i.e. valued in ALGOs based on average price derived from qualified DeFi LPs). You could use a formula something like: (seats/weight) = PerDeFiSum(PerDeFiIntegral((balance sample), (time period)) / ((starting balance) * (period duration))) / (total sum of balances participating in DeFi), this also helps steer people toward legitimate DeFi LPs and staking because if you were for example in LP that got rugged (higher level degen), your balance drastically decreased and you lost your weighting/seats. Yea it gets complicated but if you want to encourage participation you need some rigid rules that are harder to bend.
There are multiple ways to go about it: You could have a single governance rewards pool but each user claims a different weighted share of the pool based on their level of participation OR you could leave the existing 280M/year pool for governance AND allocate additional funding for the ecosystem rewards with least amount of disruption to existing model - yes it would cost more BUT it’s least-intrusive AND it can be stopped when ecosystem matures enough so it’s temporary. The 2 rewards systems would be mutually exclusive and a way to get both with the same ALGOs would be to use governance by proxy in dApps like AlgoFi, Folks Finance, GARD, etc. thus accomplishing the same thing: pushing users to participate.
If possible, I will edit more things as they come to mind later.
I understand what the Foundation is trying to do and agree that increased rewards should be given to users that participate deeper in the ecosystem BUT at the same time a change like this needs to be thought-through really hard and ironed out because it could really back-fire as it would basically reduce expected APY for passive whales that’s why it’s important to give them a path to full expected APY in exchange for longer commitment. If they don’t like the proposal they wouldn’t allow it to be passed at best OR at worst they would liquidate parts/all of their ALGO stake if they can’t get APY they counted on culminating in ALGO price crash.
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I agree with this, I am happy to have small portion of my capital participate in DEFI, but I have lost funds several times on DEFI apps. So if rewards from Governance are too low, I would probably just sit on my Algos and only risk a small amount on the new DEFI apps. We should not assume Algos not participating in governance will immediately participate in DEFI. I think the solution is too allow for Governance to count all Algos regardless of what contract they are opted in to, and to whitelist certain ASAs as well. 1 Algo 1 vote without it having to be locked in a Governance contract.
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I think I get the idea of what you’re saying, but how does the upward pressure, as you put it, increase the incentives provided to the ecosystem and drive increased utilization of DeFi apps? Are you saying that increased hold time in governance will have upward pressure on price and FOMO will increase demand for DeFi apps?
Thank you for carefully considering this issue. One thing that concerns me personally as someone who would like to participate as an xGov is the difficulty of classifying defi usage and regular gov participation. For instance, during gov1 and 2 I used a ledger backed account to participate and needed to keep some algo back in order to interact with defi. That’s two distinct accounts that I think should be considered for my personal participation in the xGov program. I have been involved with yieldly, tinyman, algofi, pact.fi, gomint and others from day one, but I use separate accounts on each especially during the inception in order to test and become comfortable with the platform.
I think there should be a way for a user with multiple accounts to “claim” ownership of a group of accounts for consideration.
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