Evolving Algorand Governance

[jtinvestsinyou]

I agree with Michel!

[just_a_guy72]

Unpopular opinion - but I think someone should say it

I think the foundations proposal to evolve governance is a good one, as we do need a more equitable way to reward active participants in the Algorand ecosystem as compared to passive holders, but I think the focus is too narrow in scope. DeFi and NFTs are two use cases for blockchain that have caused multiple coins/tokens (layer1s and defi projects) to gain significant value in the last 18-24 months, but the use cases have downfalls that Algorand has successfully, thus far, avoided.

We should be focused on attracting the “right” users as opposed to the retail mainstream users who hop from protocol to protocol looking for the highest yield (this is an over-simplification but helps underscore my point). High yields are unsustainable, and when the liquidity programs, governance programs, staking programs, etc run out, you have an outflow of users and capital to the next “hot” layer 1. DeFi is not a long term sustainable model at this point in crypto’s evolution as most users are focused on yield farming and alpha generation as opposed to the financial inclusion and efficiency principals that it touts. This coming from an active DeFi user on multiple Layer 1’s, and as someone who has moved capital from protocol to protocol to capitalize on the highest rewarding liquidity program.

If we want true long-term value to be attributed to the Algorand ecosystem (and thus the ALGO token), it is my opinion that Algorand needs to differentiate itself as an institutionally friendly blockchain and do more to support entrepreneurs and projects that are building new use cases as opposed to use cases that were introduced on Ethereum (NFTs, DeFi, etc) and then copied to other layer 1s. Even though crypto is in a “cool down” period at this exact point in time, institutional interest and adoption has never been higher. People are starting to see past the “crypto = Bitcoin” narrative, more and more intelligent entrepreneurs are starting to build in the space, and more institutions are starting to dip their toes into investing. We are at a critical turning point that will allow layer 1s to differentiate the value add they provide to the broader ecosystem and Algorand has the ability to lead the way due to its ease of use and exceptional tech stack.

Instead I think the foundation should focus on rewarding (i) entrepreneurs and innovators who are challenging the status quo of projects built in the crypto ecosystem, (ii) Active developers who contribute to open source protocols/new use cases, (iii) non-crypto oriented institutions (read: not exchanges) who are focusing on building in the decentralized ecosystem, and (iv) community participants who actively help the brand of the Algorand ecosystem through contribution efforts (almost in a DAO type model). Rewarding DeFi holders and NFT creators, while important, should not be the main focus as we will become susceptible to the same hype cycles that are ongoing within the other layer ones (look at Terra - what use is there for UST besides anchor protocol). These are temporary cycles of prosperity; not necessarily leading to long term accretive value.

Instead lets focus on building an institutional brand around Algorand, focus on promoting entrepreneurs who are exploring new use cases that can benefit from a decentralized model and diversify the participants and capital allocation within the Algorand ecosystem, and focus on getting more participation from current, actively involved community members through workstreams/projects that can be rewarded with ALGO.

The NFT hype train and DeFi hype train are great for short term value addition, but do not equate to long term user attrition, developer attractiveness, or institutional adoption. In my opinion, those will be the key fundamental value drivers that will create ecosystem value.

This is where I would put a bunch of rocket emojis

[Algorand411]

+1 couldn’t have put it better

[Conscious]

I’ve written a long proposal viewable and formatted better here:

A Proposal for the Algorand Governance Model

[KennyG]

Great comment! How can we include Governance in TVL? My suggestion was to run Governance through DeFi platform vaults. Then holders can participate in DeFi if they chose and the Dapp registers the TVL.

[JonP]

I’d love to see some progress evolving governance.

Firstly the foundation is spending 70,500,000 Algo to ask 57,221 Governors an A or B question, that’s on average 1,232 Algo per Governor, it would literally be cheaper to pay a human to go to their house and ask them in person, it feels like a very inefficient system for that reason.

Secondly I agree that having a risk free rate of 7-10% drowns out the possibility of defi competing. What I’d love to see is a system where you can be both a governor AND use your tokens for defi simultaneously.

Thridly a suggestion I’d like to make is giving people 0.001 “Gov tokens” each time they make a transaction. That way the people who use the network can be the ones who vote on what happens to it and no locking is required.

Good luck with working on it

[oysterpack]

High Level Design Proposal

Design Goals:

• Link Governance rewards distribution to DeFi KPI metrics
• Empower and incentivize DeFi projects to innovate, grow, and add value to the Algorand ecosystem

New $GovALGO Reward Token

Two tokens are used for Governance seats with different weights: $ALGO and $GovAlgo. For example,

• 1 $ALGO = 1 vote
• 1 $GovALGO = 10 votes

$GovALGO is modeled as a loyalty reward token, e.g., airline miles rewards that can be redeemed. In this case, $GovALGO is redeemed for votes and Governance rewards.

High Level Design

• DeFi projects reward participation using $GovALGO.
• Governors can commit $ALGO and/or $GovAlgo to Governance
• When $GovAlgo is committed to Governance, then it is returned back to the pool.
• Governance commitment is a hard commitment enforced by smart contracts. Governors can withdraw with the following penalties: All $GovAlgo rewards are lost. A 10% $ALGO exit fee is applied and added to the Governance reward pool.

Benefits

• No change is required to the reward pool size. DeFi projects are free to innovate and integrate with Governance, e.g., AlgoFi vaults, Folks Finance liquid staking, AlgoGard vaults.
• This process aligns Governance rewards and voting power with the level of DeFi activity. Active and engaged #DeFi Governors will be rewarded with greater voting power and with a greater share of the Governance rewards.

DeFi Project Roles and Responsibilities

• Projects must apply to be accepted into the $GovALGO program. They must be approved by Governors with a 2/3 majority vote.
• Each approved project is allocated a base budget. The project’s budget will be aligned with KPI metrics: TVL, on-chain value, accounts, transaction activity, etc. In turn, projects may delegate to their project Governors how to best make use of the $GovALGO budget to promote growth.
• Proposals may be submitted to expel projects from the Governance rewards program. A 2/3 majority vote will be required to expel projects.
• Projects are required to be fully transparent. Standardized reports on KPI metrics and $GovALGO distribution must be published quarterly.

Final Thoughts

The proposed high-level design is simply that. It is a starting point to model a solution. There are many details and specifics that require more thought and a deeper dive. The devil is always in the details.

[KennyG]

Why can’t we do both? In my opinion, the Foundation has mostly been focused on institutional investment. I would say in the last 9-6mo they started focusing on Retail. Why? Retail investors do more that just hype the best yielding L1. They bring awareness, which brings innovation, growth and most importantly talent. Hivemind may be a good example, and what are the focused on? Gaming. I understand your long term point of view, but maybe we are in a race to capture innovative talent. Its not coming from institutions. Talent is leaving institutions to come into a retail driven space.

[KennyG]

I like this and think it would be a great starting point. While I worry about creating Tiers, these ideas are more acceptable. Nice! thank you

[pmd]

Fully agree with @michel.

@Massimo

A very basic example: even just devoting 1/10 of 280M Gov rewards to DeFi Govs means approximately +30% APY to current Defi Govs, and +10% APY even if they triple. We can discuss here to come to a solution which is fair to everyone.

I really don’t think it’s the right way to think about this issue. The point is not to be “fair to everyone”. It’s to allocate our resources where they will have the most impact.

The fact that we currently incentivise governance should not be taken into account. We should not be driven by inertia.

Governance is an interesting concept and one we should keep. The question is: should it be rewarded?

My conviction is that rewarding governance is useless and that we should allocate 100% of governance rewards towards DeFi.

[oysterpack]

I agree with everything you said, except for the part about doing away with on-chain Governance.

I don’t think it is hard to align Governance financial incentives with DeFi ecosystem growth … high level design proposal

[AlgoTrillion]

Hello everyone,

This may echo some existing comments but these are my thoughts on the general governance questions.

Governors should be primarily motivated by the role of governance, not attractive low risk returns.

If they are participating in governance primarily for financial return then how much serious consideration will they give to voting and proposals, as opposed to not voting, voting with the foundation or the simple majority. This is not effective or nurturing of robust governance.

Additionally, I was concerned by the potential consequences of having xGov status that is basically “pay to play”, the more ALGO I commit the more weight I have to control the narrative by setting voting topics. This structure does not honour the principles of decentralised governance and particularly the ethos of Algorand’s model.

For these above reasons, I think that governance should be:

• A longer commitment (1yr)
• A fixed ALGO commitment per governor
• Penalties for breaking governance
• Fixed annual reward which represents attractive compensation for the job

This will dramatically reduce the number of people interested in governance but my expectation is there will still be a very healthy number of people, myself included, who would like to maintain the status of governor and actually do the job of governance.

Under the above model, the current resources allocated toward governance rewards (280M/yr) would be largely intact to be deployed in other ways. I believe there should be a number of areas:

Node operators – we should be incentivising the continued decentralisation of the Algorand network so resources should be allocated to reward node operators. Perhaps weighting rewards to new nodes coming online and then tapering off so the cost of setting up a node can be recouped over a realistic time period.

De-Fi participation – Growing TVL through active De-Fi participation is hard to argue with and the bulk of the existing governance rewards should be routed in this direction to reward the most committed De-Fi users. However, I have a few caveats.

Firstly, who decides which De-Fi platforms will be allowed to participate in this because having these rewards will act as “king maker” in what should be a free market dynamic.

Secondly, having these rewards to offer will increase the success and therefore the profitability of these De-Fi platforms which are privately owned enterprises. What commitments will they need to agree to in order to participate, for example, providing grants that give back to the community development or ensuring added security through insurance provision, bug bounty schemes, treasury accruals etc. - this shouldn’t be a free lunch for the De-Fi platforms.

Finally, resources should be retained to promote these rewards outside of the ALGO community. My impression, at least early on, with the Aeneas program is that it has mainly shifted the existing users around as they look to mop up the available rewards. Any new long term reward scheme has to make attracting new money its first priority and that means investing in proper promotion to other chains and off chain.

Passive ALGO holders – if an elegant solution can be found which offers a sufficient APR that bears comparison to other chains then rewards for passive holding of ALGO should be returned. If there are not sufficient resources to provide an attractive APR then we should not do something that can be used as stick to beat us with.

[LuisERodriguez]

@HolisticNicole

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!

Agreed on this. Participation on DEFI should not be forced. But governance should not override incentives to participate on DEFI. So the solution should be to count all ALGOs in governance including ALGOs held in other smart contracts, or ASAs.

[ARO]

I have used AlgoMint, Algofi, TinyMan, etc., and I have helped out with beta testing some projects. I’ve also been involved with governance since the beginning, and I’ve been an Algo holder far longer than that. That having been said, I am concerned about what is being proposed.

First of all, what is governance supposed to actually be? The governance page states “Earn rewards for your participation in the decision making.” Not, “Earn rewards for participation in DeFi.” So I think that we are possibly fundamentally straying from the purpose of governance with what has been proposed, and instead we are developing another Aeneas Program that is blended with voting.

I think that before we can address your question, we first need to clearly explicate what the ultimate goals of the governance program actually are. Do you just want to get as many votes as possible? Why do you want voters who are active DeFi participants? Personally, I would rather have a smaller number of thoughtful voters who are active on boards such as this determining the future of Algorand, versus 100,000 users pressured into DeFi and clicking “A” or “B” just to receive payment. If the reason is simply ecosystem health, then maybe we have to question the fundamental idea of locking Algo for voting, versus an active incentive program. Again, without clearly seeing a list of all of the major goals of governance listed in one spot, I have a hard time saying what I think is the best course of action.

I strongly urge the foundation to pause the drive towards these changes, and instead have a thoughtful, honest conversation with the community that doesn’t just ask for rules, but actually lays out clearly stated goals of governance and challenges that we now face. Then, we should have a serious conversation about how to best achieve those goals, and whether governance is even the appropriate mechanism for achieving some of the objectives.

[jackiealley2]

thinking I need to learn more about, thank all of you for all your work

[michel]

I agree with @pmd, the discussion should focus on how inflation should be allocated into what can generate the most impact towards Algorand adoption. Any solution where not a single Algo is going towards inactive, non-value add stake is a much better one to the current system.

[TJay_Sez]

Hello everyone, I’ve never been a part of any governance before so this is a really cool experience and I’m no big bag holder by any means but I plan on being one day! That being said, I think it’s awesome that I was even eligible to be a part of this. I will say a lot of the stuff I’m reading here is EXTREMEMLY insightful and I can tell these are things that have been weighing on every one of you. So far I have to say I agree with the ideas that are trying to get AWAY from anything involving rewards to zero-value add stake. Adoption is key and if we can implement the ultimate hedge against inflation while also incentivizing active participation in the ecosystem; that’s what I’m likely to be supporting.

[nsalgo]

As someone who falls in the middle I feel we need to come to beneficial compromise. I came for the staking rewards and ventured into DEFI, but not risking my entire bag to hacks and rug pulls. I do both at a responsible level. We need holders and risk takers to make this work.

[GoalDarn]

While I agree that the current Governance rewards structure doesn’t incentivize active participation beyond voting, I don’t like the idea of DeFI participation being linked to rewards (‘official’ rewards—of course you can still get yield).

I do like the idea of incentivizing active participation in Algorand, but I don’t think focusing on those who add liquidity to DeFI is the answer. I think it could have unintended consequences and lead to neglect in other areas, and might lead to a very unnatural DeFI ecosystem where instead of cause (adoption) leading to effect (healthy DeFI/TVL metrics), one tries to mimic the effect and hopes it somehow brings about the cause. I would have no problem taking some significant Governance rewards away from Governors (that’s me too!) in order to aggressively advertise specific dApps to parts of the public, or to help assist in developing useful dApps to begin with so there exists something to market, but choosing “any DeFI with over $X TVL” as “the winner” doesn’t resonate with me.

Also, there is still no motivation for people to run consensus nodes beyond pure altruism, which seems important, so is there a way to add that requirement to Governance on top of the locking and voting requirement?

[Conscious]

Read my proposal here: I think you would like the strike in balance between DeFi and holding Algo in the wallet.

A Proposal for the Algorand Governance Model