I just had a general thought. Algorand is the future of finance. A major aspect of that future is decentralized finance. That is why I fully support the foundation’s initiative to reward those that help forge the path into this future.
Made a twitter thread which may be easier for some than the google doc if you’re on mobile.
I think @ARO hit the nail on the head.
What is Governance supposed to be? What is its purpose?
I feel like Algorand has gotten too ideological too quickly, without consideration of the practical implications.
Communism is a great ideal if we were to look at it on paper. However, in reality, it didn’t work out even once.
Just what is the purpose of Governance? To create more coin inflation? Because currently, that is literally the only thing it achieves.
A few people in the thread mentioned how they were attracted by Algorand’s governance system and don’t want it to be changed. I want you to ask yourselves honestly, do you really care about voting either A or B on a single topic that has not been fleshed out at all so as to be completely meaningless, AND your vote doesn’t ultimately matter anyway because exchanges and the foundation together hold a vast majority of the Algos in governance, and exchanges by default always vote with the foundation…
There are so many things wrong with the way governance works today, so much so that it’s just a complete waste of time for everyone involved. And with the way governance is currently designed, important, specific implementation details would never get put up for vote, nor should it ever get put up for vote either.
The entire governance system as it is, is a huge nothing burger, only creating useless coin inflation while suppressing the other parts of the ecosystem.
The ideas of increasing the voting weight for DeFi users or node runners, is, in my opinion laughable because of the points above; the entirety of governance as it is right now is completely pointless and useless. So what’s the point of giving more voting power to DeFi users or node runners? It’s not an incentive at all.
Additionally, if we go with some of the proposals in the OP, doesn’t that actually create a lot of potential points of abuse and centralization in the governance system? We’d have to trust DeFi protocols to not game the system, fudge their TVL, fudge the numbers they report to the foundation, etc etc etc.
So in my opinion, incentivizing nodes, and incentivizing ecosystem growth makes much more sense. Any potential negative effects of incentivizing nodes, these convoluted governance structure proposals have the same negative effects. However, they have none of the benefits.
That said, I believe that ecosystem growth should be as sustainable as possible; if we were to simply allocate all of the governance rewards to DeFi like the Aeneas incentives, what happens once that runs out?
Therefore, I believe the rewards should be split into 3 streams:
Stream 1: Incentivizing Nodes.
This will be like the “risk-free governance APY” currently. If you want risk-free returns, then at least do something for the ecosystem. And no, taking 5 seconds to randomly click A or B every 3 months is not doing anything useful at all for the ecosystem.
These incentives could further be split between relay nodes and participation nodes.
Stream 2: Ecosystem growth
I think the vast majority of the money should be here. Instead of giving money to people rehypothecating on DeFi platforms, money should be given to developers to attract them into the algorand ecosystem.
Things like the $10 million EVM compatibility supagrant as well as the $10 million developer tools supagrant are great, but we could put a lot more money into similar initiatives. More importantly, by rewarding the developers in Algos as opposed to USD, it gives them much more incentive to stay in the ecosystem and continue developing for it afterwards.
Secondly, we need to encourage new innovations instead of always following behind and copying what Ethereum and Solana has. Thus, incentives could be given to teams that manage to create new innovations on Algorand, or teams that manage to attract a huge amount of TVL, to be determined every year or so. We could even actually have some useful governance, to determine which projects the community feel should receive these incentives by the end of each year.
We also desperately need to pay more attention to onboarding people who matter. There are huge alarms and red flags everywhere, when, in algofam chats, we here teams talking about how they cannot get VC funding despite having personal relationships with the VCs just because they’re building on Algorand; we hear people like Michael Cotton talking about the lack of institutional tooling to be able to safely deploy funds to Algorand’s ecosystem…
There’s also a huge problem with stablecoin liquidity on Algorand because Algorand based stablecoins are hardly accepted anywhere…
These are HUGE problems that need to be solved ASAP no matter how many millions they cost, and I guarantee they will give far more bang for the buck than wasting tons of money putting up 1800s style billboards and banner ads everywhere.
Stream 3: DeFi incentives
Finally, like @jaclarke and many of the actual devs in the ecosystem has so eloquently laid out, if we want to compete with other ecosystems, we need to have similar incentives. Thus, I do believe that in the near to mid-term, some more DeFi incentives like the Aeneas incentives should be given to help grow the entire ecosystem.
If Algorand really wants a governance system, it needs to be seriously reworked from scratch so that people can freely vote on topics they care and know about. And I believe that governance should not be incentivized, because incentivized governance creates far more problems than incentivizing node operators.
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If the Foundation is pushing for DeFi adoption they need to guarantee a high degree of security by implementing hardware wallet integration and insurance for DeFi losses and the Foundation should be tasked with approving DeFi projects by performing its own security check on these DeFi protocols.
Without such guarantees and reducing the passive rewards whilst giving extra votes for governance is not attractive to current users.
But if this has to be implemented, the original amount assigned to DeFi users must be significantly more than the current Aeneas Rewards because even with the introduction of the Aeneas Rewards, DeFi TVL only increased by an insignificant amount (relative to other L1 chains). UST is paying 20% and ETH 2.0 is rumoured to pay out 20% as well. Given the market cap of ALGO, a head to head competition does not make sense but most crypto holders chasing yield will look at numbers only.
The underlying problem is not only the incentives, it is the opportunity cost of holding ALGO. The most important issue is to reduce the “structural selling” by the Foundation and to negotiate and reduce sales by early investors and whales. Even if you increase the APY to 100% but ALGO prices go down by 50%, it will not compensate investors (which has happened again and again). This is exactly why the ALGO DeFi space has not proliferated despite the speed and cheap transaction fees.
The ALGO ecosystem is small, shifting the rewards from users to other users does not make sense. The goal should be to attract adoption by acquiring more users.
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That will make the governance centralized (similar to HBAR, although I do not know much about HBAR). We should aim to involve as many Algo holders as possible in the governance to make it decentalized.
I am a big fan of what algofi and folks finance are doing to allow Algos to engage in both defi and governance, however think it should remain as a ‘third party’ solution, and trying to incentivise governers to take extra risk for more votes is a really bad idea. The purpose of Algos is security: to secure transactions (nodes) and to secure the direction of the chain as a whole (governance). If people want to use their algos to participate in defi, sure go for it, but I don’t think it should be necessary to take the risk and complication to maximise votes. It would probably also be very unattractive to institutions wishing to buy algos to secure the chain, and we want buying algos to be an attractive proposition, raising market cap and thereby providing greater security.
Having additional governor rewards for going through defi, or in general participating in the ecosystem, I am not against. But extra votes/voting privilages (like xGov) I do not want to see. Regardless of what is voted on this round (if anything; no need to rush a poorly thought out plan) I would like the option of voting for changing governance to something similar to the system originally proposed by Silvio back in 2020, which I thought was fantastic: providing the right incentives and balances in a clear and simple way. This does not cover how to propose new voting measures, but as a system of normal (non-xGov) governance I much prefer it to the 3 month soft lock, which I find too short a commitment, too slow to respond to previous votes, and not keen on all algos being ‘unlocked’ at the same time. A rolling system makes more sense to me. A longer lock may also encourage defi interaction with algos.
For however the xGov system will work, I think we should vote on using the method proposed in 2020. It is important to get right, and not imperative to get done immediately. Something like having an online stake over a certain amount (e.g. 50k) participating in consensus is straightforward and encourages participation nodes. A small reward (e.g. 1%) to all online stake would also encourage participation - if I am holding algos anyway I may as well put them to work, even for only 1%. xGov wallets could then propose measures to vote on, and any measure that got over a certain threshold (e.g. 20%?) of support could be put to the wider governance community. Each xGov wallet can give their support, weighted by number of algos, to as many measures they think need voting on. xGov rewards should probably not be further incentivised beyond ordinary governance rewards, or the addition reward should be very small. In general, for the foreseeable future, I would be more than happy with the foundation choosing the measures based on what is being requested in the community.
For relays, I personally like the reward structure of deciding a number of relay nodes ‘required’, deciding what a fair reward is, then splitting the total reward across all performant relay nodes. E.g. if we want 100 relays, and think 2000 algos a month is a fair, reasonable reward, then share 200,000 algos a month between all perfomant relays. This strongly encourages setting up new nodes when there are fewer than 100, and cost saving and competition when there are more than 100. There should probably be some weighting relating to how performant a node is (based on uptime/availability/latency) as well as geographical location, if possible. This is to spread relays out and stop centrilization in one country/continent.
These numbers are obviously able to be changed through governance, and at some point will be paid out of the transaction fee pool. The remaining fees can then be used for governance rewards, and maybe for ecosystem incentives, should governors think that is beneficial.
Apologies for what is probably rambling, I’ve never been good at getting thoughts on paper. My main point is I want to vote on switching to the method of governance proposed by Silvio in November 2020. Also, 1 Algo = 1 vote is essential in my view.
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What is the goal of governance rewards? To increase adaption or to increase participation in governance?
We can clearly assume governance rewards are meant to increase adaption in the Algorand ecosystem, hence the Algorand Foundation is looking for ideas of providing the rewards to Defi instead of passive holding.
To increase both defi and still providing rewards and increase adaption, I would suggest the Algorand governance rewards to be utilized as collateral in defi, for example in Algofi where the Algo rewards are supplied and then borrowed in Algo to provide the borrowed algo in rewards to the governors.
Why go through this? First of all, to increase adaption, the price has to be attractive. Just providing rewards will just inflate the tokens and reduce the price. Smart investors will see, in the end it’s not a reward due to the inflation caused. In FIAT terms, you are either worse or back at the beginning.
By using the reward in defi as collaterol first, Algorand TVL increases and being utilized. By borrowing ALGO for rewards, it means less Algo is available, instead of just inflating a huge portion of Algo is locked and another portion of Algo is being taken out of the circulation supply and being redistributed through rewards. All in all, this will increase Algo demand and increase the price of Algorand.
Increasing the price + earning rewards = real incentive.
Of course, each DEFI protocol should get a share of the governance reward to be used as collaterol. More creative ways can be thought of.
As of now, aeneas reward is somehow great, still the same problem resides. It inflates ALGO hence the rewards suppresses the price, which suppress adaption. The rewards should be used in a more creative way instead of just dropping it.
Happy to hear more thoughts on this.
I have the following plan to make sure that all of the the Algo’s that participate in governance automatically participate in consensus:
What if participation nodes will be used as a sort of ballot boxes. Imagine that each node can choose a voting option and lock in its decision. Then people can register their voting keys with a node that they agree with (or they can run their own node!). Then the nodes proceed to vote with all the Algo’s that they have voting keys of. In this way we can have all the money that is participating in governance automatically participating in consensus.
About DeFi: I do not think that DeFi users should get extra governance rewards. I find the liquid governance system of Folks finance elegant. It could be implemented natively in the blockchain (to not give too much power to individual dApps who run these liquid governance programs).
I think selling by whales and early investors is a good thing, this spreads the Algo’s and makes the blockchain more decentralized.
I believe that the defi involvement should be voluntary and not mandatory and certainly not rewarded. Governance should be able to be independent from any 3rd party system in order to prevent undue influence and rewarded at a consistent rate. Also, while there are mechanisms that could be put in place to prevent abuses within defi I do not have sufficient confidence in any defi platform to create an additional reward for participation in any one platform over another. If there ever will be some governance incentive that involves DeFi it MUST be platform agnostic and in that sense I don’t see a clean way where any requirements are not eventually abused to favor one platform over another.
I understand the desire to provide more TLV into the DeFi ecosystem as opposed to the existing soft lock that governance provides today I do not thing they should be forcibly mixed. I applaud the efforts of platforms like AlgoFi and the vault and other similar platforms but participation in those systems should be voluntary and not required. We, as a community should let the greater market forces to drive the development of DeFi and not incentivise it via governance. There are other incentives in the greater market to push the development. I think the community and the market will create these solutions organically and the foundation and governance mechanism should not force them, there is no additional incentive needed. Also if it is the case that defi offers greater returns than governance then individuals can choose to skip governance if the greater returns are more important than participation in governance. Participation in governance for the sake of governance and the relatively simple governance rewards should be all that is needed. If anything I would more easily support significantly lowering the governance rewards in order to leverage market forces to push people to the DeFi ecosystem rather than intertwine the two more than they are already.
In summary,
- Governance should continue to be simple, open to all, and not require specific 3rd party apps or platforms.
- Voluntary participation in 3rd party platforms should not have additional rewards just for governing.
- Market forces are sufficient incentive for DeFi platforms to provide greater rewards with associated risk
- Governance rewards should match the effort, time, energy, risk, and opportunity it takes to participate.
- The market will create options and individuals can choose to use those based on their risk tolerance and desire for return including the option to not participate in governance.
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Hello, I think the Governance is great but it does lock up secure ROI without needing smart contracts or interaction. Which does severaly lock us out of TVL. Defining who participates int eh DEFI or how to offer hire rewards is no clear cut and dry, for example, im a YouTuber I bring many eyes and ears to the defi platforms and projects. I contribute quite alot without actually building the DEFI space ( just one example) yes you should reward development in some way but you already do through grants?
IMHO a suer staking reward system was more attractive to alot of people. that 4% coinbase staking rewards were nice for people. You need a way to offere governance and staking rewards. If governance is say 8% split that up. 5% for staking and 3% for governance with an addittional 1% for defi participants.
I am not sure the exact breakdown, but I enjoyed the super staking and this is one of the reasons I found Algroand the 4% staking. Then I started deep diving into algorand.
We need a way to bring back GOOD staking rewads and governance IMHO
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If voting really needs to be rewarded, governance could be changed:
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Governance rewards could be placed in an Algo investment fund managed by the foundation. That fund could be used to provide low-interest startup loans for novel projects, and also to directly inject Algo into the ecosystem. Investment could include providing collateral through DeFi projects, buying NFTs that are likely to appreciate, etc. The goal would be to grow the fund while simultaneously improving the Algorand ecosystem. Transparency and fair, defensible investing would be key.
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Governance voters would receive a governance token that would mature after X years and entitle them to a certain amount of the Algo investment fund. The timeframe would have to be considerable. Voters therefore would be the people who believe in the long-term success of Algorand, because of the lengthy timeframe and the fact that the investment fund would be tied to the success of the ecosystem. Significant challenges would still obviously exist here, and sufficient barriers would be needed to block bots and deter bad actors. Perhaps KYC would even be needed, which I know a lot of people would strongly oppose, but that likely would be the most effective solution.
I’m sure a multitude of serious problems exist with the above idea, but I’m just throwing it out there since the one point that most people in this thread seem to agree upon is that the current system of governance has considerable problems that need to be addressed. I’ll reiterate that I really think that we need to have some meaningful conversations about the fundamental goals, direction, and structure of governance that are likely to take longer than the next few weeks.
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Yes! I was saying something similar earlier. I have a decent amount of money in algorand and the risk of getting wiped out by a hack or a smart contract bug is unacceptable to me (and I suspect) most Algo holders.
A lot of us came to algorand because of the staking rewards and the low risk of governance. Most investors are not going to be keen on taking on those kinds of risks. They are going to need new investors with a taste for this kind of risk.
I guess you could say the foundation is a victim of it’s own success. While I agree that defi companies can’t compete with governance, Lowering governance rewards is somewhat of a broken promise. we were supposed to get these rewards until 2030. Defi can’t flourish unless these rewards are lowered.
The biggest problem that algorand has is if they put this to a vote, they will most certainly lose because most will not want to give up the high APY.
What they should really do is just go back to regular staking and remove voting. People are always going to vote for their own self interest when it comes to money.
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There is no “regular staking” on Algorand, because Algorand works on a PPoS consensus rather than DPoS. If you’re talking about the free airdrops from last year, that’s just pointless coin inflation, pushing down the coin price, and causing more harm than good in the long run.
What you guys don’t get, is that you are already taking on huge risks by holding an extremely volatile asset that could potentially go to 0 if it never gets adopted in terms of actual usage.
Trying to safe-guard “risk-free returns” is, in fact, far more risky, because you’re essentially holding well over half of the entire ecosystem hostage and stagnant. That’s ultimately going to kill the entire ecosystem, and your “risk-free returns” will all be meaningless because they will be worth 0.
Cutting governance returns may cause a tiny bit of short term pain, but bowing down to a bunch of leeches who are only here for “risk-free returns” and don’t care about the success of the entire ecosystem is extremely short-sighted and bad for the ecosystem in the long run.
I think you know what I mean in regards to staking. That’s how most people viewed it before the start of governance. Let’s not split hairs here.
You can’t call them leeches. This is how the foundation set it up. They, and only they are responsible for this. You don’t want leeches deciding the outcome? Then they better not put it up for a vote.
What concerns me is that they didn’t see this current problem coming. I’m quite sure they know this and are going to make the necessary changes. Unfortunately, that means making these big decisions themselves and not putting them up for a vote.
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In reality, if you’re talking about the voting process, the exchanges and the foundation itself holds well over 50% of Algos. Exchanges, by default, vote with the foundation.
Therefore, what anyone else thinks doesn’t even matter. The entire governance system right now is a farce, all it does is create coin inflation.
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But it doesn’t make a decentralized governance platform “centralized” if you have thousands or tens or hundreds of thousands of entities voting instead of 1M+ entities voting. It is still highly decentralized, just less so than the 1M+ case, but at what cost does that more “extreme” decentralization come at?
The argument here is that you don’t want to optimize decentralization, and decentralization only, at the expense of everything else. It is a multi-objective optimization problem, one in which decentralization is only one of the optimization objectives.
Let me be clear: I don’t think anyone should be shut out from participating in voting if they want to, but would stand by the argument that incentivizing governors to make thoughtful votes and take their job seriously is at least as important as decentralizing governance.
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Thanks for this, I also wasn’t aware of this forum. I’ll keep this brief and hopefully respond from a slightly different perspective. I only started investing in cryptocurrencies last year and have been steadily learning. I was attracted to Algorand for the reasons that so many have been, but suffice to say I love the stability, low transaction cost, and that the goals align well with my values, and I see huge long term potential.
As an investor, I’d be very very happy with rewards in the 7-10% range, I see the long term value in price appreciation, and rewards as more of a bonus and inflation hedge.
As far as DeFi participation – I will likely have to install the Pera app and dip my toes in a small way to see where I stand, but what I think may be important for “insiders” to know about DeFi adoption is that even the most established systems do a piss poor job of explaining what it actually is and how and why a newcomer would want to be involved. From the outside, it looks a lot like fancy lotto. Sorry.
Let me give you a concrete example of how and why I would want to participate in DeFi, and what I see as it’s actual promise:
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I freelance. I sometimes need to bridge cash flow issues or slow client payments with a credit line or credit cards. This would be an ideal use case for ALGO DeFi, but the way this currently works is utterly inscrutable to someone not deeply steeped in Crypto lingo, and I can’t pay my vendors with a weird stablecoin. I know this is evolving, I’m just restating the (hopefully) obvious point that real DeFi participation is going to ultimately depend on seamless fiat bridging and plain language explanation of what this is and how to, you know, do it.
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Related to above, I would contribute to a DeFi pool if I understood the rewards and risks better, but I use multiple Ledger Ss to store my keys, and that is not going to change. I don’t even like the idea of bluetooth and built in power source in the Ledger X, so my DeFi participation in the near term is likely to be strictly limited to a small bag of tokens that I’m willing to risk in a hot wallet. I don’t know how wide-spread this sentiment is, but I would love to see support in a DeFi platform for more wallet types, maybe using AlgoSigner or similar to authorize transactions?
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I just received a payment from a client. He used Zelle. I love Zelle, it’s fast and free. What I don’t love is the centralization, and the fact that I’m stuck with a big corporate bank in order to use it. If someone can bridge this gap, make using Algorand “Zelle-like” for merchants and buyers, that would be the Grail as far as I’m concerned. I know it takes someone far smarter than me to know what this involves, but in use, it would mean that someone is able to pay in USD, have the funds seamlessly converted to ALGO and sent to the merchant. I know you’re all probably shaking your heads thinking well duh, what do you think we’re working on?? The answer is I don’t know, and neither do any of the countless non-crypto merchants who would sign up today in a heartbeat if we did know.
That’s my two cents, sorry this got lengthier than promised : )
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I would agree with you on that. Algorand needs some big wins. Large companies/governments using it etc. If that happens, things will start going our way and governance won’t be such an issue. I don’t think the foundation can count on it’s retail investors to turn the tide. It needs to come from adoption.
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Oyster you mean like G algo option?