Evolving Algorand Governance

you are buying right because you have confidence in ALGO in the long run, so what does that tell you about early investors who are savvy investors that got their allocation early and is selling now?

without adoption when the whales dump causing prices to drop it doesn’t spread decentralization because the only people that would buy ALGO are existing holders.

the Foundation should really only be selling and “cashing out” and at a higher price when they have sufficient demand for ALGO.

Using the ideas from multiple posts, here is my suggestion.

Most of us agree that the Algorand DeFi ecosystem should be vibrant but should not force the governors to participate in DeFi. We can keep the existing (passive) governing system.

In addition, we can give rewards to wallets that participate in DeFi from the governance reward pool. We could give rewards for the following:

  1. Algo supplied to the lending platforms such as Algofi. Amount of Algos for the gov reward could be calculated as a daily average (at a certain time?) or low watermark? DeFi platforms are already capable of calculating Aeneas rewards. This gov reward could be calculated in a similar way. Not sure if voting is possible in this scenario. If voting is possible we can make the voting mandatory to get the rewards, otherwise the reward would be given without voting.
  2. Algo supplied to DEXes pools. Reward calculated in the similar way as 1 above.
  3. Most probably we do not need to modify the reward for participating through DeFi platform such as Algofi Vault. But if we really want to turbocharge the TVL, we could increase a few percentage of rewards for governors that use the DeFi platform for the governance.

I totally agree that participation nodes should be somewhat incentivised. I support the idea, promoted by Dr. Morini in a recent Medium post (Evolving Community Governance), that the new xGovs should be rewarded also for running participation nodes. In this way I would expect to see a significantly higher number of voters compared to the present ones (approx. 360), thus further decentralising the network.

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Correct - Folks Finance Algo Liquid Governance

If Algorand Governance implemented liquid staking then it would solve the TVL problem, i.e., since the committed $ALGO would be locked in a smart contract, then it would technically qualify as TVL.


I have to agree with the sentiment that governance is really about decision making concerning the Algorand ecosystem. Promoting DeFi, NFT development and projects in general is a different animal.

In a way we started to slide down this slope with the last vote. We made a decision that certain wallets should have more value or more weight based on the amount of Algo in those wallets. Thus beginning the creation of a heairarchy.

Now we are deciding that what certain wallet holders do is more valuable than certain others.

These are not governance questions. They are equity ones. They are trying wallet size and activity to individual value within the community.

I think we should not proceed further down this road. We will simply turn Algorand into Now-Fi. This is not future fi.


I do enjoy and like to use AlgoaFi. And yes I think the should be efforts made to attract others to AlgoFi and Algorand in general. I do however think that incentive based governance is important. It helps to create engagement and it’s a good selling point to attract regular people to the Algorand ecosystem.


Can we just burn the remaining 3 billion algos?


These funds should be redirected to better support people who develop apps and use cases on Algorand. I am thrilled to see the Foundation reach out for feedback on the future of governance, because rewarding passivity doesn’t strengthen the Algorand ecosystem. That said, rewarding DeFI “participation” (which is often quite passive) in certain protocols distorts markets and will effectively pick winners via short-term subsidies. It would be nearly as untenable as the high risk-free reward rate for governance. If we want a flourishing DeFi ecosystem, we should reduce the risk-free rate and further invest in the people helping build the ecosystem.

My perspective is shaped in part because I applied for a grant and was rejected. The story could be distilled down like so (these are direct quotes):

Algorand Foundation: “It is fair to say you have provided a pretty clear value proposition here.”
Algorand Foundation: Application Denied
Me: Any feedback I can work on?
Algorand Foundation: “At the moment our focus is different, if you want to work on your use case and also get funding, it might be better to look for another chain honestly.” (emphasis mine)

That is a concerning statement to hear as a developer, it should give pause to any participant in this ecosystem, and it brings into stark relief how urgent it is to rework how hundreds of millions of Algo are being deployed for the benefit of the ecosystem.

So in response to what @Massimo said:

The main purpose of this discussion is… users talking directly to developers and entrepreneurs to find ways to bring more and more users to Algorand.

Based on my experience, I would say as a developer to the user community: it is time to accelerate toward community-directed grant funding if the Foundation is telling developers to “look for another chain.” The Algorand ecosystem needs more and better developer/entrepreneur support to realize valuable and sustainable use cases that arise organically from the community, not just where the Foundation is “focused.”

I want to call out some other commenter’s remarks to voice my support to their suggestions, as well:


If Algorand does not help these builders they would build on other protocols. Web3 is the future but it is risky, so any help dApps developers can get is important to kick-start and popularise the protocol.


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


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.


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.


I 100% agree with this.

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Although I appreciate the sentiment to increase rewards to DeFi with the hope that we can increase TVL. I think DeFi is critical to the growth of Algorand but I think a part of the analysis should be rethought.

I take particular issue with this framing from your piece:

I believe Algorand Governance should be either shot down all together or drastically modified to change from the current negative incentives cannibalizing Algorand DeFi to positive incentives purely towards DeFi adoption of Algorand. I believe that done right, Governance rewards allocated to DeFi in a fair way can boost the ecosystem to a place where it can compete with other top 5 blockchains

As you know some of us came to Algorand for the technology and have stayed because of technology and community. Governance is an important feature of the community feel of Algorand. Last period we had over 50,000 governors. That is extraordinary and is a key to strengthen Blockchain adoption beyond early adopters and crypto enthusiasts. This ought not to be done away with. Silvio often talks about Algo governance in his talks and it’s a great draw when trying to attract new people especially the college students and young folks in the engaged web 2 generation.

I would also say that Algorand DeFi is just developing and can stand on it’s own. Many of us have been involved in Yieldly from first launch, and we have enthusiasticaly engaged with Algostake, AlgoFi and Tinyman. You can look at the Twitter stream at the launch of each of these and you will see the passion that we have for them. They are very viable. If they stay the course and continue to build out, they will certainly attract many different types of investors.

The fact is our DeFi sphere is young and developing. Institution investors are by nature guarded about their and other people’s money. Over the last 12 months our DeFi pools have been hacked at least 3 times. And we have also seen many small but observable rug pulls. That’s not too say we are not getting better and that we are not learning to police ourselves. But I don’t think we should be tying governance so deeply to business making DeFi projects. Continue to provide grants and reward pools but let us use governance to onboard more individual people. People who really are looking for and need a new financial lifeline.

DeFi projects, NFT projects, MFT projects and all other innovations can seek grants and engage with the community in order to develop.

We should also note that the foundation has awarded many grants and engaged with many partnerships that are rolling out over the next 18 to 24 months. Let these initiatives mature! In the meantime refine and preserve our governance around decision making and Algorand (community focused) direction.


I thought Will fantasically summarizes what a native token’s true utility should be/coming from:
Asset-Backed Tokens will lead to the first truly valuable Utility Tokens | by Adrian Robespierre | Medium

“As the protocol is used more and the network grows, the intrinsic value will be more closely matched with the price of ZRX. After this happens, the ZRX token will also become a viable governance staking mechanism. In order to be a viable governance staking mechanism, the unit being staked must carry with it some inherent value that is not specifically and majorly linked to speculative demand. Finally, a utility token that garners intrinsic value due to its medium of exchange properties will eventually become a currency. After a utility token is accepted as a currency, then and only then, can it be a store of value (future exchange).”

I seem to always come back to this article whenever decentralization or governance is in discussion in the affects of balancing short term yields vs. building long term prospects and value to the network, thereby the native token, $ALGO itself.

On another note, I am somewhat confused why these “DeFi” projects must create a token for themselves and not just use the native ALGO token. I think the AF needs to find a better balance in b/w financially supporting the start-ups to flourish and supporting themselves/the native ALGO asset to grow - one viable solution is to contract with them under a specific realizable return of value in agreement, some way(s) to peg the TVL to the intrinsic value of ALGO itself than letting ALGO just being used to dilute other assets’ fundings. For ex, how can you guarantee the newly created sub-economy of Liquid Governance will circulate back into the Algorand’s ecosystem without a way to guarantee the 1:1 returning value or with interest or partially, not USDT or other networks’?

This last one is kind of snowballing pitch, but I sincerely hope one day Algorand or someone will be able to offer a practical solution to vote to sustain the network as efficiently and democratically as possible WITHOUT the votes to be solely pegged to the monetary value, but also non-tangible talent and skills; algorithmically judging its non-monetary worth being higher than # ALGOs or $ #.##


There should definitely not be “anointed” entities for xGov. xGov should simply be a lockup/longer time commitment. Their should be no need for the old executive structure in blockchain. The ease and power of voting and proposals is exactly what makes blockchain so powerful. There could be tons of proposals but with the power of voting only the strongest make the cut. The old structure is not needed.


This gets a big DOWNVOTE from me.

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Hello everyone,

I am Benedetto Biondi, CEO of Folks Finance, a capital markets protocol for borrowing, lending, and offering Algo Liquid Governance leveraging the gAlgo.

Firstly, we appreciate that the AF is asking for the community’s feedback and proposals. I want to thank them on behalf of the Folks community. I will try to summarise our team’s idea about a possible AF Gov design.

I personally partially agree with Michel, the actual design is wounding DeFi. Smart Contracts risk will always be scary for institutions. Indeed, we believe that a possible hybrid implementation could be done.

When we implemented the gAlgo, we have always been thinking about building a secondary economy parallel to Algo that the whole ecosystem could benefit from. In only a week, we were able to do it.

Around 12,5M gAlgo was minted and moved into the ecosystem, enhancing Folks, Tinyman and Pact TVLs. 12,5M Algo generated approximately 20M TVL increase across the ecosystem. A liquid asset that leverages the Governance rewards is powerful for increasing TVL. Look at Lido numbers: 18B TVL leveraging three chains Liquid staking.

Split the treasure with the hunters.
A minor % of governance rewards could be directly addressed to DeFi users (participating in governance through DeFi Liquid Governances). But we believe that this has to be done independently and that the Governance rewards should be distributed separately.

Let’s use numbers:

G4 Rewards 70M Algos

  • 50M Algos distributed directly from the foundation ordinarily.

  • 20M Algos distributed through DeFi Protocol that votes on Governance.
    Those must be independently distributed from the 50M.
    Exact mechanism but independent. Rewards/each Algo committed.
    The APR would indeed compete strongly with the AF governor’s APR. Being institutions in much more significant amounts than DeFi users, the latter would be much higher even if the amount to distribute is smaller.


  • 100M Algo committed to governance through Folks Finance, Algofi and Gard.
  • Total commitment 3.9B
  • Rewards APR 7.2%
  • Rewards distributed to 100M Algo committed around 1.3M ALGO

If we were distributing rewards of 20M to the same commitment on G3, we would have
APR for DeFi governors is around 80%.

80% APR cost/opportunity makes the DeFi option much more attractive.
We believe that until the commitment is three times higher than the governance, the risk/opportunity makes it attractive to institutions as well.

Let’s do the math.

Suppose 50M to ordinary gov would get:

  • 3,5B Algo at 5.9% APR (safe and pleasant for institutions)

20M to DeFi governors would generate:

  • 500M Algo commitment at 16% APR (riskier but much better)

Consequently, 500M of liquid Algo commitment would potentially generate double TVL raise with DeFi strategies. Resulting in Algorand getting over a 1B TVL in a boost, meaning entering the top 15 TVL chains (with the actual numbers) on Defi Llama. This would result in more eyes on Algorand DeFi and new Algo buyers and holders, driving up Algo demand and price.

All of this can be achieved without changing the current Algorand governance design.

The numbers proposed are an example of what could be potentially aimed for the G4 as starting point. The strategy optimally could result in community growth and new active DeFi users from other ecosystems attracted by the incentives and the TVL raising. The percentage of rewards addressed to DeFi could be consequently rebalanced to keep the two APRs’ competition appealing.

Moreover, we believe that a crucial point could be enabling the protocols that guarantee the vote and commitment to distribute the rewards while running the governance with daily vesting that avoids the earn & dump.

Do we really need to incentivise any single DeFi/NFTs protocol/users with the AF Governance rewards? In our opinion, this is accomplished intrinsically, we enhance the rewards for protocol leveraging the AF governance, bringing TVL to the ecosystem, and value to the ALGO itself. This is already a benefit for everyone.

Economically speaking, that is our idea of how the foundation can integrate the Governance with the whole ecosystem’s growth. Participating in DeFi or buying an NFT is not the same as being a governor (delegated or not). The vote has to be done.

Every protocol/platform can leverage its strength and strategy to benefit from the Governance. It is up to the builders.

Technically speaking, we believe that official support of the Algorand foundation to protocols leveraging special AF gov rewards requires rules:

  • Trusted Audits
  • Code ready and non-upgradable/trustless smart contracts two weeks before the launch, allowing the community to review freely.
  • Ecosystem bug bounties are open and supported by the foundation with strong prizes.

In conclusion, such a model, competitive AF Governance adoption through DeFi protocols, incentivises the ecosystem TVL and remains coherent with the decentralized governance mission that Algorand is pursuing.
We believe that the proposed or a similar solution could be coherent, correct and beneficial for the community, projects, protocols and the AF.

We are looking forwards to hearing the community feedback, and we are always happy to collaborate for the blossoming of the ecosystem.

Folks Finance Team.


Really appreciate this input and the insight. Please see questions below. These aren’t targeted at Folks, but (De)Fi in general, as I’m unclear how decentralized these solutions are, and have a limited understanding of the control they can exert on ALGO committed/staked in their platforms. Thank you in advance for considering these 3 questions.

1.) How decentralized are platforms like DefiLama, AlgoFi & Folks Finance? (I.e. Who controls these platforms?)

2.) How do (De)Fi Apps prevent ALGO committed toward governance, from being used or manipulated? (For example: What would Folks recommend be the criteria that makes a DeFi app eligible to participate in this model?)

3.) Can any (De)Fi platform define “risk” of ALGO in their platforms, in your opinion?

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IMHO - As a long-term advocate and supporter of Algorand’s approaches to solving the Trilemma, I think all suggestions, recommendations, and considerations should be carefully evaluated for their impact or vulnerabilities that could undermine decentralization, with regard to Governance and Ecosystem Creator Growth (DeFi, TVL, or otherwise). Forgive the length of this and any comments that might be aggressive, I may be too passionate about this :wink:

QUESTION: Any value in reviewing how PPoS consensus could help make Governance better?

Initial Thoughts: This discussion isn’t about governing dApps. Governance isn’t killing DeFi, but I see this topic indexing heavily on trying to accommodate dApp usecases rather than evolving Governance. I understand the opportunity cost of Governance may be seen as overshadowing DeFi, but I see no logic in giving “weight” to intermediary apps without clarifying criteria like; whether they are decentralized, whether they are open-source, how are they governed, what control do they have over user committed ALGO, but we dove straight into a discussion about how to include all dApps in Governance over the entire protocol. (:face_with_peeking_eye:) Decentralization requires that individuals directly take part in Algorand. The discussion is about Governing the Algorand Ecosystem and Protocol. That requires dedication and focus to the topics related to Governance. I fail to see how we can consider relying on dApps without any Decentralized Governance model governing them, and, proposing suggestions to give any greater control, authority, or added weight to the users that rely on them. (Maybe I misunderstood, just seems peculiar). I admit it’s a bit mind-boggling to think: An ALGO holder in Direct Governance could receive less for remaining true to the decentralization thesis while an ALGO holder is Indirectly operating through a (De)Fi App + Governance, seems like a double-earn/spend by duplicating ALGO in the system, receiving more (2x-3x) the weight in Governance, and diluting the other “less active” ALGO. The incentive is Governance - the reward should be aligned… Rewarding users who use DeFi Apps is a very spicy recipe for a series of unknowns and unwanted outcomes imho.

Reminder: In the first Governance Period #1, the initial Algorand Governance proposal came forward with a significantly concerning vote:

  • (A) Keep current system of Rewards (Active=Receive, Inactive=Forfeit) [This won, thankfully]
  • (B) Implement a model where Inactive holders could forfeit Rewards AND Lose Holdings. [Lead to Centralization]
    It’s still unclear WHO proposed this concept or how it made it to a Foundation Community Vote, let alone the FIRST vote, but - Governance worked (despite pessimism and panic).

Option A Succeeded after receiving 56.58% of ALGO (also, 51.59% of GOVERNORS - which implies this was a majority on both fronts).

Since the Governance Period 1 -

  • ALGO committed Governance (Staked) has gone from over 1.7B ALGO to over 3.9B ALGO = 58% Gov/Circulating or 40% Gov/TotalSupply.
  • Between ~ 57-70K Governor Wallets out of 20-24 M+ Accounts (fluctuated over time).
  • ALGO Stats: 6.7B Circulating, 1.77B Consensus Stake, 10B Total Supply.

Overview: # 1 & # 2 address Classification & Identification. #3 is responses to the hypothetical questions.

  1. Classify Participating Holders into 5 groups, and each should have incentives that are not capable of being gamed, manipulated, or, creating points of centralization, to the detriment of the ecosystem or other participants. Mapping Participant Group to (Activity) and identifying the activities that are on-chain, verified by a trusted-party or Algorand and/or visible/transparent, may help define “Active Participant”.
    a. Spectator (Passive) = Hold/Hodl/Explore(on/off-chain?)
    b. Contributor (Active) = Stake/Commit/Transact/Interact/Inquire/Test/Learn/Critique/Play
    c. Governor (Engage) = Strategize/Discuss(on/off-chain)/Propose/Vote/Consensus
    d. Creator (Produce) = Execute/Build(dApps, Projects,Tokens/NFTs)/Supply Liquidity/Design
    e. Constructor (Compute) = Host Infrastructure/Network/Nodes/Validators/Relays/Archives or Develop Open-Source Capabilities

Caution: A key challenge witnessed on several protocols/blockchains is the potential for centralization to occur beyond “Constructors”, where even if the protocol solves Buterin’s trilemma, the mechanisms built and supporting the ecosystem can ultimately become points of centralization or a regression towards easy, like (De)Centralized Exchanges (DeX/CeX), Liquidity Apps (DeFi dApp) or (De)Centralized Stake Pools (DeP). For example: DeP resources can ultimately become a point of central power, failure, or vulnerability, especially if those mechanisms aren’t clearly decentralized or are controlled by few entities. Comparing to the potential success/failures of the largest player in the space, Ethereum has at least one example of Staking Pool, Lido, which combines Constructor & Creator concentration. For a deeper analysis (just so this doesn’t seem bias) - see one analysis here Blockscience Review

  1. Identifying Participation & Considerations:
    a. Users/Wallets that commit ALGO Governance are beneficial for decentralizing the ecosystem, as this is the only true decentralized means of enabling individual stake (especially if each user were to run their own validator/relay)
    b. Users/Wallets who commit ALGO to DeFi are beneficial for the scalability of the ecosystem, as this is the optimal way to provide liquidity, however these “Decentralized” dApps or Protocols become points of Centralization, much like CeX (Centralized Exchanges).
    c. Rewarding Governance and DeFi simultaneously risks double-spend overlap and risks committed ALGO being pooled or disqualified due to concepts like impermanent loss (for LP) or other mechanisms. I.e. It may not be prudent to subsidize DeFi users with Governance rewards. Most DeFi protocols (regardless of chain), require locked commitment of the crypto/token, unlike ALGO Governance which uniquely permits Users/Wallets to commit without the ALGO being transferred from the Wallet.

  2. Original Proposed Questions & Answers: Hopefully, the prior comments have not offended or annoyed anyone, thus far. However, I have spent some time reviewing a number of other blockchains, programs, whitepapers, reading/researching vulnerabilities, and yes, listening to every public engagement I can of Dr. Silvio Micali’s (who is one of a few people responsible for my gaining interest, along with my best friend and brother).

  1. Question 1: How do we identify accounts that participate in DeFi?

Questions: To identify DeFi participants, an example like AlgoFi or Folks Finance, would be a good place to start in evaluating how to programmatically differentiate between Governors listed on Algorand Governance albeit not the only approach a dApp could take to supporting DeFi + Governance. This is not a critique or criticism of AlgoFi, as I do not have a substantial bias or position - this is merely an analysis.

  • AlgoFi Vault for Governance (vALGO), Currently, as of 05/06/2022, has ~82.94M ALGO locked (or 2.1% of the 3.92B ALGO Governance staked) and 3.61K Governors (6.3% of the 57K Total Governors). According to the documentation is stored in Storage Account 1-to-1 with the User/Wallet. To the best of my knowledge, AlgoFi is not yet decentralized, so while this appears to be the optimal approach, there are unknown risks I am unaware of the specifics surrounding the control of any 3rd party vault/account/addresses.
  • Folks Finance Currently, 05/06/2022, has ~12.5M ALGO in the Vault for Governance (gALGO3) or < 0.35%.
  • Example using AlgoFi: One Transaction from a User committing ALGO to the AlgoFi Vault to Govern. This would be the first step in identifying the DeFi User/Wallet, as it may be the clearest method of identifying this. NOTE: When a user directly interacts with AlgoGovernance, Transactions have Note/Text that denotes: af/gov1:j{“com”:ALGOAMOUNT}.
  • Suggestion/Idea: It may be prudent to identify when a DeFi dApp/Account that generates a Storage Vault Address (like AlgoFi) and it’s purpose i.e. AlgoFi Storage Vault - Governance, or, when that ALGO is committed to AlgoGovernance E.g. AlgoFi Transactions include a Note/Text like this Manager: mt for other transactions. Alternatively, an account flag or status note, might be another way to flag or remove interactions between DeFi & Governance.
  1. Question 2: How many governance seats should DeFi participants be permitted?

Opinion: 50% or 1 for every 2 ALGO committed or a % to adjust for the risks of Governance tokens being “unavailable”. Determining how much ALGO is committed to a DeFi dApp and having a simple mechanism that can audit or verify the “Total ALGO” by account holding it (classified or labelled, preferably, to avoid double-bubble governance). Next, aggregating and cross-checking sums v.s. voters. Why? Decentralized Governance should be an incentive and results driven goal or milestone to ensure opportunity cost permits people to dedicate ALGO to Governance, Directly. All too often, we’ve seen intermediaries that aren’t decentralized or built as robust as the core protocol, fail to meet commitments, whether unintentionally or otherwise. Expanded Rationale below

i. Native ALGO (ALGOnative) = Holders “may” be able to commit ALGO for Algorand Governance either;

  • Direct to Governance - User non-custodial wallet interacts directly official decentralized Governance program. (Most Decentralized)
  • Custodial or Intermediary Wallet - User Interacts with Wallet which facilitates sync to Governance. ((De)Centralization Varies Per App)
  • Custodial or Intermediary dApp/DeFi/Staking - User Interacts with dApp/DeFi which facilitates sync to Governance or provides alt wallet. ((De)Centralization Varies Per App)
  • Custodial or Intermediary Decentralized Exchange (DeX) - User Interacts with DeX which facilitates sync to Governance. ((De)Centralization Varies Per App)
  • Custodial or Intermediary Central Exchange (CeX) - User Interacts with CeX which facilitates sync to Governance. (Most Centralized)

ii. Liquid ALGO (ALGOliquid) = Native ALGO (ALGOnative) Holders “may” be able to commit/lock ALGO in DeFi program/vaults that swap for alternative ALGO-pegged liquidity token, or, even any equivalent concept.

  • ALGOliquid provides a user the ability to lock ALGOnative, and then use both ALGOnative & ALGOliquid, separately. This is typically a 2x increase - since there is tangible and intangible ALGO.
  • ALGOnative can be committed, locked, and deployed for governance AND act as liquidity collateral for use of ALGOliquid supported pools, swaps, delegated governance pools, stake pools, or any number of other ideas that can surface in the future.
  • ALGOnative = Committed + Actively Participating in Governance receives rewards for Governance. 1 ALGOnative = 1 ALGOnative = 1 ALGO
  • ALGOliquid = Committed + Actively & Passively Participating in Liquidity earns rewards for Liquidity. 1 ALGOnative = 1 ALGOliquid + 1 ALGOnative = 2 ALGO
  • IMPORTANT: At the time of this writing, I am unfamiliar with all the methods a program, application, DeFi, DeX, CeX, or, person(s), can pool or manipulate a set of ALGOnative, whether they can transact on behalf of the users who commit their funds, have control over vaults/applications/signature authority, or other permissive actions to manipulate X amount of ALGO. I am also unclear of the possibilities for an application to permit ALGOnative and ALGOliquid from being leveraged both from the wallet without committing to applications (interesting to explore for prevention of sybil resistance or other vulnerabilities).
  1. Question 3: How to reconcile changing participation levels over time? For example, how much weight should be given to a vote that happens sometime in the middle of a governance period, vs. how much to use for calculating rewards at the end of the period

Opinion: Eligibility criteria seems to handle this, unless I misunderstood it’s functionality. IMHO, No weights should be applied to participation over time, unless proposals are created with different time durations or priority/urgency levels, authorized by an xGov group/committee. If a Governor dedicates to Governance, commits ALGOnative at the start of the Period, Votes, and then loses, sells, or transfers their holdings, there are too many dynamics that enable someone to game the system without restrictions (as far as I can tell). Invalidating votes for ineligible accounts handles the matter of participating over time.

i. 1 ALGO = 1 VOTE! All Votes should be equal in importance or weight, regardless of the subject matter. If it’s an on-chain Proposal, the Proposal needs to be evaluated properly, and should be considered priority for scrutiny. Anyone who votes, at any time, is a valued participant in the ecosystem and a required part of it.

  • All Proposals are not equal. If there is a reward mechanism for them, this might be a place to scrutinize participation levels, success metrics for proposals, and, qualified majorities.
  • ALGO Governance is unique it’s it’s model of “Commitment” v.s. “Locking” (everyone else).
  • Commitment allows a user to define the amount they want to use at the start of the period, but then become invalid if they don’t adhere to the commitment is Brilliant (no change).

ii. At all times, All dedicated Governors should have equal rights, rules & rewards, unless their ALGO isn’t fully “committed”. Giving importance at different points in time turns Governance into a FCFS model, and can become an opportunity cost that impacts engagement, subjectively.

iii. Participation v.s. Quorum. (I’d rather not open this can of worms because I don’t know if it needs to be addressed :wink:

  1. Question 4: Should we have just a single governance rewards pool that is distributed among all governors, or should each segment have its own rewards pool? (E.g., 50% of the rewards go to DeFi participants and the other 50% to passive Algo holders.)

Opinion: This is a really difficult question to answer. All dedicated Governors should have equal rights, rules & rewards, unless their ALGO isn’t fully “committed” over the entirety of the Governance period. A single Rewards Pool for Governance, simplifies the incentive - as we want Governors. Typically, I’d say splitting Rewards Pools makes sense depending on the initiative or action - i.e. Proposals v.s. Votes, regardless of if it’s staked in Direct v.s. DeFi. HOWEVER, by separating the pools, it has both benefits and drawbacks for behavior. How? With a single pool, users will choose the platforms to use (which will most likely be more DeFi-centric), because the rewards would not limit the continued adoption of DeFi over Direct (which means staking centralization - no bueno). With separates pool, more people will be incentivized (forced) to use both DeFi AND Direct Governance simultaneously, until one becomes less profitable. If both, Direct ALGO Governance and/or Indirect DeFi Governance are to share a single pool, the governance weights and rewards seem a more logical natural incentive than 2 fixed pools. Separate Pools make sense if we could define the Target adoption of both Direct & Indirect Governance Participation.

Question 4 (cont.): Algo holders who commit to holding their Algos in their account for [three months], would get [one] governance seat for every Algo they commit. We are asking for feedback here, and the parameters are up for discussion. For example, should we modify the three-month period? Should we ditch the commitment altogether and move to a low-watermark system instead?

Opinion: I wouldn’t change the commitment, eligibility, or, 1 ALGO = 1 VOTE for Direct ALGO Participation. As for watermarking, log implementations on Zookeeper and RAFT (snapshot) or storage on Kafka (time), don’t seem to satisfy the scalability or decentralized nature that the current model seems to address.

  1. Question 5: DeFi projects that average at least [$10M TVL] as listed in DefiLlama would be tasked with providing the Algorand Foundation with a list of active accounts and their balances. These accounts will get [three] governance seats for every Algo-equivalent that they hold (using daily average).

Opinion: I’m opposed to any indirect participant receiving more power than a direct Governor. Just my 0.02 ALGOs. If anyone were to receive more voting seats, I’d wonder how this conversation would look if we were discussing a Constructor (i.e. validator)

Question 5 (cont):
“Each project will give the Foundation a list just prior to opening each voting session, and another list at the end of the governance period. The voting power of each account will be determined by the former list, and the rewards will be determined by [the minimum] of all these lists.Again, the above is just an example, quantities above like the $10M TVL and three seats are of course up for discussion.”

Opinion: Lists of users wallets are the result of no notes or on-chain instructions being captured in a manner that enables openly available transparent information for all to see or explorer-based visibility to determine how much each DeFi provider has accumulated.

Thank you so much for reading this far, and know that I will do my best to keep up with the rest of you brilliant people. We are lucky to have a great foundation upon which to start this convo - I just fear focus and distractions can undermine us.


This may be a simple and obvious question, but if the underlying goal is to increase TVL in smart contracts because governance is locking up ALGO because it’s become the only “safe” way to earn rewards comparable to what competing L1s are offering, can’t we simply have a way to commit to a built in smart contract without needing to offer artificial subsidies to third party DeFi apps? I’m thinking of the way that AVAX for instance works, you just lock tokens for a specified time period in order to receive rewards. I know that ALGO is PPoS so delegation doesn’t make sense, but on the othet hand, if the underlying philosophy is PPoS then why aren’t all holders, who by definition are also stakers, eligible to vote by default too? Hypothetically suppose there were two options for holders:

  1. Regular. This is just someone who owns the token. Because the fact of ownership in itself is staking and therefore supporting the strength and decentralization of the network. This already generates a minimal reward, and that’s fine.

  2. Committed. Tokens would be locked in a smart contract for a given time period, on the network, no third party DeFi app needed. Rewards should ramp significantly based on time committed and be competitive with other L1 tokens, 10-15% at least probably.

  3. Governance. Available with either of the above, no “lock” of either kind inherent, because again any holder is by definition a staker. Maybe Committed tokens have more weight though?

  4. DeFi. This is just a thing that can be done instead. It has its own rewards and risks, people who want to go here can, there don’t seem to be any shortage of options, why twine it up with governance at all?

Again, just tossing it out there from the perspective of an investor and someone who would like to see Algorand fulfill its promise as a sustainable finance alternative to the unbanked, underbanked, artists, micro businesses, etc. In my opinion, many of these suggestions have an alarming bias towards a vision of DeFi that is a bit narrow, a bit myopic, a bit mercenary and not at all what I see as the promise of blockchain. Thanks for listening.


Hi, this is Ludo from VoteCoin, AWallet, AramidFinance, DREM, A-DAO

I read the whole thread quite carefully and my observations and recommendations are following:

Indeed. This is the issue. Actually I believe we should not try to incentivize everyone to make decisions on algorand network, but only those who has time to study it.

The main thing here is to know what is algorand governance going to be used for. As far as I know, the long term vision is to transform the algorand governance to a DAO type governance… In DAOs you need efficient way of decision making. One question once per 3 months is surly not how dao should be managed.

Also I would like to ask the foundation to make the fair rules. Just a simple hint… With VoteCoin token I am creating the DeFi on algorand reality… The 0,01% liquidity providers fees on pact fi for pairs such as Vote/Algo, Vote/USDT, Vote/USDC, Vote/GoBTC makes from the token perfect arbitrage token. We incentivize people to hold tokens in AMM pool with 50% pa vote coin token distribution program so that we can arrange this low fees and making the market efficient. We have not received any support from the foundation for this and I see other tokens to get Aeneas rewards at pact fi which has much higher fees.

I would like to pinpoint also what we have achieved with Vote Coin. Vote Coin was created on this very forum. With no reply from the foundation. I have implemented my simple proposal in summer last year and it won the Encode algorand hackathon. Still no reply from the foundation. Later you have implemented the algorand governance - in similar form - the data is being stored on algo blockchain in note field… Great. However my proposal was already much further… It has implemented the delegation of voting power.

Standard user does not have time to track the questions that DAO asks… So person can delegate his voting power to someone else. We have created a standard from the messages to be stored on the blockchain… I encourage algorand foundation to use the standard to cast questions.

Actually i would like to also pinpoint the issue of security of the voting… New algorand DAO should take strongly into consideration that open voting while duration of the voting session is bad. It reduces the value of a vote of those who vote first because it encourage people who are not satisfied with the current decision to vote. Encrypted voting standard solves this issue and preserves the auditable feature of having the voting data stored on the blockchain.

I agree to the point that the small group of people might decide the things in algorand DAO. We can see it in all algorand governance periods where on the last day some people have staked their positions just to have “final word” in the votings… I dont think this have been exploited, but open voting and open information on who is staking how much does not make this very fair… VoteCoin has implemented solution for this problem…

The same :slight_smile:


There seem to be at least 3 strands running through this discussion; (1) Governance and how voting and rewards should be handled (2) Strengthening DeFi provision on algorand and rewarding participation in DeFi by increased voting rights and/or rewards, and (3) Increasing TVL in Algorand with a range of measures including point 2 as a necessary requirement to drive increased participation. As it’s such a young project the on going evolution of Algorand is to be expected, but this does seem to be get

In the discussion these strands are being run into each other when they can be viewed as separate but complementary activities. AF should be careful not to get them tangled as its perfectly possible to have separate strategic programmes within Algorand all designed to build commitment, strengthen the utilisation of the chain and ultimately increase TVL. Furthermore, rather than running Algorand like a community project with everything voted on, you need a great team to lead and drive Algorand forward.


Frankly its pretty concerning seeing the possibility, only 7 months into the governance programme, of it being partially or fully altered. Some very clear promises where made to those making a commitment to governance which led to algos being purchased and committed. So it really concerns me seeing some of the more extreme points of view shared in this discussion which advocate shutting the governance programme down and directing the rewards elsewhere. This would not be smart. Keeping 1 vote per algo seems sensible and fair.

Regarding the rewards for algo holders participating in governance, the rewards are already getting less attractive as the total committed to governance increases. In G3 we have 3.9B algo currently committed against a reward pot 70.5 million algos. Compare this with G1 when 1.7B algo was committed with rewards of 60M, and G2 when 2.8B was committed with a rewards to 70.4M. While this can be seen as a big success for governance, if this trend continues going forward and the algo price continues to be suppressed to the degree it is at present, there will be a significant pressure to leave algorand.

This is an argument for increasing the governance rewards pool to achieve a pre-defined APR, rather than having a fixed rewards pool. This delivers the double advantage that governance continues to maintain its attractiveness vis a vis APR as more algos are committed, and it speeds up the rate at which algos are introduced into circulating supply thereby bringing forward the date by which all algos are distributed.

But in a nutshell, whatever the problem is that is being addressd here, I dont think the current governance voting and rewards mechanism is the cause of it. If you make it more complicated or introduce a governance token, you’ll see people leave. At the end of the day, governance is realy there to replace staking rewards and the vote itself is a pretty meaningless activity. Clear goals, strong leadership and effective delivery are what we need - not pages of dicussion and community voting on countless measures.


I would agree that its important to incentivise more active members of the community. However not everyone has the interest, ability, risk appetite or resources to be able to be more active. There are those who will not want to participate in DeFi because of the risks implicit within it; we all know that Yieldly caused plenty of anxiety for investors when they started changing their propostion, the Tinyman exploit and so on…

There are many people who are simply Algorand investors and that, as a valued status, should continue to be upheld. They should not be be forced to particiapte in DeFi. As a result, the existing governance rewards pool should not be divided between voting and more active participants. There are 2 ways that investment can be driven to more active participants:

  • Create an additional rewards pool for DeFi particpants to stimulate activity and new projects. The Aeneas program is one such example. Why not expand this? With 3B algos not yet in circulation there’s plenty of currency available to create new incentive programs without reducing the governance program. Speeding up the introduction of coins into circulation also brings forward the time when scarcity will occur thereby increasing the chance of upwards price action.

As far as the number of votes for people particapating in DeFi is conerned, I dont know enough about the implications of this but I’m concerned and I’d like to see more thinking produced by AF about the implications of skewing the voting in this way. I’d be concerned though that this is the start of a change away from rewarding passive governors to increasing rewards for DeFi participation.

  • Private investment. The best projects will thrive and grow by addressing real needs and attracting community support. New projects raise private finance to build their project. That’s happening in polkadot parachains to great effect.

We need to see a mix of this used to grow the algo ecosystem. Again its not governance voting and reward that is the problem here. It’s finding the right mix of stimulus and investment to support existing activies and seed worthwhile new projects.

A few more brief points:

(i) Passive vs Active Participants. We need to be very careful we dont set up an artificial divide between so called passive and active participants. We are all in this together. We need to continue to reward voting algo holders but make it more attractive to go that step further into DeFi if people want to. Personally I dont feel passive at all locking up a significant number of algos for 3 months for an unknown reward while I watch the price tank! If I was in any way a passive investor I wouldnt have any money in crypto - it would be in a bank.

(ii) What’s Really Going On with Algo Tokenomics? If the downward price action - which has been terrible - continues, and if this is in significant part due to early entrants and the foundation dumping their algos when the price looks good, and the on going introduction of large numbers of algos into circulation as we trundle on towards 10B, then no amount of DeFi incentivisation is going to attract people to algorand. What is really going on to keep the algo price so low?

(iii) Governance. It’s really important that we are super clear here. This governance programme is not really governance. What is called governance is simply a quarterly voting mechanism which is pretty loaded to delivering what the foundation recommend. I’ve just had a look at the AF website and AF Board is made up of 4 people with 5 additional advisors. That’s pretty thin for an organisation aiming to oversee a mulitbillion dollar blockchain.

Real governance would involve a board with wide ranging, diverse breadth and depth. There would be a chair and NEDs drawn from outside who’s role it is to support and challenge the board. There would be functional expertise, for example there’s nobody with any marketing expertise on the board. Also real governance would expose the major sharehoders, their stakeholdings, their purchases and disposals. It would also expose and clarify the articulation between the Algorand Foundation and Algorand. From where I am sitting it’s all pretty confusing, it smacks of too much academia and it needs to get much more commercial and focussed on driving blockchain adoption. I dont want to be too harsh here, maybe the website is out of date, but I think the AF snd Algorand organisations really need to make sure they are structured to deliver ecosystem growth, and be iterating this organisational design as things change to maintain the edge.

(iv) There will be much to learn from other L1’s about what did and did not work in terms of growing adoption. Are lessons are being gathered and learned.

Algorand is a great project with fantatsic potential. Growing new projects is always challenging and we all have differing perspectives as a result of our differeing levels of knowledge. I definitely want to learn and contribute more.


Good morning,

First, want to say thanks to the foundation for opening this discussion, as well as a thanks to everyone I’ve seen post here and on social media. This type of discourse is exactly what got me excited about Algorand. In thinking about the original post, I wanted to high level consider some of the issues that Algorand as an ecosystem and as a governance model are facing. Based on what reading I have done here, twitter, reddit, etc. It appears that:

1.We have at least a perceived issue with large exchanges, that have large voting block power, which can minimize the voting ability of smaller individual holders, such as myself (1-10k total algo).
2.The current governance system, with only one vote a quarter, is in need of further fleshing out so that it can become more vibrant (more votes, individuals that can propose, etc.). Not as pressing an issue since this is new but still discussed.
3.Most importantly, there is currently a very large amount of ALGO being constantly locked into governance, due to the reward rate being considered greater than that in Defi, once accounting for the risks. This is causing an issue where someone like myself has really no true incentive to go look at Defi, because I can safely earn a strong return in governance.

While the original post indicates the foundation would like to award additional seats to those who participate in various Defi projects, I am not sure long term this is a good strategy. Creating this sort of set up, is more complicated due to the rules that will have to be set up in order to identify and assign seats accordingly. I will upfront admit my technical ignorance (I am but a number crunching CPA), I am not familiar with code and the chain’s capabilities but in my experience, anytime I have seen complexity added to a situation the risk of error increases, sometimes significantly.

Additionally, this sort of set up allows for the same increased voting block power that I hear so many complain about with centralized exchanges in governance. Such a system has potential to disproportionately award voting power to Defi. If Algorand is truly looking to set up a governance system that rewards all participants, I am not sure this does not simply marginalize certain segments of the user base.

Below are a few thoughts and proposals I have considered that could be implemented, including a way to still award additional votes.

1.I would recommend changing the amount of Algorand that is distributed by governance itself. I agree that Defi is very important, in order to grow the ecosystem. I also agree the current governance reward system does stifle interest in Defi. However I also believe that can be done separate from governance through grants/awards or other projects. Currently the annual APR is about 9-10% for governance. I do agree that current governors are taking price risk and do have to vote, but in cryptospace this is fairly low risk return. I would recommend reducing this rate.

a)I know some have mentioned inflation rates for fiat, and there is validity in that comment. However, as a very very rough analogy, governance is low risk, with a high yield, like a savings account. Few are going to go change returns elsewhere while that is the case. Reducing that yield rewards people going outside of that and finding other projects to earn return if desired.
b)As briefly mentioned above, if we want the foundation’s pool of Algorand to be issued to be used to grow Defi, why not just distribute rewards through a separate program to those users vs co-mingling with governance?
2.I would recommend capping the governance voting by a certain amount of coins that is somewhere above the average users holdings (e.g. 50,000 cap, so 35,000 wallet gets 35,000 votes, 100,000 gets 50,000 votes). In my opinion, this does a couple of things. First, this should give some assistance to the large voting block power for exchanges, however the cap could be set to where their size of holdings does give more voting power than a tiny user. Secondly, this frees up much of the TVL in governance to then be deployed to other projects, and in conjunction with #1 above, theoretically would allow for more Defi participation.

a)One issue would be someone that wants to make multiple wallets. I recognize that is an issue, though I do wonder how much effort centralized exchanges will make to have dozens or hundreds of wallets. Perhaps someone else knows a solution I do not. I also am aware that for larger wallets this reduces their voting power. I agree that it does, however I would argue it is not so sizable a decrease that they are materially marginalized by it, depending on the cap.
3.If we are going to award additional seats (xGov), it should be based on a lengthier lockup period. Let’s assume we keep the quarterly re-application for governance. For one quarter, I get one vote per Algo, up to the cap listed in #2. At the same time, offer me the change to commit for a full year, and get more votes per coin. I would say perhaps allow a small increase in the rate of rewards, but still within what is discussed in #1 above.

a)In response to the question posed by the original poster about ditching lockup, ideally I would prefer to see no lockup for accounts where 1 algo = 1 vote, but would like to see the ability for users to lock long term for more votes.

Along with the above, my hope is in the future we will see a mechanism that allows holders to bring forth proposals for voting. Most public companies as an example will allow someone with X number of shares to propose, and I think this could be worthwhile also. In fact, grants and awards to Defi could be handled under this, where a developer submits their plans and allows vetting by governance with a final vote to determine yay or nay.

Whatever is decided, my hope is that we will continue to see the ecosystem grow, and that Algorand can truly become what so many hope to see out of crypto. Thanks again for creating this discussion, I look forward to seeing where this goes.