Evolving Algorand Governance

So far, this is the simplest solution with the following key benefits

  • Requires zero changes to AF Governance
  • Incentivizes DeFi projects to integrate AF Governance into their protocols. This spurs competition and innovation. DeFi projects must apply and qualify for AF Governance rewards.
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What if instead of creating a complex voting and rewards system with multiple tiers/qualifications for defi participants, NFT creators, and who knows what else, we just revert back to simple participation rewards for all holders?

This would distribute funds equitably without favoring particular interest groups (whales) and would likely attract additional users to the ecosystem who would not need to learn complex defi or governance rules before investing optimally for their expertise and risk tolerance. These are the investors we primarily want, not degens.

Additional rewards and incentives aimed at specific projects or verticals (such as Aeneas or Foundation grants) can then be proposed and voted on discretely.

I’m sympathetic to the issues that defi founders are presenting, but liquid governance should theoretically solve the problem of locked governance liquidity without the need to introduce degen economics into the governance structure. Rather than create a labyrinthine system where a user must learn and adhere to multiple governance, governance liquidity, and defi requirements to get a decent return, we could instead create a model where even the most casual user can see an attractive return. This alone should spur price growth, which will also help TVL.

In the alternative, we will create a complex system where the loudest voices and deepest pockets dictate increasingly arcane rules that benefit their interests more than the chain as a whole.

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We’re only a little over three weeks away from the scheduled vote now. I understand that people at the foundation are undoubtedly extremely busy, and that attending to this forum is not their highest priority issue. However, a lot of arguments, concerns, and questions have been raised in here, and I would really like to hear at least a little bit more from somebody in charge at this point. For example, I have requested a list of the foundation’s goals for governance twice, but nobody has responded. Providing that list should take seconds to copy and paste into here, and would help tremendously with focusing the conversation and providing more meaningful feedback. @shaih, @Massimo, or anyone else?

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TVL and COMMUNITY are the two priorities for me.

MORE RISKS MORE REWARDS
When an Algo fam member trusts a DEFI protocol with her ALGOs by locking them into a vault or minting any kind of wALGO, she should be rewarded for that since the smart contract risk is a proof of long and short term commitment.
By improving DEFI gov rewards, we prioritize the community, our trust and our involvement over the CEXs and big institution wallets that would be reluctant to bring massive amounts in our smart contracts.
That principle would slow them down from earning and controling the govenance from their comfortable thrones. In fact, CEXs controling the future of our community govenance with the funds of their users is still unsettling to me so any system capable of reducing their voting power is, in my opinion, a good thing.
As for VC, investors and institutions, if they are committed to the future of Algorand they should join our DEFI liquidity ecosystem to prove their commitment and show the world how strong our protocols and Liquidity pools can be. Only then, they would deserve to have a bigger voting power and earn gov rewards.

BIGGER BOUNTIES
If some of our whales think it’s too risky, a fund can be dedicated to secure our protocol and setting up bigger bounties, leveraging and growing our DEV community.

EASY GOV VAULTS
Openness and accessibility for all is my second concern. New users should be able to join us even if they don’t understand how to use our DEFI protocol.
A soft and easy commitment to send a certain amount to a gov vault would be very educative, prove a certain commitment and, being set up as a smart contract, that would filter some of the big wallets that are still risk averse until no one is scared of our smart contracts anymore.
That said, I locked half of my stack into a protocol for this period and I feel super safe in it!

This is sound I think, and it is much easier to add some sort of DeFi incentive program later if that’s really where Algororand is headed (I won’t be headed there with it if this is true) than to rush in now and have to walk things back later. DeFi is its own reward for those who want to take the risks, but it’s much too new and unrefined at present to try and graft it onto Governance in this way.

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FIFA sponsorship is $70M so lets see how this is handled. on one hand AF is sitting on a lot of ALGO but on the other hand because the price is so depressed they need to sell 107M (at today’s price) to fund this exercise depressing the price further.

The whole “decentralization” objective of selling cheap ALGO to early adopters have killed tokenomics and adoption. If ALGO is at say $7 we would only need 10M ALGO (vs. 100M) to sponsor FIFA.

I love the sponsorship but the cost of further dumps because of the lack of understanding in tokenomics is just amazing. Now they want to take the warchest, previously allocated to Govenors on the roadmap, in order to sponsor AF’s DeFi initiative. Hello, if the AF stopped dumping 100M ALGO on market and we rise to $7 the value of DeFi would be at min.10x the current TVL. Just amazing the economic advisors employed by AF.

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I commented early on that deciding which DeFi protocols get to also distribute governance rewards based on TVL on those platforms is a terrible idea and this response takes that into account which is great.

I don’t think splitting the rewards into two pools as suggested will help much- as per game theory those pools are likely to find an equilibrium based on risk/reward and I think the risk with an audited DeFi platform is low enough that we would see some institutional investors come in to the “higher risk” pool and essentially negate the split. We would also still have a large amount of Algo’s locked up doing nothing in the first pool.

I hate to negate an idea without proposing an alternative solution but it’s difficult to find one where active participation is consistently rewarded more than passively voting on governance.

I think asking people to lock Algos to vote is very secure as you know they are definitely invested in the future of the platform but inherently problematic due to sucking up all liquidity and essentially locking billions of value doing nothing else than voting for the future of a chain they aren’t using.

The other problem with the current governance system is that it was always going to be controlled by a few centralised entities that hold the most Algo such as the foundation and exchanges.

I propose a fundamental change to governance.

What if instead of locking Algos to obtain votes every address had an associated “activity score” it could be as simple as the sum of their transaction fees over the last X months - When it comes to a governance vote you could be rewarded votes proportionally to your activity score. This can be modified in various ways depending on security needs / what you want to incentivise. For example, the easiest way to make this more secure is scale activity score with volume transacted but this will reintroduce the issue of large central entities receiving the lions share of the votes, although, perhaps to a lesser degree.

If you wanted to incentivise TVL on DeFi platforms with this system you would need a mechanism where smart contracts are able to reward activity score for locked Algos as they are “actively” participating in DeFi - This would need an approved auditing system similar to my initial suggestion for deciding which DeFi platforms get to issue governance votes.

On a seperate note I also see value in simply seperating rewards from governance.

This would free up the 70m Algos designated for governance period 4 which could be put back into participation rewards so institutions could maintain their safe interest rate.

This will have the benefit of separating institutions who just want safe interest on their Algos from those who actually want to take part in governance.

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As the saying goes, be careful what you incentivize as you will surely get more of it. I don’t support a link between governance and defi, unless the goal is to encourage defi at the expense of all else. That is what people and their greed will do (Look at Osmosis on Cosmos).
I know there are lots of feelings on this topic, and I am just a new minnow but I’d like to share a few thoughts.
What if the governance structure utilized two governing entities. People have to make a choice for each proposal, they can participate in ONLY ONE of the two governing bodies. The first of those bodies gives a single vote to each wallet, that’s it. Assuming that vote passes, then the second governing body will allow each wallet to vote by the amount of algo held. But again, each wallet can only participate in one of the two groups. This is shaped after how the US congress should work. The important difference is that it is the algo holder that is directly voting and not via a representative (congressperson). Give people just enough reward to get participation, say 5-7% of their algo or whatever. Keep participation reward low enough to allow defi to do it’s own thing, while still providing a safer option for those that prefer reduced risk. Keep governance with governance and defi with defi.
The goal should be to keep them as separate as possible so they can both be independently successful. Thanks for taking the time to read this.

4 Likes

Before you read it all, I truly believe Algorand is the best blockchain today. Please read all the way to end.

I do not fully agree with Michel from C3, If we look at Avalanche TVL (11.41B at the time of writing this), they currently offer between 9-11% for staking to nodes in a quite low risk setting and the majority of defi, if not all, does not offer the same rates. Currently Algorand Defi protocols as it is seem to offer better rates from what I’ve seen.

I am all for helping the Algorand Ecosystem grow, and I think it will grow with time as people start to realize how great this blockchain truly is.

I do think keep rewards at a good level for governance will help promote Algorand Goverance.

Potentially rewarding people extra who participate in the ecosystem is a nice idea, but how is the question being asked. I cannot see a really viable way that doesn’t play favorites over projects.

I think a good solution would be remove a small portion of the current rewards (0.5-2%), and place that towards more funding for projects that wish to start up. I know the Algorand foundation does give out grants currently, but this couldbe the community that choose which projects to fund additionally. You could remove even more and reward people for participating in this too.

I think an idea like Cardano’s catalyst would be absolutely AWESOME for Algorand.
In short how it works, is a snap shot is taken of your current balance in your wallet, and that is voting power to vote(maybe we can cap the voting power to lets say, 10,000 so whales would have a far harder time to manipulate votes, or keep halving power of each algo held so whales would really have to create a LOAD of wallets to manipulate it.). on community projects all sorts of sections whether its defi, education, infrasture etc.

I think real world adoption will come for algorand because we are having projects that are working on tokenizing what the world currently has and making it better and fixing friction points that current system cannot. I do not think focusing on just NFT projects of art and Defi because that isn’t going to inspire real world adoption compared to, digital Identity, providing voting systems for the world, infrastructure, education etc.

We have the best tech and great dev Docs to building on Algo, We will have more people building on Algo, they just got to discover it. Currently its all about EVM, once the benefits of Algorand’s like atomic swaps, fee’s being constant, nodes being cheap etc, I think people will start making the switch Algorand.

I apologize for spelling errors and grammatically errors, I rewrote this a lot of times.

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Has anyone looked into incentivising node operators and making them into possible electoral candidates to vote on, if they have projects aligning with your goals? (This is not disrupting with the decentralised operating mechanisms of PPoS, or at least is my intention) These “council” members’ can be contracted out to work 50% for solely Algorand blockchain dev and 50% for their own products within Algorand ecosystem in receiving additional incentives to run as “voted node operator”. If the system/people end up gradually only choosing the best (in terms of # production outputs, adoption activity, etc.) one or two councils and naturally centralises the development, the top council members or Inc/AF can perhaps allocate the workloads to the lower councils in a random manner to maintain the equal amount of workload ratio across all node operators as much as possible for the sake of decentralisation (Would likely need penalty system too if workloads’ objectives doesn’t meet). Inspired from experiencing the governance system in NEO blockchain myself Governance - Neo Smart Economy

Algorand Foundation ultimately needs to endorse devs as much as possible so they can grow the ecosystem, rather than just feeding ALGO holders for just clicking to “vote”, but also contract them out under specific realisable returns or caveats to use the grants than just opening the flood gates for liquidity exit. The ratio of incentives for ALGO holders who does nothing with it but still act as solid bottom supports (0.5-1yr lock-up?) vs. devs should be always near 2:8 or heavily sided to the latter imho.

p.s Has Algroand Inc’s R&D conducted a detailed comparative analysis on other networks’ governance methods vs. Algorand’s? Could we get this discussion more advertised to bring in more engagement and ideas??? We have over 56k so-called “governors” registered in Gov #3. Less than 150 replies here.

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“April 29th, 2022 - Recently, we have received extensive feedback from our community that the current governance structure, with its focus on rewarding passive Algo holders, does not incentivize development of the Algorand ecosystem as it should.” I’m quoting this from the website and whilst I might agree with the sentiment, the question I would ask is how many is extensive, as a number? Were people within the ALGO community asked or indeed invited to contribute their thoughts? If not then by definition the results are skewed as not all will speak out uninvited. Who designed the current reward system and what were it’s aims at that time? It seems to me that we have a large group engaged in ‘governance’ but what does it mean to be a governor if we are not assigned or assigning ourselves meaningful tasks. One proposal every three months is no way to conduct decentralised governance, irrespective of the rewards on offer. Similarly a governor with but one ALGO has ‘less skin’ in the game than a governor with multiple hundreds or thousands of ALGO, to say nothing of those who had the opportunity to become involved in the early days whose ALGO ‘cost’ is 1000% lower than those ppl who have put real dollars into the protocol. This scratches the surface of the issues that I can see from my ivory tower! I love the protocol and want to support it but I want my time to be valued. Having read this thread I can see that defi as a business model is considered to be being held up by the current governance system. Let’s see the evidence, weigh it and consider alternative solutions. I may be alone in finding defi an unacceptably high risk proposition. If that is the case I’d hope that my vote would still be seen and counted. I and many others have loaned capital to the project over more than a couple of years, without such ‘investments’ where would the project be today?

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Very well put. I would point out another reason that participating in governance through DeFi does NOT need additional incentive from the Foundation or using the governance dollars is because those users ALREADY have additional incentive through the DeFi governance/lending mechanisms. They deposit their algo…Receive Valgo or Galgo or whatever they call it and then those people can use that to borrow more algo which can then be committed again. This is increasing their voting power AND their rewards. Why would they need additional incentive and power beyond that?

In addition " Justified_Ancient "makes a great point about the lack of utilization of the governors. Why are voting mechanisms or polls not being utilized to a greater degree? Is this supposed to be decentralized or what? Making assumptions based on emails without polling the community seems an absurd approach when better ways of determining sentiment exist using the Algorand infrastructure. While for simplicity you can keep the voting to 1 mandated vote per 3 months…you should also be able to poll the governor community as well.

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how about the Foundation provide some numbers as to how much it costs to onboard a new user by providing the sponsorship for SailGP and Women Soccer and see how many “potential” users joined as a result? If total sponsorship was $2M and only 2k new tokenholders that is $1k to acquire each user which is unsustainable.

lost interest and confidence in the AF long ago, hopefully the transparency report will shed some light. I would vote against AF stripping Governors of rewards and forcing them to use DeFi. AF pretty much has unlimited budget in attracting adoption but all they have done is to focus on Institutions and VCs. Now that it has obviously failed and TVL is low, they want the community go give up their rewards to boost and secure more TVL??

if AFs role is only on technical development perhaps they need to cut cost on everything else, especially marketing which attract no major users but have spent hundreds of millions. poor executed tokenomics and adoption strategy will not last in the bear market.

how about those sponsorship with WEF, CBDC initiatives etc. that have gone nowhere in the last 3 years. when do they draw a line not to pay those Central Banks, Governments etc. in hosting these events unless they commit to using Algorand in some way?

Context

  1. Current governance is open, however it’s not efficient enough:
    1. users or groups can’t make their own proposals
    2. it’s slow: 3-4 proposals / year
  2. Governance is the most important feature of the chain, not defi. Governance steer the blockchain.
  3. Putting more rewards into DeFi won’t make it better - we already have good grants. We need to pull more funds into Algorand if we want to grow the amount of projects.
  4. Putting more focus and rewards into DeFi rather than governance itself, is dangerous - it will steer the governance and incentives towards DeFi and could create unhealthy disproportions.
  5. Finally, blessing few DeFi projects with more incentives coming from the Algornad governance and security (Algo secures the blockchain) is, IMHO, a wrong approach. As @LinxFit and @HolisticNicole pointed, it can create conflict of interest.

Proposal: more efficient governance

Instead of having a model where we try to push more gov power and more rewards towards some blessed DeFi projects, I would propose more open and more direct governance:

  1. Creating public good pools - they will have continuous income from Algo inflation, and maybe from tx fees later on? This should reduce significantly passive Algo income. Moreover, we should reward more accounts who vote. So we can have the following scheme:
    • reduce overall Algo inflation
    • from the Algo inflation, put 60% into governance pools and 40% for Algo holders and governors. Active governors will receive significantly proportionally more (2x - 4x) Algo than passive holders. We can have few tiers to measure the governor activity.
    • the goal would be to have ~1-2% APY for passive holders.
    • all the parameters are subject to the governance and can be modified at any time.
  2. Take some learning from Cosmos governance: let anyone create a proposal (that would require a bond) to do something good.
  3. Create a committee (selected by governance, and lead by the Algorand Foundation) to to judge a proposal execution (for proposals which passed).

A proposal can be:

  • accepting an update (pull request) for the next go-algorand release
  • advocating next features
  • funding public goods
  • funding communities

Proposal must be well defined, with proper scope of work and payment schedule. Proposal to pass must have a minimum support (total number of votes).

Why this is superior?

  • we will have more direct impact
  • we won’t have a problem of having a blessed projects with more power
  • we separate chain security from the capitalistic approach of creating more incentives
  • Incetives should come form institutions and project funds, hopefully created by communities etc…
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Generally, I stopped participating in governance because the timeline was unclear. It is tough to commit to governance when a central oversight decides when rewards are returned after the fact. I think one thing that is extremely important in evolving Algorand governance is that all dates are clearly marked ahead of time. There is no compelling reason why the start date, end date, and reward date should not be made public before votes are launched.

I also think there needs to be a valid way for the community to submit proposals. The goal needs to be to allow any Algo holder to propose a vote to the community. It’s difficult to find the mechanism by which votes can be implemented at scale for the entire network, but that will be an ongoing challenge moving forward.

It hasn’t been clear to me the proper protocol for voting, or what is required to vote regarding registration. I think the process could be a lot smoother and more accessible for the greater community with a more simplified model. I also think transparency in decision making and hierarchy is important, especially regarding higher level governors and how they earn appointment.

Finally, I think a final thing that can be improved is the overall consensus mechanism and documentation for nodes. I think the current documentation really fails in describing the types of nodes, what they are, and why people run them. To have a scaled and decentralized system, we need better technical documentation and clarity on how participation occurs. The problem with the technical documentation currently is that nodes are defined by reference, rather than from fundamental principles.

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Thank you all for the well thought of replies, expressing a variety of opinions and options. The proposal that we converged on eventually is now available on the Foundation’s governance dashboard.

This is not the end of the conversation, however. We still want to to hear from you, at least on the following two questions

  • What are your reasons to support option A or B of this measure
  • Proposals to extend governance beyond DeFi: We would like to include also creators, node-runners, developers, and other groups as governors. We would like to hear your brilliant ideas for who should be a governor, and how to determine their stake (for the purpose of voting and rewards)

These proposals shows exactly what I was talking about earlier; the entire governance system is such a waste of time; the proposals are so vague as to be completely meaningless. No one actually cares about “voting power”, when the foundation and large exchanges can control the vote every single time.

You guys are just making things more and more complicated because you refuse to realize that the entire governance system as it is cannot be patched up; it’s completely broken and needs to be re-thought from scratch.

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“What are your reasons to support option A or B of this measure”

I am opposed to the way Option A is structured. There are a few parts of the proposal that I find concerning.

“The Algorand Foundation encourages projects to allow their users to express their preferences individually, and vote the aggregate tally of their users. However, in accordance with the decentralization principles, each project will set its own rules. A project’s voting rules will accordingly become another factor for users deciding on project participation.”

Essentially each defi project can at the end of the day choose to do what it feels is best for the project owners, not necessarily the users in the project. I understand the Foundation can’t force something here, but I think people should be aware of this factor.

“Rewards distribution: Qualified projects that voted in all the voting sessions in the governance period will get governance rewards to distribute among their users.”

Similar to the above, we’re going to be reliant on the project to accurately distribute its rewards to the users.

Most disappointing though is the idea of assigning two votes to defi. This essentially tells me that if I want to place my own vote, I am disadvantaged against the defi project (especially since they are the ones voting, not the actual users in the project). Adding weight to defi projects is allowing for a larger voting block, no different from the major exchanges. If anything its worse because of the double voting status. Is this really the decentralization we want in governance? This aspect alone makes me support Option B, as Option A I just don’t believe is in line with the idea that everyone’s voice matters.

Why not just use this proposal but keep the vote at one? This would still allow people to put their Algo into defi and receive rewards, without giving the larger voting power. I would think the incentive to use defi would then exist, since theoretically I get my defi rates plus governance (assuming my project doesn’t go rogue as noted above). If Option A was structured this way, I would be more in favor of this.

“Proposals to extend governance beyond Defi”

In regards to including others in governance, I don’t understand how these individuals are not able to participate in governance already. You literally just have to have Algo in a wallet. If its an issue of Algo getting locked up, why not consider a wallet cap on how many votes you can have, as noted, or again something Option A based but with no voting disparity.

To me there is a difference in governance participation, and receiving rewards. We seem to be trying to make them one and the same, when they should be done separately (e.g. a vote specifically on giving rewards to a node operator, or a defi project, etc.).

I also would have liked to see a proposal given to allow for individuals to lock their Algo for a longer time period for a higher vote weight, IF we are going to go the route of giving additional votes based on certain characteristics.

Lastly, I feel there was very little feedback given to people in this forum who have posted concerns. I would have expected a bit more explanation from the Foundation on why they feel option A is their choice, given some of those concerns. Simply stating “we support the more inclusive option” really means nothing. I could argue its less inclusive, given the right of the defi projects to make decisions on their own about how the votes are made. It gives off a sense that the original post simply existed to say that we asked people.

I do want to give credit where it is due, and I support the Foundation’s second proposal which allows for the community to make proposals, xGovs to help guide what become items for final votes (subject to a final understanding of who can be an xGov, and assuming if is not exclusive and available to anyone willing to make a commitment), and a final vote by governance as a whole. This has potential to allow governance to move from a one to two vote a quarter system to a more robust model.

Thanks for reading. As always, appreciate the opportunity to see discussion on what has potential to be one of the best blockchains in the world. Look forward to seeing where we go from here.

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I’m feeling a little pessimistic. The Foundation supports option A which if I understand means that the exchanges will vote with the foundation by default, which means that this will probably pass, correct?

I’m in Algorand because it has always seemed to stand apart in being focused on solving real world prolems and making the world better, as opposed to the countless projects that have chosen a mercenary leaning towards DeFi/Gambling/risk.

Doing the math, my vote likely won’t be clicking a button, it will have to be a strategic choice to sell everything and reallocate to other investments. I’m a little fish, but pound to pound there are more little fish than whales in the ocean.

I’d love to hear thoughts from others thinking along the same lines as this, but maybe reaching different conclusions?

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I’m in the same boat. I’m out if this passes. I’m so disappointed the Foundation chose to back A. They seem to be chasing TVL at the expense of broader adoption beyond the narrow confines of DeFi.

Let’s say a Visa competitor wants to start a blockchain payment system. They are going to want a say in the governance of the protocol. They would likely be willing to buy Algo to secure a defined percentage stake in voting. They will not, however be willing to achieve their voting power by dumping their millions into a smart contract liquidity pool.

If this passes, those companies voting power would be subject to 2x dilution, and, subject to further dilution from crypto price volatility. They aren’t going to go to the project with the mind of “oh well, we will just plan to buy a bunch more Algo if defi TVL goes vertical.” No. Instead they simply will not want to come in the first place, because they cannot be assured that they have a safe and defined voice over the protocol that their billion dollar venture could be running on.

The solution to the cannibalizing of DeFi was to address the imbalance of the ease, risk, and rewards between governance and defi.

Make governance harder (eg a node requirement) so some people just won’t do it and those that will are directly supporting the protocol. Or, propose a lessening of governance rewards and an increase in rewards for defi programs. Or, directly support the creation of mechanisms that allow defi users to also directly vote.

But, handing voting to defi platforms (instead of the holders), and then doubling their vote, just seems like a bad idea long term.

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