Feedback request on proposed Q4 2022 governance measures

Governance
62

I would love to learn about the value it provides. Here are my concerns with actively supporting DeFi on a foundation level (no issue with it existing by itself).

  1. Where does yield come from? Needless to say we have to steer clear from any real or perceived unregulated securities as an industry, so I want to understand if it’s not based on simple inflation or profit sharing, where is the yield coming from?
  2. How does DeFi sustain itself after the Foundation removes governance altogether? If it can sustain itself after, why does it need it now? I know how rewards compete with yield farming schemes, such as they are, which is why I’m all for removing governance rewards altogether.
  3. How is DeFi helping attract new developers with new projects and new users to Algorand?
  4. Especially given the recent events with FTX, BlockFi, Celsius, etc., this whole concept of “make money with crypto” is tainted to hell, how do you attract new users with DeFi in such an environment?

As for gamers hating blockchain, well game developers are a different story, and I believe there’s a compelling case to be made for them to adopt Algorand for their users’ benefit.

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63

Measure 1 seems ok to me.

For measure 2, I would like to have more infos on xGovs. Who are they since they are the ones deciding on the grants? Are the criterion to be an xGov already decided? Do they have to be doxxed?
How would the xGovs decide on which projects receive grants? Would this be a purely on-chain process?
Also the safeguards and rules seem unclear to me. You say 'must be build on Algorand '. Does that mean that the grants are only for dApps? Or like could the xGovs vote to give money to an educational program to develop on Algorand?

For measure 3, I don’t remember we ever decide to give money to nfts. We should first discuss and vote on whether or not we should allocate algos to buy NFTs. To me the point of the Foundation building its own NFT collection is very unclear. Also the scope of ‘art nft’ should be precised.

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64

agreed. that would be the better way for the foundation to do it.

On Measure 1: they should first explain why algos meant for ‘Community & Governance Rewards’ are being reallocated to other stuff (the ‘Ecosystem Grants’ allocation that you mention should be catered for under ‘Ecosystem Support’)

the tokenomics page is rather clear: https://www.algorand.foundation/tokenomics

        > #### ALLOCATION                               #### ALGO
        > Community & Governance Rewards                1,757.26 Million
        > Ecosystem Support                             1,176.05 Million
        > Foundation Endowment                          363 Million

Measure 3, why do they see the need to prop up NFTs? like you’ve pointed out - it’s a lose-lose

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65

Hey everyone, that was a great read. Thank you for all the comments and constructive feedback. I’ve noted all your main points and I must say I agree with some and disagree with some, but regardless of my own opinions, the purpose of this post and requesting your feedback it is indeed to gauge your views before voting opens at the end of the month.

My number one goal, as I step into the GPM role is to get xGov up and running. I completely agree that implementation of this program could’ve been faster, but let’s not focus on “what ifs”, but instead let’s focus on what’s coming. This is my third week in the role and I’ve been learning the tools and working on these measures, because as soon as this “task on my to-do list” is ticked, I can focus on reviewing the xGov design work done so far and start having the discussions that you’re longing for.

I’ve been in crypto since 2013, and in Algorand since 2019. I believe in this technology and our fundamental desire to foster meaningful change. I also believe in our community and that we are ready to do more. I include myself in that, I’m with you and it is my honour to play a role in steering us down this path.

To wrap up, your feedback will be discussed internally, I’ll gather some answers to the common themes, and we will host a Twitter Space early next week to answer these questions before finalising the measures. Hang tight and keep the feedback coming. The comm lines are open!

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66

I’m with you in spirit, sir but in every one of the options you’ve presented here Vanilla Governance is getting more than Defi by a substantial margin with the exception of the 1st. Honestly, I don’t think we’re ready to take on this form of budgeting. At least, not until we have a better framework in place with xGov (assuming the details on that check out).

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I’ll try to address your points one by one, though I am not a financial expert. I would strongly encourage you do your own research, but I’ll do my best to both regurgitate what I’ve learned and give some examples from my own experience (though this is a bit of a tangent.)

  1. Where does yield come from?
    From what I’ve seen yield comes from 3 different sources mainly here on Algorand.
    A) Aeneas Grant for tokens/LP’s that are considered to be important to provide liquidity to the blockchain (“important” being somewhat subjective here).
    B) 3rd Party Grants such as “Folks Boost” for gAlgo on Pact_Fi or goMint incentives on Cometa.
    C) Trading APR. This is the one that addresses question 2. The idea is that with enough volume, fees on swaps and other DEX activity should be enough to not only sustain the protocol hosting them, but also pay APR % on those providing the liquidity (think of it as a bank, but instead of the bank making their % off your money and taking a cut before passing the rest on to you for your savings account or other interest bearing account for giving them monies to be able to exchange, but in this case you are a sub-contracted bank and the DEX you are lending your funds to use is your teller, exchanging tokens for pairs (or smart swaps involving multiple pairs) outside of large CEX such as FTX and Coinbase, thus keeping more transactions on the Algorand blockchain, providing more TVL, more transactions, really more of everything that we need.
  2. Institutional investors to retail alike can use these services to increase their buying power at the very least vs current inflation rates. There are many other attractive things about Defi that can bring in a lot of different types of people depending on the particular service the protocol provides.
  3. After the recent FTX everyone WANTS to get into Defi, because Defi is the solution to the CEX problem. If the tokens being traded/swapped for were available in masse due to mass adoption, then entering/exiting a position on-chain, would be faster, cheaper, and more secure than any CEX can offer.

As for the gamers…yes, Square Enix and others have made heavy plays into the NFT/blockchain gaming scene. That being said, every major gaming media outlet is roasting company that does this alive right now. Too soon.

68

I like the idea of budgets. First, we need to clarify the total ALGO budget per Governance period. The numbers don’t line up with ALGO tokenomics.

@Adri can you please follow up with the Algorand Foundation regarding ALGO tokenomics? We need to make sure the numbers line up. In addition, can you also please follow up on the Aeneas program funds? We need clear and full transparency here.

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69

@Adri thanks for your effort here. We are a passionate bunch and all of us want what’s best for the ecosystem. Looking forward to the Twitter Space and further communication on these measures.

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70

Was about to post something very similar, thank you @oysterpack! Really, I’d like to see a full breakdown beyond just governance budget, but that is another discussion perhaps.

In addition can we also expect to see a more detailed xGov roadmap before proposals are finalized?

Thank you @Adri for your quick feedback and I look forward to further conversations!

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71
  1. For platforms like Algofi, Folks Finance, etc the yield comes from people borrowing the tokens to short or leverage. For platforms like Tinyman, the yield comes from charging fees for swaps (ex swap between USDC and Algo), the same as a centralized exchange like Coinbase.
  2. The DeFi platforms are already sustainable. You can see they already earn income to their treasures from the streams described in #1.
  3. The point of the incentives is to get more holders of Algo to take their tokens off of centralized exchanges and put them into the DeFi platforms. The additional liquidity lowers interest rates and incentivizes more people to borrow, creating more activity on chain. More people using these systems incentivizes more projects to support them. In an ideal world you could swap USDC for EUROC (Circle’s Euro stablecoin) on a DeFi platform for cheaper than your bank could service the swap.
  4. Good DeFi platforms are insulated from what happened there. When people borrow in DeFi, they have to put up collateral. So if they can’t repay the loan, the collateral is automatically sold to repay lenders. This all happens via smart contracts and no one like SBF has the keys. I agree its going to be hard to message the differences given recent events. On the other hand, Luna collapsing didn’t make anyone get out of FTX, Celsius, etc so gamblers are going to gamble.
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72

This is not decentralized governance!

As has been pointed out by many others, the decisions have already been made by the foundation, and merely an illusion of a choice is given to the governors (as in “Here’s your cup of coffee, do you want 2 or 3 spoons of sugar in it?”)

I was so embarrased to read these proposals that I had to wait for a day before commenting to try to think of something constructive to say, but at this point I can’t think of anything. This is simply embarrasing, and potentially the beginning of the end of Algorand if this really is the best the Foundation can come up with.

Further, to even call #3 being about “art collection” is beyond comprehension. Give money to artists by all means if you want to (or more accurately, if the governors want to), but I don’t understand why pretend it has any value (other than a potential “greater fool” value if you are an early adopter) or that it even is an art collection in any sense of the word. Or maybe I just don’t understand NFTs…

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73

I don’t disagree with you. If I am being honest, my post really isn’t about specifically what to make this Governance Periods Budget, because there is simply not enough time for them to shift everything like this. My bigger point was that this period’s proposals are fairly useless, and for the future this is how we should do it. More long-term vision thinking here than exactly what to do this period. I think once xGov is actually flushed out, it makes sense to move to a budget-based process. Use this period to approve spending money on some NFTs and Grants and let that fuel the beginning of grant proposal approvals going through a designed xGov process.

Also Zen, the numbers I threw out there were literally just examples to help people visualize what I mean. I didn’t want to rock the boat even more in my proposal and suggest DeFi get more than Vanilla…I was trying to keep all (4) options different enough that the vote mattered without taking away a TON from Vanilla Governance which is the current status quo.

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74

I’ve always thought of Algorand as a gateway to real world utility and bridge from TradFi. Providing guardrails for the banking system, corporate Internet of Things database etc. I knew going in that its a long-term build out for that type of adoption and the Inc. can’t really share which groups they’re working with etc.

I got excited about the protocol for this exact reason given Silvio’s leadership.

When you step back and think about current adoption of blockchain generally - the vast majority of today’s ‘utility’ provides this niche, nascent service which Ethereum obviously dominates: weird art NFT collections etc. There’s a few interesting use-cases out there like the decentralized wifi projects (Helium being the most famous) which provide real-world utility albeit at an early stage, but otherwise 90% dapps and adoption today still seems like the world is figuring out how to exactly use blockchain.

I think this makes sense given how early is blockchain and how complicated it is for the general public to understand the true utility of the technology. So, art NFTs are easily understood. This mentality seems inherently short-term in nature, and in thirty years will appear silly as multinational corporates better understand the true utility of blockchain from a database standpoint and its role in IoT, data analytics etc.

So, its been a little discouraging in the last year or so to see the Foundation seemingly drift away from the long-term adoption strategy and ‘chase’ the short-term adoption.

Not that the proposed art NFT collection is material in any way, but seriously . . . who cares?

I’d rather see the Foundation double down and communicate a long-term vision around real-world, everyday adoption and spend our resources on that pathway.

In regard to these measures, throw a sliding scale up with the six or so buckets of Governance & Community Rewards (i.e., General, DeFi etc.) and let people set it where they want it, take the weighted averages and maybe throw a sunset clause up for 3-5 years and re-vote again. I get why we’d want to roll back General Governance rewards to support critical infrastructure build - it’s sort of silly that I get a pretty big return just for voting on two issues every three months, but selfishly I’ll take it lol.

However, in regards to grants, I’d much rather see a program developed around allocating funds to bridging tradfi or more serious corporate adoption than an alligator NFT. The Foundation literally just hired a new head of Ecosystem development, providing her with a big program to incentivize corporates to adopt blockchain seems like a good idea. Could tradfi adoption or everyday utility accelerate if we threw large community grants at corporates to subsidize their build out costs? Seems like a way better use of funds. I wish the Foundation would have more conviction around long-term elephant adoption.

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75

Please put in an option for each measure to not change anything, or keep the status quo. We should not have to choose to do option A or option B if there is no option to not do either option A or option B. This is pidgeonholing us into making a choice that has already been predetermined by the measure - in effect making governance a fascade.

Either put in an option on each measure to keep the status quo, or remove that measure entirely.

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76

Some great points made here. I’d like to challenge you one one thing, though:

This seems like a dangerous precedent, especially considering how many projects will come and go in these early stages of the crypto revolution. As cruel as it may sound, I think unsustainable projects should be allowed to fail unless they are critical to the health of the ecosystem.

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77

Agree on all fronts, and write separately only to amplify the issue of participation node rewards. Even though we nominally have ~1800 nodes, the vast majority are not participating in consensus. Only ~300 are doing so. This is alarmingly low when you consider that the Foundation and/Inc seem to run a bunch of them.

Similar to how we incentivized DeFi, we should consider reallocating some rewards each period to governors who are running participation nodes during that period.

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78

I’m especially concerned about the Foundation picking winners and losers by purchasing NFTs directly. It distorts the free market.

More alarmingly though, it also immediately creates a conflict of interests issue akin to what happened at open sea. Any time a central authority is trading in a commodity over which they also have the power to influence the market, you immediately create an incentive for manipulating and insider trading.

Projects already get a huge free boost any time someone from Inc/Foundation interacts with or reps them. There is no reason to go out and buy specific NFT projects.

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79

I appreciate the intent of the proposals for the measures, but I would like to propose alternative measures that would make more of a difference.

Measure #1:

The legacy governance system was planned and put into place before smart contracts were widely adopted. It was designed to keep the whales from dumping on all of us retail holders. This has proven not to work. The whales continue to sell their yield weekly while us retail users are left holding the bag. The legacy governance system doesn’t just need to be cut in half it needs to be removed completely. If this does not happen we are admitting we are fine with the whales winning and us retail investors losing.

The tokens that were planned for governance should still be put to good use to increase the value of the ecosystem. Rather than earmark it for DeFi incentives I believe we should put more thought into exactly how we would allocate these extra rewards.

Currently, there is not enough use of the Algorand network to sustain the existing protocols. There is currently around $4M of total volume on Algorand and most protocols can get away with charging .05% fees on that volume. This breaks down to $2,000 of revenue a day to share with all of the protocols on Algorand. That is enough revenue to pay the salary of 2 $150,000 developers.

If we fail to guess the correct incentive to increase the volume exponentially this means that the existing protocols will die, and new ones will have to be created in the next bull market and we will have to start over again from scratch. You might think isn’t this what investment is for? Of course, it is, but the problem is that investors are currently not interested in investing on projects that are building only on Algorand, and the internal investors(Borderless, Big Brain, Hivemind, etc.) have already invested in these projects.

I propose rather than spending the full amount of rewards on incentivizing DeFi use we should provide grants to existing and new DeFi projects to build new open-source features that provide unique options to entice new users to use DeFi on Algorand. The open-source nature will allow other developers in the ecosystem to also learn from the projects built.

The existing builders have proven themselves already. We should provide them with resources to continue to build during this bear cycle so that we are ready to accelerate through the next bull cycle. If we do not do this the DeFi protocols will die, and we will have to start all over.

Measure #2:

I love the idea of allowing xGov to propose and vote on grants. I would recommend we look hard at the Catalyst program that Cardano has already put a lot of effort into. Hopefully, they open-sourced much of that work and we can take it.

Measure #3:
The NFT community is the heart of the Algorand community, and they haven’t been supported as much as they have deserved. I love the idea of earmarking funds to finally support them monetarily, but rather than spending the money on buying up existing NFTs from the secondary market we should invest in the future of NFTs on Algorand.

There isn’t anyone in the world that knows better than the existing NFT creators what the Algorand NFT ecosystem needs. I propose that we give grants to existing NFT creators to build open-source infrastructure to make it easier for new creators to launch their own projects on Algorand. There are several established players that have dev teams already and would the opportunity to make the ecosystem better.

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80

YES!

I love the idea of allowing xGov to propose and vote on grants

Agree. This program should be even extended.

The NFT community is the heart of the Algorand community, and they haven’t been supported as much as they have deserved

I think NFT is a hype. It should NOT be supported by the Foundation at all.

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81

You might think it is hype, but NFTs are the largest reason people have created a wallet in crypto. If you want NFTs you need to accept NFTs existing even if you don’t want to participate.

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