Feedback requested on proposed Q3 2022 Governance Measures

but if you would just give the option on how much to give to DEFI that would the opposite of decentralization. if the foundation decides sth this way then this whole governance thing is a joke. they just have to argue better why they want this, why it is kind of necessary and in this way convince people


Hi Massimo, please take a look a this suggestion:

i think there should be among the proposals to undo a previous decisions, clean up work and revision. Governors can elect a previous decision to be undone. like a referendum or amendment. Additionally, those who go for option do nothing should not get rewarded for anything

I don’t think the situation is as cut-and-dried as thinking that removing/reducing governance rewards will cause the DeFi ecosystem to grow and be a net benefit. From another perspective, it may result in slowing down the growth of new users even more. Native staking rewards are already unappealing because of the fixed 3 month schedule. Reducing the rewards on top of that may cause some existing users to try DeFi, but many who are not willing to take the risk may sell off, and those on the outside may be less inclined to try Algorand. It’s a complex problem and I think trying to gauge the timeline of consequences isn’t nearly as obvious as some believe.


any reason why its not 7M ALGOS as Governance reward and the rest being DeFi rewards? seems the Foundation is trying to encourage DeFi adoption but only allocated less than 10% of rewards to this.

have not explicitly seen any comments on why DeFi is not counted as part of Governance rewards and if so the Foundation should allocate 90% to DeFi instead of passive governance where it provides little value especially when none of the previous approved measures have been implemented.

also are the Whales in on this? Top 37 whale wallets: 50% stake, control vote. there is no point on wasting another “Governance Period” when its just another waste of time exercise for the sake fulfilling the quarterly Governance

@Massimo @shaih

Kindly consider the feedback given in this post.
Due to its length, I have rather posted it as a separate thread, not to clutter this one.

Its brief summary:

The post describes solutions how to give DeFi users a voice in Governance. For this, it is necessary to modify the requirements for participating in Governance, which should remain exactly the same for all Governors. The solution is to modify the registration requirement to allow registering of all the stake not held directly in one’s own account, which can be achieved with a decentralized solution akin to ASA Stats. Further, the commitment requirement of holding the stake uninterruptedly throughout an entire Governance period should be modified to require holding of only an average commitment throughout that period. Lastly, the post describes how the issue of Governance hindering the use of DeFi due to attractive risk/reward ratio should be addressed.

I second this–I’d like to see further discourse on XGov more than another rehashing of tiny, temporary solutions to the massive, market-distorting issue of giving away billions of Algo essentially for free over nearly a decade.

It’s not tough to figure out:

  1. defi is risky and your money is doing something. Governance is not risky and your money is not doing anything. You get paid more for doing nothing than something - 99% of humans will always opt for the less risky and higher return option. It’s just common sense.

  2. I suggest make rewards for LPs higher especially on popular high trade frequency pools. This will incentivize users to bring in more liquidity and then ultimately high net worth individuals/institutions can feel safe and at ease in making high volume swaps on the DEX, they can sleep in peace knowing there is sufficient liquidity.

So decrease governance rewards and increase LPs on DEX rewards.

And focus on having 1 top notch DEX like tinyman, instead of fragmenting liquidity thru multiple DEX.

Like Uniswap is to ETH ecosystem,
Tinyman should be to Algo ecosystem.

its not on the foundation to declare one DEX the “Uniswap of Algorand”, competition will make the DEXs need to innovate and that is good. DEX aggregators help with the problem of fragmented liquidity (vestige is supposed to bring one out very soon that doesnt require one to hold their token to gain like ~75% combo gain, Defly is already out)

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Thanks to the Foundation for the proposals and everyone sharing their opinions and ideas. I support Measure 2 as is, but I have a comment about Measure 1.

The DEXs determine the % of pool fees they distribute. As part of the proposal, I would ask that DEXs commit (and Foundation confirms) to 100% distribution of DEX trading fees to LPs during the governance period. Since we are asked to subsidize fees with the goal to grow liquidity pools, we should make certain all the fees go to the LP.

It might not be algorands foundations job, but they definitely seem to favor/support a few projects more than others… so might as well support and make tinyman the number 1 DEX - it will be a win for all.

Also, the developers of tinyman and Pera wallet overlaps. - this is a solid team who are passionate in building.

where did they favor projects or specifically tinyman more than others?

Thanks to the Foundation for the proposals and everyone sharing their opinions and ideas. I support Measure 2 as is, but I have a comment about Measure 1.

The DEXs determine the % of pool fees they distribute. As part of the proposal, I would ask that DEXs commit (and Foundation confirms) to 100% distribution of DEX trading fees to LPs during the governance period. Since we are asked to subsidize fees with the goal to grow liquidity pools, we should make certain all the fees go to the LP.

but that is the only revenue for the DEXs? why should they not get a small cut for what they did? they only take like 0.05% of the fees and leave the rest (0.25%) for LP providers, that is enough and shouldnt be changed just for the governancen period imo

Many people commented on the spirit of the proposal.

Adding my 2 cents, I agree that governance/DeFi is currently a bit unbalanced in favour of the former, and we can see it in TVL (total DeFi TVL is 210m$ despite including a huge amount of stablecoins and total DEX TVL is around 25m$, while governance TVL is 1.2B$!).

Also, I noticed that some people argue that DeFi doesn’t need it because it is doing pretty well now without being subsidized. Actually, it is significantly subsidized right now (via other, less sustainable means) and can barely compete.

But mostly, I want to focus on technical aspects here:
The proposal only talks about LP tokens on AMM DEXes. How is it going to work with other DeFi protocols? Very generally, there are 2 kinds of protocols:

  • Ones which tokenize your positions, you deposit funds and receive tokens which represent your position. The most obvious example is DEXes which give LP tokens, but there are others, e.g. most synthetic derivatives protocols work similarly.
  • Ones which use local storage to save info about your position. For example, in yield farming protocols, you can stake your LP tokens and continuously receive rewards. The amount of staked tokens will be saved in a smart contract, so you will be able to unstake later.

In Cometa, we are building both: Yield Farming which uses local state and LaaS, which will tokenize staked ALGO positions with tokens minted by the LaaS smart contract.

Now, after reading this proposal and interpreting naively, I feel like we are going to miss out. People are not going to use our services without additional incentives because they will not receive governance rewards for it.

To be fair, it is not changing the situation much, many great protocol designs, including LaaS cannot be competitive without additional incentives now and will not going to be after the implementation of this proposal.

So basically, this proposal just kicks the can down the road: DeFi was unable to compete “fairly” against governance, and now DEXes will be able, but not other DeFi projects.

Are there any plans to make this mechanism more general to be more inclusive for all DeFi projects, not just DEXes?

P.S. Honestly, from an economic perspective, it would be better to simply reduce governance incentives. It is just too much. It creates a lot of inflation and forces people to participate in governance just to avoid inflation. I feel like it is probably not going to happen, unfortunately.

TL;DR: it is a welcomed change, but implementation should be fair and inclusive.

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I still do not understand the need to cut the gov rewards to help DEFI.

Let DEFI double dip (get gov rewards AND their LP rewards). Then it would be more rewarding to be a LP and gov, then only one of those. More govs will reduce the rewards naturally, just because LP will now get a share too.

Why is double dipping not enough for DEFI? Why still need to cut the rewards for the ones, only wanting to do gov? Why not cut gov in multiple reward tiers for xgov and normal gov or something instead?

I have read many points and do understand he idea behind helping DEFI out (I myself still think, that their are better solutions, but hell, maybe Im wrong, who knows). But having DEFI double dip and reducing the rewards for everyone else seem greedy and morally problematic in my view.

Maybe someone can enlighten me?

i copied this from a response from me on reddit:

“Assume only 2 passes, then as far I understand it people in LPs would just get normal rewards for their ALGOs. LP tokens consist of like 50% ALGO and 50% sth else, that means they would get Governance rewards for 50% of their LP value, so around 3.5% APR for their LP tokens. Impermanent Loss and the risk of the other asset loosing value against ALGO are def higher than the 3.5% extra APR they would get imo”

But wouldnt they not get 3.5% APR on top of the LP rewards - hence a net + of 3.5% rewards for the risk that should be already profitable without the gov rewards?

Second - if they only hold 50% Algo, they should get only the APR for the Algo, I dont see a problem with that.

The question is, is 3.5% APR + LP Rewards enough to provide LP?

If not - than I do not know, how DEFI wants to survive in the long run, as the foundation cant prob them up forever.

But thank you, for your reply, its better to have more viewpoints, then only ones own.

yeah thats what the foundation understood most people wanted only give rewards for ALGOs committed to Gov and thats why they get “only” the additional 3.5%

the thing is for DEXs with their current AMM model they wont survive in the long run. thats why Uniswap V3 for example was introduced as a more efficient way to use liquidity. Additionally, normally DEXs offer farming in some way where the LP providers get their own Gov token, but thats not implemented by any of the DEXs on Algorand (many say because of the bear market and the problems coming with that when launching a new token) so they rely pretty much on the Aenas rewards for now to help with incentives

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Well, thanks again for clearing stuff up.

I have nothing against having the LPs be part of the gov with their Algo (hence submission b). For the other one, with extra rewards, I dont know. I understand, that there seems to be a problem with the DEFI protocols/platforms, but that would be the job of said platform to fix/repair. Or ask for a development grant or something.

With a grant, at least there is a little control, that the funds will be used for the needed developement, other than with “unsupervised” gov rewards.

I have nothing against grants for dApp developments - more over, I wish for a lot of grants for usefull and good projects, but fixing this with a bonus from the gov does not seem right for me, even so, I do understand the problem better now.