I like your idea, that will bring more engagement to the blockchain. I know Silvio is against incentives for running nodes but a small percentage could help with making Algorand more decentralized. Governance shouldn’t be the only way to stake on Algorand.
People should have options for staking, everyone isnt all for governance. Some rather just be involved in defi and some rather run a node. That way you may have more serious involvement in governance.
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Ideally, this would just be “icing on the cake” if you were taking the extra step to run a node and using a protocol that supported using your algo in consensus. These were just rough numbers off the top of the head, impact would have to be analyzed but I see this as a way to get people interested in every aspect of the Algorand ecosystem, not just Defi.
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I agree with you 100%
That might be true as long as the incentivies structure doesn’t force existing users to choose - which M1 would exactly do.
Let me give as an example my personal considerations.
Currently, my Governance stake is split 75:25 between vanilla Governance and DeFi solutions. On the level of Governance rewards, both earn the exact same APR. My vanilla Governance stake is participating in consensus fully. The DeFi not since I’ve split 50:50 between Algofi and Folks Finance to mitigate the risks of a smart contract hack (and to support both protocols). Only the former is participating in consensus. Hence, already now, only 87.5% of my stake is participating in consensus. If I were incentivized to participate in Governance through DeFi more than through the vanilla option, I’d move more capital to DeFi, where I’d again split the stake between platforms, mitigating the risks. Depending on the APR and resulting risk/reward ratio, I’d consider changing Governance allocation up to 50:50, which would result in a decrease of 12.5% in my stake still participating in consensus. Those are of course just my personal thoughts, but such a decrease in security is unacceptable.
Hence, I’d expect either an exhaustive simulation of possible influences on the security or to consider in such a program only DeFi solutions that allow participation in consensus in order to prevent endangering the security at all.
That post doesn’t address any of my other concerns.
If these are considered incomprehensible, I’d gladly elaborate on each of them.
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I agree that we definitely disagree. We want strong ALGO holders that are active, participate, and create value in the ecosystem. If you are here to collect on Governance ALGO free money, then you prove my point that Governance rewards were a crucial mistake.
Free money is always a huge mistake. People need to earn money by producing and trading value for value. Your ALGO stake is your stake in the Algorand ecosystem and your incentive to participate in Governance - period.
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Wasting time debating about rewards is the very reason we should get rid of Governance rewards. It is holding us back. We should be focusing on building xGov and ecosystem growth initiatives, but instead, we have been debating and voting on Governance rewards from the very first vote (the debate on slashing was also a waste of time).
Rewards are incentivizing folks to participate in Governance because of the rewards. That is the wrong incentive. Your ALGO stake in the Algorand ecosystem is your incentive to participate in Governance - period. Please take a step back and give this more thought. Think about the amount of time, energy, and resources that are being wasted debating Governance rewards by thousands of people. Let’s reallocate those wasted Governance rewards and human resources to real productive work that creates true value for the Algorand ecosystem.
I would love to hear Silvio Micali chime in with his thoughts.
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I don’t see this discussion as a waste of time. Our community is growing and people deserve a chance to have their say. This is obviously a complex issue that resonates differently from person to person. What is clear to me is that this is something people are very opinionated about. A portion of our community does feel that Governance rewards are the wrong approach, but I feel it would be a significant setback to our community to reverse course at this stage. An effective system can be built out of what we have currently, with some adjustments. To tear it all down and start again would be the waste of time.
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Rewards are not for voting. They are to incentivize behaviours that prove a sufficient engagement in the ecosystem, and skin in the game in the algo market, to be a governor. Staking is the most basic of this behaviours, it’s not good to have governors that bought 1M algo today to vote and will dump it tomorrow, so it can make sense to have staking and remunerate it. But when there are more active forms of engagement, it can make sense to remunerate them more, and reduce those of the others.
This is an interesting point.
Firstly I’d suggest then adding a button to each vote so people can choose “I don’t care about this question just give me rewards” as their answer as I think at the moment a lot of people are submitting answers they don’t believe in for rewards.
Secondly I think if what you want to incentivise people to stake and lend on DeFi then just incentivise that. We don’t need to create a complex and permanent governance system that includes that feature, just have two separate programs.
No one though that people would run nodes for free but actually it works and creates a real community spirit. Imo volunteer governance would do the same thing.
Are we really committing to building on this such that in 10 years time we’re still offering high returns for governance even when the chain is fully built out with lots of opportunities elsewhere with a powerful centralised authority distorting the market by choosing which DeFi applications get an artificial boost from governance?
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I constantly hear folks asking for rewards for running participation nodes, without truly understanding Silvio’s rationale and PPoS core principles. We need Silvio to periodically remind folks and tame their obsession with rewards for participation node runners.
The bottom line is that the network will be incentivized by the major stakeholders that are incentivized to run nodes because it is in their best interests to do so. The major stakeholders are the businesses, projects, and organizations that depend on the Algorand blockchain to run their apps, transact, and support their business and livelihood. Running a participation node is like any other operating expense - no different than running any other type of node in the cloud. That creates the proper incentives and honest supply/demand. It will create node hosting service companies that are incentivized to provide a service to fulfill a demand. Running nodes for the sake of collecting rewards misaligns incentives and opens the door to rewards exploitation.
Relay nodes are a completely different arrangement and decoupled from consensus and network security. Relay node runners provide a required and valuable service (performance and scalability) to the Algorand network as a whole. Thus, the Algorand network must pay and incentivize relay node runners that provide that service per an SLA. To be long-term sustainable, this must be funded from Algorand transaction fees.
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It’s better to admit mistakes, fail fast, and learn from the experience … only then can we truly move forward productively and focus on the core mission, which is Algorand ecosystem growth … not Governance rewards
Everything about running a node costs resources of some kind that are not as easily swapped out as the Algorand you just bought on Coinbase. “Incentivized by the major stakeholders” is the problem here. One of the major complaints I hear about Algorand is it’s lack of decentralization. This affects adoption, real or imagined. More relay nodes and participation nodes running in the hands of dedicated Algorand community members should lead to higher adoption numbers in addition to continued onboarding efforts.
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Your heart seems to be in the right place, but it sounds like you just want to tear things down with no real plan for how to rebuild.
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I disagree, people are investing their money in a volatile asset, so there should be an incentive. And if some people want the free money, so what. Everyone isnt tech savvy nor into governance.
If people are simply investing Algorand for future profits theres nothing wrong with that. Staking is pretty much like earning a dividend in stocks. (Free money.)
Algorand should have kept the old staking system and added governance as additional staking. The people not really into governance might have stayed out of it and just simply staked to earn rewards.
If institutional adoption comes along,
their customers will want to invest in crypto but not have to go through all these hurdles to gain interest on their investment. They rather leave that up to the institution. And im sure the institutions will stake to give their customers free money.
Defi and governance should be just parts of the system not the main parts. If Algorand keeps getting real world use cases, the system wont have to rely on just governance and defi to grow.
Algorand is like a country, and defi is just part of the financial sector. There are plenty of other sectors to tap into to help grow Algorand’s “economy”.
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I’ve thought about it a bit more the current proposals would only work as “patches” for the current DeFi ecosystem that we have, and won’t actually serve the long-term vision of creating a DeFi ecosystem that would attract new users into it.
There’s a few things that we have to keep in mind, DeFi is still in its infancy, not only on Algorand, but in general. The golden standard of ecosystems (Ethereum) has less than 5 million addresses that have EVER interacted with a DeFi protocol (including lending, trading, and minting of stable-coins Dune), are we really going to fight for that pie?
My second problem is that the proposals pre-assume (by acting on LP-tokens and one format of DEXes) a certain way of doing things. This will only encourage development of LP-token emitting models. Are we sure this is the best model out there and is it really one that we want to encourage?
In my opinion, the answer to both questions is no, we shouldn’t fight for current-DeFi users, since as it stands we’re yet to see something more than simple speculation come out of the space (and this is coming from someone that’s dedicating himself to the development of it). We shouldn’t encourage one type of model, specially early on and specially considering that what we have as a space is a completely different tech-stack than that of other spaces. I hate reiterating my point on my first reply, but rewarding current DeFi users is probably worthless and not cost effective. If what we want is to attract more adoption then there are other things that we could support that would help us, even providing the 7M fund as pure liquidity managed by governance is a better utility than rewards to the individual user. The person holding algos today probably believes in the project, and APR chasing behaviour isn’t something that we should use to make the space artificially more attractive.
The moment we start developing applications that have utility beyond pure speculation adoption will come, and our current idea of DeFi still hasn’t delivered on that. Even if we tried to do it on Algorand, we won’t be able to until we have a better development environment (on-chain oracles, lower auditing costs, more developers on the space and more developed codebases). In essence the DeFi space of Algorand is very much still building itself out, and doing measures like these might give uncompetitive advantages to what are still imo mvp’s not fully realised protocols. We are at such an early stage that any DeFi strategy should be planning 5 years into the future, not looking for adoption now.
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Happy to see that there is technical implementation details shared for discussion!
Regarding the new measures, I have several concerns:
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The Foundation is already incentivising defi participation with the Aeneas rewards program, why do we need to allocate additional rewards from the governance program to incentivise defi? Why not just reduce the rewards amount of governance program and increase & extend the rewards of Aeneas?
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The proposal focused on LP tokens but as things stand, account local storage instead of LP tokens is being used for some defi use cases (for example Algofi v1 creates a proxy account for each user that opted into their smart contract and uses the proxy account’s local storage to track lending & borrowing balances). Focusing on LP tokens would miss out a portion of meaningful defi liquidity, esp considering that Algofi has a ~40% defi liquidity dominance on Algorand according to DefiLlama.
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DeFi activities include a variety of actions on top of basic liquidity provision, for example some users might deposit their LP tokens into farming pools on DEXs, and therefore the LP tokens will be in an escrow smart contract and their address will not hold the LP tokens. This does not mean that they contribute less to defi than users who didn’t participate in farming, but under the proposed mechanism, these meaningful liquidity and actions will be excluded from governance. How does the Foundation plan to address this? Or do users need to choose between farming and governance?
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Participation rewards was the incentive program to attract initial investors. That program served its purpose and was retired. Now it’s time to focus on Algorand ecosystem growth. DeFi is at the heart of it all, and we haven’t even scratched the surface. A global economy relies on finance to function properly and prosper. DeFi is the game changer that takes finance to the next level and thus the global economy to the next level.
As the old saying goes … there’s no free lunch. Governance rewards are not dividends or free money. That is a naive way to think about it. Governance rewards have a real cost. Well-run companies maximize shareholder value not by maximizing dividends but by reinvesting cash into the business to maximize profits, growth, overall ROI, and overall shareholder value. Dividends should only be paid out when the company can’t find a better way to re-invest that cash that would generate greater long-term shareholder value.
Algorand is not a corporation and ALGO holders are not shareholders in Algorand. ALGO holders are not entitled to any share of the transaction fees or distributed ALGO. ALGO is the native cryptocurrency of the Algorand blockchain - in the same way that the USD is the national currency for the U.S. Owning USD does not entitle me to a share of the Federal tax revenue. Converting my USD to Canadian Dollars doesn’t mean I own a piece of Canada.
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You raise good points. I too, after giving it more thought, concluded that the best course of action is to have no Governance rewards. Instead, the remaining ~3B ALGO should be strictly distributed to fund Algrorand ecosystem growth.
Liquidity is the lifeblood of DeFi. Thus, I propose reallocating the ALGO funds to the Aeneas liquidity program.
Except it isn’t free money. You are required to lock up for 3 months, and required to participate in votes. The rewards are consideration given for that. I agree that we want active holders. Again if you want to have an argument about the amount given that’s fine, but this whole tear down thing you’re running with honestly confuses me, and makes me wonder what your incentives are for it.
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I’m not sure that I agree with analogizing Algorand with a sovereign nation, as they are completely different institutions with very different goals. You say that Algorand is not a corporation, but it is more closely related to one than a nation. No one (or at least very few) is buying Algorand for a reason other than a desire to create ROI, like investing in a business. ROI can come from market value gains on ALGO, rewards, staking, etc and your desire for ROI, and the amount of it, will dictate the programs you work with. Those who want the maximum will use Defi, while those who are risk adverse will not as much. If you force people to only use Defi for rewards you’re going to tank your overall ownership.
As has been noted, defi is very young, and you just are not going to get a majority of the user base to go into it right now. New technology often follows an adoption model where a small percentage tries it first, and adoption grows as the kinks are worked out. Again, if we want to incentivize defi use by rewarding programs I think that’s great, we should have a vote about it, but trying to force it by telling people no governance rewards will not work.
I also don’t understand why you say governance rewards are not dividends, but then go into discussion about companies paying dividends or not. If we want to argue they are (and I would agree they can be compared to a dividend) allocating these to your user base for use seems like a way to provide users overall the ability to make their own decisions on the best use of that capital, rather than a centralized figure deciding it. This is often one of the main arguments for why companies pay dividends, and why whole investment strategies are based on finding companies with track records of dividend growth.
I agree there is no free lunch. If you want participation in governance, you will have to incentivize it. Basic economics and finance tells us this is true. You can’t just tell people “You have ALGO so that’s incentive enough”. If that argument was true voter turnout for elections would be 100% every time, You seem to feel as though we can’t have both ecosystem growth and governance rewards but that just is not true, even while governance has gone on the ecosystem has seen plenty of growth, even in the midst of a large downturn.
Lastly, you claim we’re wasting all this time talking about the rewards, but the only reason this is occurring is because you’re telling us we should all just burn this to the ground and start over. Honestly, other than the few dozen people here, most of the other thousands of ALGO owners aren’t “wasting” time on it. Most have accepted the current system, and are more curious about how to improve it rather than blow it up. Even if we did start over, we’re going to end up spending just as much time discussing who should get what and why.
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Wow, i didnt even have to reply. I agree 100%
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