Feedback requested on proposed Q3 2022 Governance Measures

[JonP]

Interesting points.

" You can’t just tell people “You have ALGO so that’s incentive enough”. "

I don’t see why not? Or at least could we try a volunteer governance program and see what happens? We wouldn’t need 100% inclusion, we would just need a group of knowledgeable people who care about the future of the chain. I’d rather have 100 governors who really know what they are talking about than 10,000 who will press any button that gives them rewards no matter what it means.

Silvio’s philosophy for participation nodes was that they would be based on volunteer spirit and that works great, governance could easily work the same way imo.

“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.”

I don’t think this is as complicated as you make you. We’d have a new governance system without rewards where you pay a small fee and verify you are a human to get 1 vote and then take the governance rewards and put them in the Aeneas program, which is already established and accepted.

The real question is whether we’re going down the right road or not, because if not the sooner we turn around the better.

I mean are we really saying that in 10 years there’ll still be a complex governance program with rewards where the foundation is verifying lists of defi apps who get to use the governance tokens and get market distorting extra rewards? Imo that’s not at all the kind of vision I’d like to see long term.

[Burninglight]

You have a volunteer governance program already. What you are proposing is simply removing the rewards, and all I’m saying is you will see dramatic reduction in participation, and potentially a good number of holders who go elsewhere. Rather than run people off, I would rather us try to convince them why the reward is better to use other programs, in addition to giving their voice.

I don’t disagree that I would rather have people who know/care, which is why the xGov system was voted for. I think people forget we are only in the first year of governance, Rome was not built in a day. How xGov is structured can help a lot with this. No offense to Silvio, but just assuming everyone will participate without a desire for incentive is not realistic in real world application, particularly if we are desiring top 10 chain status. Again, people invest in these projects primarily as a vehicle for return, and we need to accept that is how it is, and work within that model.

My comment on starting over is more geared at the point being made that the current system is bad because we are spending all this time discussing rewards. My point is that regardless of the decisions or proposals you are going to end up coming back to the same debates of who gets what, why, and how much. Simply stating this is bad because we are debating it doesn’t hold water for me.

I’d also note, you do pay a small fee for governance when you vote, and then get rewards, so I’m not sure what the difference is in what you are proposing. I will admit the Aeneas program is not something I am familiar with. It may be a great way to incentivize people to use Defi, and if so, again awesome. Let’s get the word out to people, and make it easy for adoption to occur, rather than try to force it by removing participation rewards and upsetting the vast majority of users.

As far as 10 years from now, again, we are in year one and you are going to have growing pains. As issues are hit, people adapt and find solutions for them. I would guess that no, governance will look different, and I would expect it to be. That should be something done through the community however, not by a centralized actor/small group.

Which brings me to my closing point in regards to this topic. At the end of the day, lets be realistic. Let’s assume we went and made this a proposal to the community “We wish to start over, and eliminate governance rewards for X, Y, and Z reasons”. You will not pass this vote, end of story. The large accounts won’t go for it, and the majority of your userbase will not either. Therefore, the only way it is happening is for the foundation to ram it through. If that were to happen, it would go against the very thing Algorand claims to represent with governance being in the hands of the community, and for me at least, would result in the end of my participation with the project. Defi is great, but crypto to me is more about the ability to democratize so much more than finance, and sacrificing that just for a short term gain (and I would argue it wouldn’t even be a gain) does not make sense to me. So unless we are going to seriously propose the Foundation do this, I do not see the point of debating it. If we want to discuss proposing to the community a restructure of rewards (like the proposals currently submitted), I think that is a more useful discussion for the future, and has more likelihood of realization.

[BunsanMuchi]

Informed governance measured by at least understanding the proposals placed is better than popular votes in my opinion. Just looking at this forum (that tracks your engagement time, participation, replies and interactions) is a much better source of serious decision making than filling out a binary questionnaire in my opinion. There’s the question of fairness, of course, and whether or not (as you say) this is pathway even worth going down through. But I agree that having 100 well informed governors (as long as it is clear how this selection process occurs and what qualifications are required, to avoid it becoming a closed club) is better than thousands of individuals just looking for rewards. But it’s definitely a contentious topic.

I’m not sure about Aeneas, just because I believe Aeneas should be more the foundation taking on roles as liquidity providers and less as allocating rewards. Since I believe the former is in the long-term more sustainable than the later.

[Titi]

I just want to remind everyone that it’s just the 4th quarter and not permanent

[Titi]

no free money say participate in the network else the network is dead

[Titi]

to encourage node participation some rewards might be needed. a flat reward regardless of stake @Massimo

[averagezen]

I believe you’re vastly underestimating the comprehension skills of the average Algorand holder. If people want to participate in Defi and vote blindly they can use Folks Finance or others that will follow a similar model of allowing those who choose to abstain to not have their votes negatively impact the overall count. This doesn’t seem like a good reason to exclude community engagement incentives through governance.

[Conscious]

@oysterpack - I know your hearts in the right place, but I think you underestimate the importance of the tens of thousands of average crypto users who have algorand and participate in governance but fall into one or more of these categories…

1. Algo is not the main platform they use, they may spend more time in Cardano, Cosmos, Eth etc.
2. They dont really use any platform, they just have a bunch of blue chips and a few alts, stake them for some basic interest, but dont have the time to live, breathe and build as a community like everyone in this forum post.
3. They are too scared to use defi because of risk
4. They are too scared to use defi because lack of knowledge

There are many folks like this who are not the people buying and selling NFTs, posting on twitter with .algo NFD domains, etc. But they are still a crucial part of the community and they bought Algorand expecting a 6-8% APY for “staking” aka governance. As time goes on, many of them get integrated more into Algorand, and some dont…but they are still people who are investing in Algorand and dont deserve to just have governance and their 6-8% APY promise from governance taken away. Governance is actually a great educational tool for all of these people because this is probably the first time in their life they were ever given a choice, even if the impact was small, in how to run an economic platform and participate in a governance program.

We are still SO EARLY in this space, TVL while not unimportant will look hilarious 8 years from now when governance rewards ends and a single large financial institution bringing their assets onto any blockchain could immediately take-over the #1 spot in TVL by itself.

[Titi]

their passive reward is not taking away it’s just reduced. they should understand that if they aren’t contributing as much as others to growth they shouldn’t get as much

[anon]

While I would prefer to stay on the initial topic of this post, I feel obliged to share my opinion on the following:

@Burninglight

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.

Such thinking is the main reason why crypto in general has not yet flourished the way it could, and why there have been so many scammed “investors”.
The purpose of acquiring cryptocurrencies is to ensure security and unconfiscatability of value as well as its trustless and efficient transacting.
As long as even the people currently involved in crypto do not understand this, there will be no mass adoption and correct regulation of the space. But the space will get there eventually through learning and education.

@Burninglight

If you want participation in governance, you will have to incentivize it.

It is not necessary to explicitly incentivize participation in a direct form of governance. Just look at how elections work in the vast majority of countries. I am not aware of any country where (honest) participation in elections would be directly compensated. The incentives are inherent - one participates to help in deciding what is the best for the the future of the country they are apart of since they have a stake there by living there, having their family and friends there, their ancestors, culture, etc. Same notion applies to Algorand and one’s ALGO stake.

@Burninglight

If that argument was true voter turnout for elections would be 100% every time.

The reason for this is not the lack of (explicit) incentives but the lack of understanding on the importance of voting. Studies on voter turnout have clearly shown that the most important socioeconomic factor affecting voter turnout is education. Same applies to blockchains - both their governance and running of nodes. Most do not understand why this would benefit them personally, while in reality they are harming themselves the most by not doing so.

[averagezen]

Algorand is not national governance. Maybe for some, but not all. That is a very important distinction.

[HolisticNicole]

@krebsmenschen

Furthermore, with a rewards for LPs people will be edged into going a way more risky road, which can result in impermanent lost. Algorand should be neutral about all this!

This. The idea that we are using governance to to bolster the use of defi protocols (independent, private businesses and their products) and also to strongarm people into participating in things they either have no interest in or are just more conservative in their approach with, is both irresponsible and imo bordering on unethical. Where is the accountability if people lose their shirts because they felt pressured to participate in these protocols and something goes wrong? It happens! Give the Defi Protocols a grant to further incentivize from their end, if need be. Using governance rewards to incentivize the use of a private businesses’ product is crazy. Their needs to be a very clear separation between The Foundation/Governance and the products of private businesses.

@krebsmenschen

I would rather see some new ‘real-world’ use cases being in the gov voting, instead of DEFI Gov again and again.

Yes. I am getting very frustrated that literally all we have voted on in governance has been various ways to alter governance. Then, when a measure doesn’t have the outcome that was desired, we just get a slightly altered version of the same thing next quarter. Come on… give us some real substance here. This is an abuse of the entire concept and use case of governance.

@krebsmenschen

Lastly, if I understand it right (never was an LP), the problem of the current DEFI is, that the risk is high and the foundation wants to navigate this risk, by paying for people, to take this on … I dunno, this seems not the right way to do it (in my opinion). Better let DEFI figure out, how to reduce the risk itself, or give grants to fix the problem?

I 100% agree. This is a problem for protocols to figure out, not one for governors/the foundation to solve for them.

[HolisticNicole]

@JonP

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.

This is really the heart of this issue. We are taking 2 separate issues and lumping them into some kind of convoluted dumpster fire. Tackle the 2 issues separately.

[HolisticNicole]

I 100% agree with every last word of this. Thank you!

[Odnarb]

A few back of the napkin math checks here. This is very rough, but for context of what scale the proposed impact could have:

Current Governance Period Algos locked: 3.8 billion

Current governance reward rate 7.41%
This gives us 281,580,000 Algo rewards per year to distribute.

New proposal is for 10% of governance rewards to go to some LP pools, which would be 28,158,000 Algo total.

New proposal also says that 90% of governance continues to go to existing governor model, which would be 253,422,000 Algo total.

Using DEFLY and Vestige stats for this part, currently they indicate that if we combine the TVL for the top 20 non-stable ASAs paired with Algo aggregated across all DEXes they are at just 22.296 million Algo TVL. Half of that is the ASAs and half is Algo, so around 11.148 million Algo locked in that LP subsection.

Think about that for a minute - The new rewards system the LP would give out over twice as much Algo as what is currently locked in the top 20 ASA LP’s aggregated from all the major DEX’s. If started today governance rewards for LP’s would be 100% APR agains the LP pair.

Now LP risk is added risk compared to existing governance, but that APY will bring more liquidity into the pools no doubt. A LOT more. That APR will of course go down as people move liquidity into the LPs, but even if it were to level out around 50%, that would mean TVL in the LP ecosystem would have doubled. This would be a HUGE win.

The main problem I have with this proposal is that it’s currently stated as “should we allocate 10% governance rewards to LP or should we do nothing”. It should be stated more like “do we allocate 10% governance rewards to LP or do we allocate 20%”. Even if option 2 has slightly different criteria, don’t give us another do nothing option - have the community make a decision about moving forward either way.

[Domenico]

Why not just have different options for staking. Lets say the rewards will be 10% this year:

2.5% for the simple wallet staking that brought many people to Algorand
2.5% for node runners
2.5% Aeneas rewards/ DEFI
2.5% for governance.

The more you engage with the Algorand ecosystem the more you earn.

Pretty simple.

Governance should focus on other things instead of being so fixated on DEFI/TVL

And maybe allow the actual governors (maybe the xgovs) to make proposals not just the foundation. Put out the proposals and let the people vote on them. The top voted proposal will be the one implemented.

[Massimo]

Thanks @holistic.

As @bunsanmachi says, there is a foundation’s role with Defi on providing liquidity and resources to platforms, and one about providing rewards to users that can fit governance as well.

Some considerations leading to these proposals:

• We did want Defi to be in governance, since they bring an important perspective, different from smaller players, and also very different from whales.

• They had difficulty to participate at times for technical reasons, see measure 2 for DEX, and because of compounding DeFi risk with longer term commitment without additional incentive, see measure 1.

[Massimo]

Thanks @Domenico

This is in line with what the Foundation is thinking for the next quarters: incentivize different option to use Algo stake to support the ecosystem. With a difference: all those who provide continued service and support, should be given the right to vote.

Total agreement on community proposals.

[Titi]

no , the lps need to be included because they’re participating in the network yet have no representation. it’s fair. the lps aren’t getting extra rewards that measure one instead

[RAIFF]

Most people participate in DeFi to chase yield, this is especially the case for ALGO holders where ALGO have depreciated 60% against ETH since the start of this Governance period alone. What we need is new user and new money in the ecosystem and not just life support from the Foundation.

To encourage new users, the reward needs to be targeted and placed on key products and not just splashed in the overall DeFi space. $7m is not a large amount but also in the DeFi space it is also not a huge amount. For example, if the Foundation is after interoperability and to encourage users from other chains to join, they must allocate more resources to targeted conversion from say BTC/ETH/USD/SOL via deep liquidity pools in the DeFi space.

The suggested non-target approach, much like the Algorand all over the place “marketing” sponsoring anything from sail boats to motor racing to women soccer have yielded little to no adoption in the past and should be avoided. Incentive schemes to say the Foundation will incentivize DeFi is far too vague and will end up like all other initiatives yielding little to no adoption.

My question to the Foundation is whether the Foundation have KPI or deliverables it is looking to achieve and is there a review process on whether they achieve this result after taking money from the Governance pool? Much like the “marketing” if it costs a few thousand dollars to onboard a single new user perhaps the Foundation needs to rethink its strategy.

The more “free money” the Foundation is giving away, the more it depresses the price and the less return for potential participants that is looking to join. Everyone who used ALGO tend not to leave the ecosystem because of its user friendliness but the underlying problem is to attract users. It is not a good sign if a potential user sees consecutive quarters of double digit losses which will seriously hinder their appetite to even join the space no matter how much you allocate to DeFi rewards.