i take this back. this might incentivize delegated pos. people would start pooling rewards. HARD NO. NO REWARDS flat or not
1 Like
I didnt read all the coments i will read someâŚbut il give my two cents me no expertâŚhow about putting a cap on the amount one wallet can commit to governance sort of forcing defi for all extra algos one might holdâŚthat will also releave the concentration of voting power could be worked into a tier system after so many times of comiting you are alowed a bit more from there on if you mis you start over at the cap⌠but that still leaves the problem of mutiple wallets sure some one smarter can figure out a fix for thatâŚi like the rewards but i feel is too much especially at higher pricesâŚ
I agree with every made point.
Focus on more dapps with interesting (maybe even unique) use-cases enhanced by crypto should be the priority. Every chain now has defi. If Alogrands defi will give better returns, it will most likely not (or only % chaser, that will leave the ecostystem as soon, as the funds dry up) result in more adoption of Algorand.
Encapsulate the Chain with the rising IoT market, or as payment methods on ârealâ shops. Use funds to create âgoodâ Art (well, obv. art is subjective, but I think, many agree that the current NFT Art seems kind of âoddâ). Maybe invest and create into movies/series and distribute them on mutiple platform while selling them as NFTs - like you could be able to trade and sell bought movies on Amazon or stuff like that. The same goes for books, audio-books, pictures, songs etcâŚ
The point of NFTs is owning and selling digital goods, so start implementing them as such and people will most likely start to favour them over buying digital goods on platforms not allowing reselling/trading. And the artist/initial seller will profit from it by getting a small reselling fee (maybe for a set period until art becomes public good or smt. like that).
I see so much potential in all of this, but now I have to again rant against some defi stufff 
4 Likes
Some made the following point I do not agree with:
âGov and holding Algo should not be rewarded but be an voluntary actionâ
Buying and Holding Algo (or any Crypto) is like buying shares with use-cases (in some cases even no use-cases at all). Its investing into an ecosystem you can use with your invested tokens. The value of your investment can grow with the value of the ecosystem (more people want to use it) and with the share part.
If we do not give payment back to the investors, it would be, like buying all sport tickets and reselling them to the fans, if they are willing to pay more). If you take the function away, the tokens would just be shares and not different than actual shares of companies. Therefore, crypto should have both, as this is, what makes it an attractive investement in the first place. If some platform will take one away, I think, it will just shoot itself in the foot.
Second, the point of shares and democraticed ownership is, to get a small part of the earnings of the ecosystem. If Silvio was against this, I think, he is wrong. It is a good thing, that investors get a SHARE of the earnings as they first of, took on risk and second, the earnings would be further distributed (democratized). Everyone can enter and be part of this ecosystem, without the barriers of the old share-markets and so on. One of the core ideas of crypto.
I liked Algo initially because of the staking in the wallet (which was just some initial payment to join). I thought, that this would phase out into a fee-payed share for every holder - but I was wrong, and it got hooked onto the gov. Which I stand neutral on, as both seem to have its pro and cons, but I kinda like the engagement in gov, it will result in - maybe only in the need to read some small proposal. The former system would most likely get more new users though.
Well, now I like Algo because of the tech and I played around with the dev tools, which are incredible easy to use, other then other chains (which will sadly result in many bad tinkered dapps I believe).
Taking away the share of the earnings of the ecosystem would be (in my opinion) the worst move of Algorand it could make and most likely kill it off (I would leave lol).
The discussion should be made, how the earnings should be shared. I see the need, to give entities, that give more to the ecosystem a greater part of the share as others (like node providers should get a bigger share, than people only hodling and X-Govs should get more than nomal Govs). Honestly, this is not hard to figure out, but should be fine tuned.
I see DEFI not as a core feature of the chain (Algorand). Therefore the share of the ecosystem earnings (or the placeholder funds, until the fees are enough) should not be used on it. Many have already explained in great detail, why DEFI should stand and develop on its own feets. Maybe give development grants to further the development in the grants programs or smt.).
Lastly, please give us more to vote on, than to questions - or more sessions. And include new grant proposals for interesting applications (and force updates for grant receivers, as I see problems in people getting grants and doing nothing at all, except buying a lambo ofc.).
The last point is a little of topic, but still âŚ
1 Like
The problem is that Algorand DeFi liquidity is too low. High liquidity is required to grow DeFi economic activity. Here are some concrete numbers to illustrate the problem. Liquidity is too low to make big trades on DEXes because the price impact would be too high leading to high price instability. Here are the price impacts using a DEX aggregator for purchasing ALGO using USDC
- $10K USDC purchase â 0.61% price impact
- $20K USDC purchase â 0.81% price impact
- $50K USDC purchase â 1.49% price impact
- $100K USDC purchase â 2.64% price impact
If I want to make a big purchase, I use Coinbase, which means the DEX LP loses the transaction fee revenue because liquidity was too low.
Liquidity growth is required for trade activity growth. The problem we face today is that liquidity is too low, which means trade volume is too low to generate enough fees to compensate for the impermanent risk taken on liquidity providers. Thus we need to aggressively incentivize liquidity providers and over time this will grow trade volume, at which point the revenue model is self-sustaining. It gets even better than that. Once trading volume reaches a sustainable level, then the free market is able to compete on trading fees. I expect trading fees to come down over the long term as liquidity and trading volume rise. Itâs a win-win-win.
No one is being âforcedâ - that get pulled in by the emotional trigger word. This proposal is designed to incentivize liquidity providers to bring their capital over to Algorand. The proposals ensure that your ALGO used to provide DeFi liquidity will retain their voting rights.
Liquidity is probably low, because one, we are still in a bear market and there is still a lot of uncertainty. The markets hate uncertainty.
Another reason, is too many hacks going on in the crypto space.
So, that pushes some people away from getting into defi, rewards mean nothing if you lose them and your initial investment to a hack.
Assurance and insurance are key for a growing defi space.
Another thing is, Algorand ecosystem is growing quite well in comparison to last year around this time.
Once thereâs certainty in the markets and assurance (would love more insurance in the space as well) that we want be susceptible to hacks in defi (or not often like now), people will task on the risk. (The risk of taking a loss in price, not a loss to a hack.) Hopefully the Algorand state proofs ease some of the uneasiness of using bridges.
Just because we are early in the space, that doesnt mean we should just accept all the risk that comes with defi. Lower some of the risk issues and more people would get involved.
I still think Algorand Foundation should go public. They have a lot of people from the traditional financial space so they shouldnt have a problem getting underwriters to get a good valuation.
All the traditional folks curious about crypto but afraid to go deep into the space could just buy the stock. Guarantee you see a lot of interest from financial institutions in Algorand or any blockchain with potential.
The foundation could acquire companies for monetizing and fund the blockchain without selling ALGO coins.
I donât know but I guess I am in this all by myself since most people here seems to be excited about these proposals, my feelings on this is why should the foundation even be concerned about how Defi is operating.
My take on this is that Defi on Algorand or any blockchain is in fact an independent entity established by their developers, they might have even got a grant from the foundation at inception, so why should they continue to be incentivized by the foundation.
I feel that they should have known what they were getting into and should have had a plan for their own success.
Although I think that governance needs some overhauling, maybe at least a hard lock instead of a soft lock and interest paid determined by the duration of the locking period, this will give the foundation additional funds at their disposal while Algorand grows.
Some good use of those funds would be to use to improve the network by subsidizing the necessary hardware for additional participation nodes, or as the foundation see fit.
1 Like
Governance rewards should be reallocated to stimulate Algorand ecosystem growth now, i.e. ASAP.
Facts
Liquidity is the lifeblood of DeFi (and finance in general)
Liquidity providers are essential for DeFi
DeFi scale and growth are dependent on liquidity scale and growth
High liquidity is required to support big transactions and high transaction volume to generate enough fee revenue to compensate for LP risk and generate a profit.
High liquidity is required for the Algorand ecosystem as a whole to thrive and grow. Revenue that is generated from DeFi will flow back into the Algorand ecosystem, i.e., into NFTs, into projects, and into more growth.
Problem Statement
We have a chicken and egg problem. DeFi does not generate enough revenue from fees to compensate for LP risk and generate a profit high enough to incentivize liquidity growth. The problem is that crypto traders need sufficient liquidity to transact. Otherwise, they take their business elsewhere (to other DeFi ecosystems or to centralized exchanges). Eventually, if the DeFi ecosystem fails to grow, then the liquidity providers will also take their capital elsewhere, and literally drain the lifeblood out of the Algorand DeFi ecosystem. Without sufficient liquidity lifeblood, the Algorand DeFi ecosystem will die.
Proposed Solution
Eliminate Governance rewards and reallocate the ALGO capital to aggressively incentivize liquidity providers, which will attract the trading capital, which will grow the trading volume and DeFi activity to generate fee revenue that sustains and grows a thriving Algorand ecosystem.
1 Like
@oysterpack Yea I have to completely disagree with this. TVL is not as big of a problem as people make it out to be, I think there is just an overwhelming feeling that we should already be like ETH, which I understand but isnât realistic. Youâre making the assumption that incentivizing liquidity providers is going to drastically increase TVL rather than just shift the rewards to the people currently providing liquidity. Besides being against it regardless, shifting rewards to Liquidity Providers is not going to all of a sudden open some flood gates with tens of millions in liquidity flowing in. Governance rewards are a great onboarding mechanism to teach new users how decentralized finance can work, and we need to stop chasing TVL by any means necessary. It will grow organically as Algorand grows and it will massively increase during the next bull runâŚwe need some patience though.
2 Likes
Letâs forget about the TVL metric at the moment, and simply focus on liquidity. Without sufficient liquidity, DeFi dies. DeFi liquidity will then flee from Algorand and take their capital elsewhere, which means exiting out of ALGO. Is that what you really want? Do you really think the VCs, institutions, and big investors deploy capital into Algorand out of the goodness of their hearts and take one for the team of Algorand? They have legal fiduciary responsibilities to perform and maximize profit. Investors seek to maximize risk/reward - period. Currently, without strong LP incentives, the risk is not worth the reward. To say that Algorand DeFi can succeed by growing organically is another way of saying there is no plan or strategy. That is naive and hopeful in an extremely competitive landscape, especially when Algorand is far behind the competition in the DeFi space. Letâs be clear, this is survival of the fittest. Only the strongest will survive and thrive. We need the VCs, big investors, and institutions on our side. Retail and the markets follow the smart money. Smart money will always go where there is the best risk/reward profile to maximize long-term profits. Smart money plays not just to win, but to win big. Algorand is lagging behind and we need to put the pedal to the medal. Letâs be strategic, aggressive, and play to win big. Time is of the essence. We need the smart money on our side to win big. Having the best technology is meaningless and worthless if nobody is using it. We need to drive up liquidity to drive up usage and transaction size and volume.
I think the big problem is that some folks are mixing in politics and FUD, which triggers emotions, causes confusion, creates conflicts, and derails the entire discussion. If you ignore the politics and FUD, then the choice is simple and clear. At the same time, if you see folks mixing in politics and FUD, call it out because we need to nip it in the bud.
TVL is currently growing and liquidity has improved substantially this year without governance rewards being given away to liquidity providers and taken from governorsâŚso why do we all of a sudden need to do this? Aeneas program has already incentivized liquidity and continues to do so.
3 Likes
@Massimo states it plainly
I agree with the goal. @Massimoâs proposal is a step in the right direction, but I think we need to be even more aggressive. In a nutshell, the passive Governance risk/reward is out of balance with DeFi risk/reward. DeFi carries much greater risk. In addition, liquidity providers face impermanent loss risk and opportunity costs. Thus, liquidity providers require much higher incentives to help prime and grow DeFi liquidity. Algorand does not live in a vacuum. Algorand must compete with the entire DeFi space. Letâs compete to win and get Algorand to the top.
Love this.
I will be voting YES.
No longer will I have to pull out my liquidity to participate in Governance.
2 Likes
Yes, I agree with @MassimoâŚwhat I didnât agree with is completely ending governance rewards and giving it all to DeFiâŚallocating 25% to DeFi or so would be good. I even said this way back in the beginning of the discussions.
1 Like
I think thereâs a serious miss-representation/understanding of where the Algorand DeFi space is at the moment. Reading your write-up itâs almost as if the Algorand DeFi space is dying and thereâs nothing being developed/deployed in here. Almost as if the long-term vision of the chain is at peril, when honestly nothing could be further from the truth. Bear-market aside, by almost all KPIs weâre up, we have more choice, more tools, more players, less points of failure, more contracts, more developers and believe it or not more users. Thereâs no chain with a successful long-term DeFi space (longer than two years) that has paid its way into that success. The closest that we have for a success on the space that was âpaid forâ would be something like Polygon, with its often touted 37k dApps metric that I have serious doubts about (mainly because itâs an EVM-chain that has created a lot of derivative work, which I feel makes up the bulk of the 37k), and even they did it with development funds, prizes on hack-athons and by having a system (EVM) that already had a large codebase behind it. Not by giving inflated rewards to users, and all the models that have done that, have dead-spiralled into dead-chains/protocols, with the poster child being LUNA.
We are not on the same level-playing field, because unlike other EVM-based chains, we took the hard (but in my opinion right) decision of not following an EVM model. This means that our DeFi space had to be built from scratch, bringing with it a lot of the problems that that entails (low number of developers, few codebases, subpar devtooling etcâŚ) and placing us at a point where weâre still solving engineering challenges as opposed to novel challenges. Weâre still trying to see âhow can we build x protocol on an EVM chain, but on the AVM?â and not âhow can we build x thing?â and this is ok, since weâre still so new to it, but it does mean weâre still to see just what the AVM is capable of. For reference sake most of the ideas we have on our creative board (Vestige) canât be executed without some compromise because weâre still missing some lego pieces. So pumping our DeFi space right now is (imo) a foolâs errand, are we really going to place extra incentives on an ecosystem without any mainnet oracle solution? There are less than 10 ASAs (even with ASA/ASA liquidity taken into account) that hit more than 1M Algoâs in TVL, with aggressive rewards programs, hitting APRs well above governance EVEN without Aeneas. Are we really going to place even more capital unto these? I think itâs clear to me that it isnât an incentives problem, its a demand one, because weâre still early on this. I know perspective can be lost when weâre so involved with a project, as most of us writing on this forum are, but letâs not forget that weâve had a DeFi space for less than a year, that got hit by a hack early on, and then by a bear-market. Weâve not had the possibility for decentralised composability until 4 months ago and EVEN wonât be fully realised until 2 weeks from now with the roll-out of TEAL 7. So weâre still early.
As for the liquidity problem, high liquidity isnât the end all be all solution, better alternatives are. AMMs, specially the CFF kind, are extremely liquidity inefficient, but theyâre gas efficient, and theyâre built for chains where the big constraint is gas, something that we donât have. So better models do exist that could achieve more efficient capital allocation without requiring exorbitant levels of capital tied in to an LP. But these models require few key components to work, at either a protocol level (the ability to compose together larger transactions), or as a service layer thatâs still not here (I know Iâm repeating myself, but oracles, good DeFi canât exist without oracles, and all current solutions are worryingly centralised). Not only this, but DeFi protocols should make the case for your capital by the solutions they put forth, not by being subsidised at a rewards level. All of this without even touching on the elephant in the room w/r to DeFi which is use-case, the moment there is serious demand for a DeFi product thatâs fuelled by something else other than speculation then weâll have exponential growth, not before. And developing those solutions with our current tech-stack seems to me close to impossible. Iâm sorry, but attracting capital to Uniswap clones through artificial incentives is not a long-term strategy nor is it a solution for the DeFi âproblemâ (which I donât even think is a problem, things are churning along, development is occurring and new tools and protocols are hitting MainNet at a good pace, these things take time).
So letâs not be alarmists and loose perspective, itâs a marathon not a sprint, and weâre not a point where we need a second wind on the user-side of things. There is still a lot to be built, our focus should still be on attracting builders more-so than users.
8 Likes
Cool - then we are on the same page about the problem. I think the overall community is on the same page as well. Thus, the community discussion should focus on the solution design and implementation.
1 Like
You make a lot of good points, but they are too academic. The bottom line is the bottom line ⌠and the bottom line is that liquidity is too low and Algorand DeFi activity is pathetic. Forget about TVL. Has Algorand DeFi moved the needle for TPS? The answer is no.
Higher liquidity will bring in more users, create more demand, create more transaction activity, bring in more builders, bring in more capital, and create more wealth. DeFi incentives are not long-term sustainable but are required in the short term to stimulate growth. In addition, the current Governance risk/reward compounds the problem by incentivizing passive ALGO holders. Yes, there are some Governance DeFi solutions, but none address the core liquidity problem and focus more on TVL. Fundamentally, liquidity is required to enable and spur economic and financial activity.
Algorand does not live in a vacuum. Competition is fierce and must not be ignored. Algorand has the best tech but was lackadaisical on marketing. Having the best tech is not enough. Why do you think there has been a shakeup in Algorand leadership? Thank goodness for Staci Warden because she is a go-getter with a strategy that plays to win. We need aggressive marketing. We need high DeFi incentives. We need it all and we need it now (actually we needed it yesterday). The bottom line is âshow me the moneyâ.
I agree that âitâs a marathon, not a sprintâ, but both are a race against fierce competitors. It doesnât mean we run our own pace and ignore the competition. Letâs run the marathon with the goal to win the race. We need to pick up our pace to win the race. If we fall too far behind before we pick up our pace, then it will be too late. People remember the winners and the losers are forgotten. Letâs play to win.
1 Like
By what metric are you calling it pathetic? What would a non-pathetic DeFi scene look like? The TPS needle is currently mostly supported by Planets and DeFi. If weâre going for TPS, we can spin up a bot that trades amongst itself ad-infinitum and bolster our metrics that way, or we could very well post useless transactions to the network and get that figure up, serving no purpose whatsoever. We could even do it a decentralised way, each one of us donates an algo a day to puff up our metrics. Would that make Algorand more attractive?
Even if we went with the proposal and we start distributing rewards we wonât see an increase, at all, on TPS, because most LP provision occurs once for a semi-long period of time. High frequency LP provision as a strategy is not a thing, and in fact most of the trading that occurs tends to happen due to a lack of solutions for liquidity fragmentation, which come from a lack of tools to solve for that. As we get those tools, those systems will come online, most arbitrageurs will go offline since they wonât be as profitable, and some of the shortcomings of AMMs are addressed. But we canât do that with the current tech-stack (case and point look at the complaints Defly and Alammex have had w/r to their comboswaps/aggregators).
Also, that slippery slope reasoning on how rewards will lead to virtuous cycle of a never ending line going up is rather dangerous. If we donât have a product that drifts away from pure speculation and focuses on real solutions that DeFi can address then this whole experiment is for nought, and no amount of rewards, or faux yield will ever solve that, neither for Algorand or for crypto in general. Focusing on TVL/liquidity is a waste of time when talking about cryptoâs goal, itâs a fake metric that isnât associated with real world usage
I also disagree that weâre competing amongst the rest of the crypto-pie. At its peak weâre looking at an addressable market of 300 million (which is STILL extremely optimistic), of which most have never left a custodial service, let alone dealt with DeFi. Of these, most fall under the category of individuals that donât need crypto (because they have access to a âgood enoughâ financial system), so are we really going to go after that market? The âmoneyâ isnât there, the money is on competing and beating real world industries. Almost all financial markets today (derivatives, insurance, banking, commodities, remittance, etcâŚ) are an order of magnitude larger than crypto whilst operating mainly on the western world. If DeFi can compete in any of those industries, then itâll flourish, if it canât then itâll wither, as it stand we donât have the tech stack on Algorand to even begin to approach the problem, let alone compete in it. Letâs not put the cart before the horse.
By what metric? By any honest metric. Reward incentives are needed because Algorand does not live in a vacuum and must compete for capital and liquidity. To say that liquidity is a waste of time is ignorant. Liquidity is foundational to finance. Competition is fierce for capital and liquidity. Every financial crisis is a liquidity crisis. Liquidity is required for markets to function in a healthy manner. Liquidity is the lifeblood of finance - period.
Liquidity is the fuel, not the engine. If you have an extremely inefficient engine, like a CFF AMM, or an over-collateralized lending platform, then you need a lot of liquidity. Itâs not sensible to compare TVL as a metric, or to use it as a KPI, since itâs missleading. Itâs akin to comparing TPS in a vacuum, itâs worthless without context and the measure looses its objectivity when contextualised.
1 Like