Governance Period 6 Draft Measures - Community Check In

Governance
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Hello #Algofam, Governance Period 6 (GP6) voting will open in 2 weeks and we are seeking your feedback regarding the algo rewards moderation and the proposed measures below.

Please note that the measures discussed herewith are still being drafted and are not final. We will take your feedback and the governance advisory committee discussions into consideration prior to publishing them on the governance portal on February 24th (or thereabouts).

— Moderating Algo Rewards

At the last governance period, the Algorand Foundation announced the moderation of general governance rewards in favor of rewarding activities that meaningfully contribute to the Algorand network’s growth and health, such as DeFi rewards and the xGov program (to start with).

During the community consultation phase, one common theme discussed both online and at Decipher emerged: high rewards for a quarterly vote with no ecosystem participation is not the way forward.

We have been discussing internally and with our newly formed Governance Advisory Committee about the best moderation gradient to apply.

At the same time, we want to remain flexible and adapt to market needs, therefore we will announce rewards each quarter and reassess this strategy as the year progresses.

For Q2/2023 (GP7) we are considering a total rewards pool of either 60MM Algos or 50MM Algos, including a minimum of 15MM Algos in DeFi rewards, as well as the two measures below.

— GP6 Measures

Measure 1 - DeFi Rewards

DeFi rewards have led to a significant boost in Algorand’s TVL. Yes, TVL is not the be-all measure of an ecosystem, but it is important for our ecosystem in this early stage, as we fight to gain mind and market share amongst other L1s.

To further boost participation in the DeFi protocols, rather than passive holding, we are considering increasing the current level of DeFi rewards from 15MM to 20MM Algos.

  • This would be a yes/no vote.
    .

Measure 2 - Project Relief Pool ← this measure has been replaced by the Targeted DeFi Rewards Measure. Read the new measure on the governance portal.

We are also proposing establishing a pilot program to support projects that are struggling to find their audiences amidst bear market challenges. This program would have an initial allocation of 2.5MM Algos.

  • This would be a yes/no vote.

Fund allocation criteria:

  • Proposals are to be submitted to vertical heads for evaluation and approvals may be processed by the vertical committees - if they are formed - or by (a) the vertical head and/or (b) GAC*.

  • Proposal criteria, management, and approval process.
    project must be on mainnet; or
    project must have users, including beta users; or
    project must meet minimum development criteria if it doesn’t fall under the two criteria above.

  • Maximum allocation based on the number of required FTE or operational costs;

  • Support fund to be paid out in Algos in monthly installments for X months;

  • Other … (from community feedback)

If this pilot program is successful and the market conditions remain unchanged, we may repeat this measure to allocate further funding.

Note: That the Relief Pool is approved 2.5MM will be deducted from the both general governance and DeFi rewards pool prorated. For example, if measure one pass and we will have pools of 40MM Algos for general rewards and 20MM Algos DeFi rewards in Q2, then ⅔ and ⅓ of 2.5MM Algos would be deducted from each pool respectively.

— Up Next

We have already begun discussion for Q2 (GP7) measures and have received strong proposals from the Governance Advisory committee members, we will bring these up for community feedback once we have checked on their technical implementation requirements.

— Your Feedback

Our next advisory committee meeting will be held on the 21st of February, we would like to hear feedback from the community to help guide us in that discussion.

Measures will be live on the governance portal from February 24th and the voting session will be open from March 3rd-17th (Singapore time).

Best, Adri

– Update 24 Feb –

– Update 3 Mar –

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Thank you for getting this out there Adri! These all seem like pretty solid proposals with one exception, imo. The Relief Pool vote seems premature. This would be exactly the sort of thing that xGov would be tackling I would think. Why would you pre-empt this vote right before xGov is rolled out or would this be considered an Algorand Ventures grant proposal? The 2.5MM Algos seems a negligible enough amount, it’s more of an objection on the grounds that it seems to kill the spirit behind xGov that we’ve tried to establish. Perhaps I’m not framing this correctly?

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Thanks, @averagezen, I appreciate your thoughtfulness.

I agree that this will be an excellent xGov use case, but the issue lies with the: will projects in need of assistance survive until Q3 when xGovs will be evaluating measures?

If this measures passes we would be taking assistance proposals in Q2. This would not be via Algo Ventures but is also applicable to projects who did not get approved for funding or are still going through their raise and running out of runway.

One thing that we could amend straight away is changing this:

To something like:

If this pilot program is successful and market conditions remain unchanged, projects can procure further assistance through xGov grants.

We could also not proceed with this measure if the community sentiment leans towards waiting for the xGov launch.

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thats my fear as well. so although its not a perfect solution i think its needed right now

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I think if a project can communicate the need for immediate urgency as a requirement for access to these funds in addition to the other requirements and changes aforementioned, that would be sufficient.

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I’m a little disappointed there isn’t more to vote on. However, I’m good with both proposals.

The relief fund seems like an ok use of funds. I’d like the committee decisions to be highly public though. I’m giving up governance rewards to help some projects, so I’d like to know how/where it’s helping.

Keep pushing defi participation. I think lowering total gov rewards and pushing more toward defi is the right choice. Since those rewards are designated for governance though, perhaps the runway can be lengthened for how long those rewards are available.

Lastly, I see no reason why staking and votes must be quarterly. Please take a look at how algofi is doing governance, not as the solution but as a different take. Please consider making governance more dynamic with varying or smaller lock periods. Keep up the great work as always. Much appreciated.

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Serious question: why seek the community’s feedback?

We did this last quarter and there were consensus views from the community and none of it was implemented before the vote.

My two cents, is why get into the business of bailing out anyone? Why not just let the market forces work? There’s plenty of economic research that shows startups that launch in a bear market are actually more successful in the long-run because they aren’t valued at frothy levels when there’s a lot of liquidity in the system, and they can poach high quality available talent. The vast majority of startups that fail is not the result of the investment thesis or whether or not it starts in a bear market, but rather the quality of the leadership. To justify bailing out a firm due to the inevitability of bear market is setting a bad precedent for future cycles and will only lead to an oversupply of skeleton companies. Waste of resources. Well managed companies should be expected to withstand a bear cycle without a bailout. But, highly doubt these views go anywhere given the track record of prior Governance feedback outreach.

At a minimum, it would be nice to see the progress made / detailed roadmap on what’s actually been approved in prior Governance periods. Seems like we vote on things and then never hear about them for extended periods of time, but for one or two side comments (i.e., xGov).

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For this measure, how would the 2.5MM be split amongst the verticals? Would it just be one pool that is drained as needed, or will an amount be budgeted for each vertical? Also how many verticals do we even have?

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@Adri thanks for the write up. I’m generally satisfied with the direction of these two measures. I do have some thoughts on the details of measure 2.

Given that some projects are VC backed, it seems a bit strange to give them financial support in the form of a grant. Projects should be required to offer equity or their token (if they have one) to be eligible to receive funds from the allocation. As @fifth.race said, we ALGO holders are giving up governance rewards to help projects. Any other source of funding for these projects would expect equity or a bond in exchange for these funds.

Lastly, I wonder if it makes sense to offer these grants denominated in ALGO. Most likely, the expenses of these projects (salaries and operations) are denominated in USD. If these projects are on shaky footing, exposing them to the price volatility of ALGO seems like it could create unintended consequences if the price moves drastically in either direction. Instead, might we consider using the 2.5MM ALGOs as collateral on one or many of the lending platforms (Algofi, Folks, etc) to borrow USDC. Then issue the grants in USDC. This has a few benefits

  1. Recipients don’t have to worry about exchange rate changes when forecasting their finances.
  2. Recipients won’t be selling ALGO on a monthly basis, reducing some downward sell pressure. This will make the proposal a bit more attractive to ALGO holders.
  3. The foundation utilizing the DeFi ecosystem is very legitimizing for the space. Given the nature of proposal #1, this is quite aligned with our current goals (ex TVL).
  4. If we are successful in supporting projects that scale, the price of ALGO should increase such that one day the USDC loans could be paid off via the price appreciation of ALGO. This would leave governance with more ALGO than if we simply give it away directly.
  5. Borrowing a few million USDC will likely drive up interest rates on DEXs which will incentivize more USDC liquidity to appear, further increasing TVL. This is may even help to signal to exchanges that USDCa is worth supporting.
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Wow so if this happens with 50m total Algo reward, rewards for just participating in risk free general governance will be decimated

Around 700 for 100,000 algos for the quarter

Hbar gives 6.5%, paid out daily, no risk

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hello.

question : why does the AFoundation try to reduce the quarterly rewards EVERY governance vote? why not just keep it at 70.5M algos, and let governors vote on how to split between defi, vanilla, …?

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Vote Coin gives 10% APY paid out hourly :wink: (All that one have to do is just to hold it or amm token on his account)
And its basicly USD, ALGO and BTC index… You can even get the algorand governance rewards if you put it to Algo/Vote AMM.

@Adri

I would like to see the exact rules on who is able to receive the rewards… Do you think it is possible before it can go to the vote?

I would like this fund to be distributed fairly. Not to friend of the vertical heads.

For example:

Is the AWallet eligible to receive the rewards? It was first open source algorand wallet, and it is the only wallet which supports making account to online state, the only wallet which supports rekeying of multisig accounts, the only wallet where the users can select the nodes from the public list of nodes, the only wallet which has payment gateway in it, vanity account generation, multi account generation… And the project has received zero funding from the foundation and zero funding from any VCs. (In mainnet since June 2021)

Is the Vote Coin project eligible to receive the rewards?

Is the Stabilitas project eligible to receive the rewards?

Is AlgoDex eligible to receive the rewards?

Is FolksFinance eligible to receive the rewards?

Is AIINU scam eligible to receive rewards?

I would prefer to get in touch with the VCs because i dont want to depend on grants… I want to create stable company and be able to hire people.

But if this program goes through, please make it fair. You can start by clearly stating the criteria.

Also how many projects do you think will get funded by this?

I perfectly support this. Every project has expenses in the stable money.

If you would announce that you would want to support EURC, you might push the circle to make euro coin on algorand more popular.

With stable coins on AMMs we could move the FX market to Algorand. I believe this is huge thing.

I agree with this also… The foundation should start receiving the rewards from its projects so that the algorand is long term sustainable chain. Less grants, more investments…

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I don’t like the project relief pool idea, at least without transparency around which projects are struggling and need support. Why not spend the money on building a quadratic funding application where teams can apply for funding? That seems like it would leave us with a lasting benefit, instead of just keep select projects alive that should, in some cases at least, simply be allowed to fail.

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Proposals are to be submitted to vertical heads for evaluation and approvals may be processed by the vertical committees - if they are formed - or by (a) the vertical head and/or (b) GAC*.

Imo the best solution would be to decide these kind of things on a case-by-case basis following a vote by Algorand holders, but I understand this is not possible until the current model of governance is reformed.

I’m leaning against bailing out projects in general. Why mess with market forces? If a project fails, a better one will take its place. The only exception I see is a project whose disappearance would jeopardize Algorand’s ability to compete with other networks. I’d be curious if there are any examples of currently struggling projects that you were considering for this relief fund.

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I think we should incentivize nodes more

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Thanks for being open about the process and seeking feedback, that’s really cool!

I think there is a risk of Algorand becoming a “Potemkin ecosystem” where the foundation tries to do everything.

Take Gard as an example, all it does is provide a special way of taking governance funded by the foundation. If it were given relief pool funds all the foundation is doing is perpetuating a project who’s only goal is to take funds from the foundation.

Imo the thing that should be encouraged (given relief funds and defi support) is projects that bring in money from outside the ecosystem and give it to Algo holders. One of the only examples is Lofty which is actually bringing money in from renters, most other projects just exist to shuffle tokens around which ultimately end up coming from the foundation.

Imo one approach would be to change governance so it requires a 3 month hard lock and then to take that capital and lend it to a bank to actually get some return and start giving those real returns to the community. If it were insured the risk would be low and it could provide a ~5% return or something.

We have a lot of capital here, it needs to be deployed in actual, useful, economic activity to earn a return that can be used to grow the ecosystem.

Too much of what we have now is just fake projects which just shuffle nonsense tokens around and don’t actually do anything valuable for anyone.

Governance is covering how little real economic activity there is here. What returns can you get in the Algo ecosystem if governance didn’t exist? The vast majority of lending and borrowing on Algofi and Folks is just going right back into governance anyway.

Imo the foundation needs to use governance to get the capital here to do actual useful work.

That’s what is sustainable, without that it will all just wither away in the end.

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Measure 1 - DeFi Rewards
Overall, I support this, but I have a few thoughts on this.

There is a strong consensus that passive Governance rewards are a misallocation of capital and provide little to no benefit for ecosystem growth. On the other hand, Governance DeFi incentives have proven effective in growing DeFi liquidity. That being said, DeFi liquidity still remains extremely shallow. We still have a long way to go to reach healthy levels of liquidity. We need to be more aggressive with DeFi incentives. Let’s ramp them up faster. I would propose increasing DeFi incentives to 30M ALGO.

Governance rewards for the current period are 68.2M ALGO. If Governance rewards are reduced, the effect on the distribution schedule needs to be published for review. The Governance ALGO distribution schedule must be fully accounted for and transparent.

Measure 2 - Project Relief Pool
I am totally against this measure. The Algorand Foundation should not get into the business of bailing out failing and mismanaged projects. The Algorand Foundation is not a charity foundation. Providing a safety net would be a big mistake. If projects fail to manage their finances or are unable to raise additional funding, then it’s better they fail fast. Free markets are best effective at capital and resource allocation.

I rather see a Project Achievement Reward Pool. Provide performance-based incentives to projects. Let’s reward and provide more resources to projects that achieve and succeed in order to accelerate their growth and success. Rewarding success is a win-win for the entire ecosystem.

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Hi everyone, I’m one of the official governance committee members and I’m on the committee to represent the community. As a voice for everyone and as an Algorand expert I’d like to introduce another one of the measures we have been discussing as well as voice a concern.

First, I’d like to agree with Oyster and a number of other community members who believe that governance rewards are too high. While they are indeed high, if we agree to reduce them I believe this needs to be voted on by the community. Also, if they are indeed cut, it’s vital that the community decides where the rewards go. During various twitter spaces since I learned about this proposal, there has been a lot of concern from the community on where these funds may end up.

Next, I think it’s important that we get WAY more done this governance period than we are currently aiming to do. Right now, we are not going to make much change with the measures that are being introduced. Personally, I believe this is the absolute most important governance period we have had thus far. It’s vitally important that we have more measures to vote on so that we can continue to make progress and hopefully bring more members into the Algorand community. We are at a massive crossroads for ALGO.

Currently, DeFi governance rewards are quite passive and this needs to change. We need DeFi protocols to have a way to actively incentivize the actions that are most important to their success so that in turn Algorand DeFi can be more successful. Given that the Aeneas program has been discontinued and there were never clear criteria for who would get rewards I believe we should replace these missing community funds with governance funds. The distribution should be on a merit basis that helps protocols creating the most value to expand their efforts. I propose the following:

-All DeFi protocols (Namely DEX, Lending, Derivatives, and Stablecoin) with at least 500k ALGOs in TVL should be eligible to receive “discretionary ALGO” to distribute to the community via high value actions to their protocols
-Protocols should receive 7500 ALGO per 500k ALGO they had in TVL the previous quarter
-TVL should be calculated based on the mean # of ALGO they had on DeFiLlama
-the most ALGO any protocol should be eligible for is 1.5M/quarter as to not give any one protocol too much of an advantage

This proposal not only should be brought to the community this governance period, but also would be a game-changer for Algorand. During the Aeneas distribution we had the most outside interest in Algorand that we have ever had. We also had the deepest liquidity to trade against. On other chains, the effect of distributing rewards like these can be easily seen. For example, on Osmosis they have 200M in liquidity thanks to their deep incentives to trade against and in Optimism after they introduced incentives their TVL skyrocketed. Given that strong DeFi is a requisite for any strong chain and we have to compete against both TradFi and DeFi returns everywhere, it’s both the responsibility of the foundation to bring this measure to the community.

In conclusion, there are MANY measures that we can and should bring to the community to vote on but discretionary ALGO to reward active DeFi users is vital for the survival of ALGO DeFi. We must act now to ensure that ALGO has a strong call to action to bring in new potential holders and to reward current users who are supporting DeFi so strongly.

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Congrats. Community has definitly chosen you to represent us :laughing:

I am hearing about this for the first time. Where should i go to get this type of discussions?

I believe it is good to support the ecosystem but please make it fair. You are saying some protocols should get 7500,15000 or 22500 algos per quarter depending on their algos value according to defi lama.

I see problem with this with following…

  • You are not supporting new projects which dont get the 500k algos. Lets assume there is new bridge, new stablecoin or amm… We give unfair money to established projects which they can use for marketing and new projects does not get the chance to grow. What about making it fair and do steps of 10k algos?
  • The value of locked assets is not fair between the projects. AlgoDex type projects will never have the same TVL as AMMs but can serve better DeFi purpose. The impernament loss solutions which combines landing protocols and AMMs will increase others payouts and will not get funded?
  • I believe that for budgeting it would be much better if the projects get the share of some pool of algos. If there is 1 project with 100 M TVL, one project with 1 M TVL and one project with 100 k TVL, lets make the cap on the 1.5 TVL and distribute the algos, and lets assume the example budget of 20000 algos/quarter… first project might receive 1500/2600 portion = 11 538 algos, second 1000/2600 = 7 692, and third 100/2600 = 769 algos…
  • Please make the payouts to be done on daily basis, and lets change the budget on quarterly basis in the algo governance. Daily payouts are much better than quarlerly funding.
  • i believe we could name this DeFi Lama incentive program as the main thing is to get high TVL to DeFi Lama
  • i would like to see also other similar incentive programs for other apps… For example voting solutions, wallets, nft marketplaces…
  • we should clearly state that this incentive program is not long term sustainable and will be active only for few years to support the growth

As our community representative at the foundation, I wonder what is your opinion on this thread topic… Governance Period 6 Draft Measures - Community Check In - #12 by scholtz

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Other types of incentives, like relay node rewards, are on the horizon. @JohnWoods is working on that program and we will have news (and measures) later in the year.

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