GP7 Measures DRAFT - DeFi Rewards

[Adri]

For an intro about all GP7 proposed measures, please see this post.

Measure 2 - DeFi Rewards Q3 Allocation

The community voted strongly to allocate 20MM of rewards in GP7 to DeFi, with 5MM distributed directly by the projects through the Targeted DeFi Rewards program. The Foundation believes that this more targeted use of rewards has benefited the Algorand ecosystem.

The total amount available for governance rewards distribution in GP8 is 50MM ALGO and this measure proposes using either 20 or 25MM ALGO of this amount for DeFi rewards.

Measure 2
Should the DeFi Rewards Allocation remain the same as the previous period (20MM ALGO) or be a higher amount (25MM ALGO)?
Option A. Allocate the same amount (20MM ALGO) to DeFi rewards as the period (GP7).
Option B. Allocate a higher amount (25MM ALGO) to DeFi rewards.
The Foundation supports Option A.

Measure 3 - Targeted DeFi Reward Boost Repeat

At the last governance period, governors voted for the allocation of a 5MM ALGO boost out of an approved DeFi rewards allocation of 20MM ALGO.

After quickly creating and running the first implementation in April, we have refined the publicly disclosed terms of the program and will – if this measure is approved — reopen the protocol / ASA application and TVL calculation processes.

If approved, this measure would be contingent on, and funded out of, DeFi rewards. Target DeFi rewards allocation is based on the criteria established in the Terms of the Program.

Measure 3
Should we run the Target DeFi Rewards program for the remainder of 2023?
Option A - Yes
Option B - No
The Foundation supports Option A.

Measure 4 - Targeted DeFi Rewards Boost Allocation

This measure is conditional on Measure 3 passing. Governors must vote on this measure, even if they voted “No” on measure 3.

This measure proposes that either 7.5MM or 5MM ALGO from DeFi rewards be allocated to DeFi projects that fit the criteria established in the Terms of the Program.

The direct payment of ALGO would be dispersed by protocols via tailored programs designed to incentivize and attract users to their own communities.

Measure 4
What amount of ALGO DeFi rewards should be allocated for distribution through the Targeted DeFi Rewards program?
Option A - Allocate 7.5MM
Option B - Allocate 5MM
The Foundation supports Option A.

[oysterpack]

Why is the governance rewards distribution in GP8 being reduced to 50MM ALGOs?
I support reducing the vanilla Governance rewards, but those rewards should be reallocated to DeFi. Overall Governance rewards have decreased from 70.5MM to now 50MM. What’s the overall plan here?

Regarding, Measure 2, I support Option B for allocating the higher amount (25 MM ALGO) to DeFi rewards. I am aligned with the Foundation’s recommendations for Measures 3 & 4.

DeFi incentives have been very successful in growing TVL and the overall DeFi ecosystem. Let’s keep it going.

[Rambutan]

Measure 1:

As of now, defi is the only category within crypto which has gained a lot of traction and getting new comers or people on the sidelines wondering if they should enter crypto. Boosting defi rewards for LPs will only further help bring more liquidity into the platform. (personally I am already in process of purchasing more Algo to provide LP after hearing this… This means I have to go buy Algo, directly affecting it’s price and reducing its circulating supply thus putting an upward pressure on price.

So based on this long term view of growing the algorand ecosystem, I vote for allocating a higher amount.

Measure 2 : I vote for Option B

Measure 3: I vote for Option A - Yes obviously should run it as long as it’s able to be self sustaining. Will take many years, but hey… we are in it for the long haul.

Measure 4: I Vote for option A - allocate 7.5mm

[ROAM]

Totally agree with you.

[Swaggelwander]

Will the TVL supplied by the Foundation be counted for measure 3 and 4? This should be made clear in the Terms.

[oysterpack]

If you are asking about liquidity deployed by Measure 1, then it is clear that funds used to deploy liquidity are separate from Governance rewards.

What should be made in Measure 1 is where the funds will come from, i.e., from the Ecosystem Support or the Foundation Endowment funds. However, that question falls outside of the scope of these Governance DeFi measures.

[Swaggelwander]

No, that’s not what I’m asking.The DeFi boost that measure 3 and 4 targets is giving out ALGO for protocols to distribute according to their TVL as per the Terms of the Program:

Projects will receive 7500 ALGO for each 500K ALGO TVL as defined above, rounded down. In the event that 5MM ALGO are not sufficient for all the projects, ALGO rewards will be distributed to each protocol based on their weighted contribution of TVL to Algorand DeFi.

Is the TVL that the Foundation has supplied to projects going to earn DeFi boost rewards (and take away rewards from other projects if the rewards are oversubscribed)? To me that feels really unfair and those TVL contributions should be disqualified. But there is no clarity on this anywhere, hence my question.

[oysterpack]

That is a good question. It would make sense to exclude TVL which is provided by the Algorand Foundation for the DeFi boost rewards.

[scholtz]

Also there is challange with TVL calculation… For example, how do you calculate AlgoDex or any other orderbook based exchanges TVL?

Is the TVL locked in the bridge the same thing as TVL in AMM and TVL in landing protocol?

The problem with TVL that is algorand trying to resolve is that in people’s mind the TVL is for example the number of ethereum locked so that the protocol can work properly. There is no such thing on algorand, so they are trying to fake it at least with the governance system locking and landing protocols multiplying the TVL.

The question is what is the best for long term future?

I dont think that boosting only landing protocols projects by algorand should be the thing that leads to the best DeFi.

In my opinion the Algorand already has the best DeFi in the world which you can see by competition in arbitrage whenever 3 AMM pools become inneficient and ability to create zero risk arbitrage. If algorand foundation lacks to show this to people, it is problem in marketing.

Also the algorand is best chain to solve the security as corporations can create multisig accounts with hw devices protected accounts… I dont see any marketing campaing directed to corporations that they can do their own custody and do not have to rely on third party security services as they have to do on bitcoin or ethereum.

[lobo]

i would love to see some funds allocated to newer projects to help them to get started since aenas rewards were stopped. focus should be innovative and beneficial projects for the algorand ecosystem that is not based on TVL or based on another TVL rating to account for being new and not already established. reason is that without aenas rewards something like xBacked that offers a decentralized overcollateralized stablecoin that can be redeemed, which is the problem they solved, has problems to gain users because they cant offers attractive rewards like all the other dapps which came before them. this and the current market conditions make it really hard for newer projects to gain traction

[averagezen]

xGov Repo has a ton of smaller projects that can get funding…

[lobo]

Isn’t that more for funding and not as rewards to give out to people who use a dapp?

[averagezen]

There have been quite a diverse number of proposals made to xGov. Some from new projects, some from pre-existing projects, and every stage in between. You mentioned Aeneas, it’s my understanding xGov was meant to be the replacement of that process. I definitely understand your criticisms as to who should qualify and under what metrics, but I fail to see a better set of criteria appearing. The current criteria do seem to be evolving, but I think a big part of this mystery could be revealed if we just had more open access to the Governance Advisory Committee’s meeting minutes and some more communication from all sides on how we can further refine this process.

[lobo]

@averagezen

You mentioned Aeneas, it’s my understanding xGov was meant to be the replacement of that process.

@Adri my understanding was defi rewards were supposed to replace Aenas. can you carify here pls?

[averagezen]

That’s not at all what is being quoted here. This quote is referring to the “continuing path to decentralization” article where the Aeneas rewards program was announced to be winding down and xGov winding up

[BunsanMuchi]

xGovs appears to function more as a substitute for the discontinued grant program. Under this program, teams propose projects they wish to secure funding for, complete with a comprehensive spec and a series of milestones. Upon completion of these milestones and subsequent approval, the teams receive their stipulated rewards.

Aeneas, on the other hand, was the program primarily focused on user adoption. Since in it, project users stand to receive rewards - a feature I believe is now being replaced by DeFi Boosted rewards. With now individual projects being required to redistribute these rewards to their users.

From my perspective, DeFi Governance rewards seem to be the primary method aimed at augmenting TVL in DeFi protocols. So far, the results have been varied. If we gauge performance against a global metric, we can commend ourselves on reaching Algo ATHs in TVL even amid a bear market. However, this single measure can be misleading. A closer look reveals a less rosy picture, with most of this TVL originating from liquid governance or governance-centric products. Is this truly our objective?

Personally, I would argue against it. It appears that we’re building an overly leveraged system where you’re indirectly penalised if you choose not to participate - non-participation leading to a dilution of your rewards per Algo. Worse still, liquidity deployments from the Foundation distorted the market equilibrium point. Do we truly want DeFi governance to be the chain’s primary product? Is this the vision we have for Algorand DeFi?

It might be beneficial to undertake a full comprehensive analysis of the Algorand DeFi landscape, examining whether our DeFi ecosystem is indeed thriving. While I have observed a rise in TVL, other metrics such as volume, borrowing in non-governance pools, volume on non-gAlgo pools, TVL on other types of DeFi, DeFi projects building, and UWA interacting with DeFi platforms, appear to have dropped. It wouldn’t surprise me if other project builders could confirm this.

I believe we could use DeFi governance to change this. By pivoting our focus and aligning governance incentives to account for a more holistic set of DeFi KPIs, not just TVL, we could create a system that acts as a driver for volume, liquidity, and interest in the chain. If implemented correctly, this approach could foster a more equitable laissez-faire ecosystem, where the market, rather than the Foundation, is the primary supporter of products and main contributor of liquidity. Although this may seem utopian at present, I believe it is far from impossible.

[averagezen]

I definitely agree with this assessment, but it hinges on that all-important “if implemented correctly.” What would be the concrete steps you would see made to pivot to such an approach?

[Adri]

There isn’t an Aeneas replacement. However, Targeted DeFi Rewards would be the most similar to Aeneas conceptually, as it is meant to target growth outside of governance and attract new users.

[Added] Worth clarifying that, Targeted DeFi is only available to projects that can meet the TVL criteria as established in the Terms of the Program and that might not be accessible for new projects. In that case, new projects could apply for an xGov grant to fund their community growth. If the xGovs deem it worth it, they can approve it.

[BunsanMuchi]

This is by far the toughest thing to do, and it’s more of a process than a deploy once solution. Off the top of my head I would tackle the problem with three implementations I believe would help a lot:

-Drafting a governance participation spec through an ARC: This way new projects can know what criteria they have to follow (be it mint a shadow ASA for Algo liquidity, or create a global state of commited algos, or atomic escrows to keep a tally of Algo positions) to allow users to commit to DeFi Governance. This immediately creates a set of guidelines projects should follow and a standard that every new entrant can look at and take into consideration when building their protocol. Decreasing the barrier of entry dramatically and creating an almost immediate access to an APY that could attract users.

-Expansion of metrics taken into account by Targeted DeFi Boosted Rewards: This way projects that don’t necessarily have an easy to point to metric, like TVL , built in, or that are at a disadvantage when compared to others, but are still considered DeFi (order book dexes, aggregators, algo-stables, stable swaps, derivative platforms, NFT-lending, GameFi, asset tokenization, bridges, etc…) can at least make a case for why they should receive rewards/be supported. Off the top of my head, the metrics I would take into account would be volume, unique users, unique addresses and transactions made on-chain, but ofc this should be a community wide conversation. I would even consider non-chain metrics like social media presence, whatever can be done to build a fuller picture of what protocols and proyects are growing the chain.

-Consider a tiered weight for TVL calculations and other metrics: Not all protocols are equal. For example, if a Uniswap V3-like AMM is deployed, it might be able to do more volume with less TVL, the same can be said about stable swaps, or derivatives (a derivative platform can push crazy notional volume by design). Liquid governance, has also been a controversial topic in the DeFi community, since a lot of it just sits there without permiating into other DeFi protocols, and the derivative token by design will trade at a loss most of the time. Creating an avenue where the community can voice what type of protocols they believe should be boosted and which ones should be slashed, maybe through a category system, could act as a temperature check of sorts, and act as a feedback for newcomers and proyect builders as to what the community wants, making it easier to build products that are demanded.

Again, all these things are laborious for sure and they will take a significant amount of forethought and evaluation, both before implementing and after. However, over time, we can create a system that attracts builders. I can’t think of a chain where you can deploy a protocol that rewards pioneers without employing faux-yield or ponzinomics. With a little bit of alignment we can make governance act as this and essentially create a bootstrapping tool everyone has access to.

[trekianov]

Thanks @oysterpack and @Swaggelwander for raising this point, I think it’s totally fair, let me add that the final TVL calculation for Dedicated Defi Rewards (the 5MM Algo) has been devised in agreement with the Defi Committee, therefore we are going to discuss the exclusion of TVL supplied by the Foundation, as you propose, with them and communicate the outcome.