Lately we’ve seen the online participating stake trending lower (sitting at ~1.6B ALGO right now), this is probably a side effect of general market conditions where retail/institutions start to lose interest and move away from the cryptocurrency space, on top of that there’s also a very significant amount of online stake that belongs to the Algorand Foundation and Algorand Inc (around 40% if I’m not mistaken) which poses centralization risks and goes against the foundational principles of our industry. Furthermore, as a Pure Proof of Stake chain, a malicious actor would “only” require 1/3 of the total online stake to attack the network which is becoming “easier” due to online staking trending lower and the market cap of ALGO going lower as well.
I’m aware that one of the initial assumptions made by Silvio Micali when designing the Algorand blockchain is that given the ultra-low amount of work required for setting up a participation node, people would run them for free as long as they were interested in the success of the network they belong to. We can see this actually works on established and highly adopted networks like Bitcoin, however, Algorand hasn’t reached a similar level of adoption yet, and it’s still a long way to go to reach such high level of adoption. Having said that, I believe some sort of early stage incentives are required for node runners to increase decentralization and security of the overall Algorand network.
I propose a percentage of the total governance reward pot each quarter gets allocated to node runners in a similar way to what’s been done with DeFi, this would be voted in upcoming governance measures and it will probably become a lot easier to do on a technical level as AlgoKit and 1-click node setups will become available soon. Given the high composability of projects in the Algorand network, it would also be possible for governors to participate in consensus and DeFi simultaneously. This would be a good incentive towards increasing decentralization,TVL, liquidity and security all around the ecosystem.
Looking forward to read your comments
I think there’s some sort of confusion going on at the moment, I’ll try to clarify:
Firstly, this is not a change at the protocol level, the Algorand network will continue to work exactly the same ‘under the hood’. This is simply an allocation of some of the governance funds to reward already existing node runners and possibly incentivize more people to run their own nodes (this is the general idea), exactly like what happened with DeFi this current governance period, which effectively incentivized a lot of people to participate in governance through DeFi and discover a whole new world inside the Algorand ecosystem (myself included). By running a node, you’d be eligible to have a small extra reward just like you’re eligible to a small (not so small actually) extra reward by participating in governance through DeFi.
It’s exactly the same if you run 1, 10, 100, 1000 or 10000 nodes. What matters is your online stake amount just like what matters to governance is the amount you commit.