Evolving Algorand Governance

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@shaih

How do we identify accounts that participate in DeFi, and how many governance seats they should get?

The Foundation should maintain a Qualifying DeFi List and corresponding smart-contract addresses for each governance period. Qualifying DeFi projects that launch during the period should be updated on the list and their participation should be rewarded at the end of each period.

It’s extremely important to have a path to get multiple seats or increased weights for every type of Algorand user:

1. passive governance staker: should be able get multiple seats or increased weight if they commit their ALGOs for longer periods of time (1 seat for 1 period, 2 seats for 2 period, 3 seats for 4 periods) - these participants take ALGOs out of circulation and should be rewarded for longer commitments

2. node operators with sufficient uptime during the period: participation: +1 seat, relay: + 2 seats

@shaih

How to reconcile changing participation levels over time? For example, how much weight should be given to a vote that happens sometime in the middle of a governance period, vs. how much to use for calculating rewards at the end of the period.

Vote weight should be time prorated for voters that casted votes but then disqualified themselves before the period officially ended.

For DeFi participation you could integrate balances over time (i.e. every 24 hours) locked into approved smart-contracts, the balances (i.e. valued in ALGOs based on average price derived from qualified DeFi LPs). You could use a formula something like: (seats/weight) = PerDeFiSum(PerDeFiIntegral((balance sample), (time period)) / ((starting balance) * (period duration))) / (total sum of balances participating in DeFi), this also helps steer people toward legitimate DeFi LPs and staking because if you were for example in LP that got rugged (higher level degen), your balance drastically decreased and you lost your weighting/seats. Yea it gets complicated but if you want to encourage participation you need some rigid rules that are harder to bend.

@shaih

Should we have just a single governance rewards pool that is distributed among all governors, or should each segment have its own rewards pool? (E.g., 50% of the rewards go to DeFi participants and the other 50% to passive Algo holders.)

There are multiple ways to go about it: You could have a single governance rewards pool but each user claims a different weighted share of the pool based on their level of participation OR you could leave the existing 280M/year pool for governance AND allocate additional funding for the ecosystem rewards with least amount of disruption to existing model - yes it would cost more BUT it’s least-intrusive AND it can be stopped when ecosystem matures enough so it’s temporary. The 2 rewards systems would be mutually exclusive and a way to get both with the same ALGOs would be to use governance by proxy in dApps like AlgoFi, Folks Finance, GARD, etc. thus accomplishing the same thing: pushing users to participate.

If possible, I will edit more things as they come to mind later.

I understand what the Foundation is trying to do and agree that increased rewards should be given to users that participate deeper in the ecosystem BUT at the same time a change like this needs to be thought-through really hard and ironed out because it could really back-fire as it would basically reduce expected APY for passive whales that’s why it’s important to give them a path to full expected APY in exchange for longer commitment. If they don’t like the proposal they wouldn’t allow it to be passed at best OR at worst they would liquidate parts/all of their ALGO stake if they can’t get APY they counted on culminating in ALGO price crash.