It’s an interesting take on the issue. May I ask how much of your net worth do you have in your tradfi bank account / stocks, and how much do you have in blockchain smart contracts? Holding Algos or ASAs on a wallet address doesn’t count because it is way safer than holding them in smart contracts (in case you don’t realise how different the risk level is).
Back in late December last year, many Algorand users were feeling cozy and putting their Algos and ASAs in Tinyman. Tinyman then got hacked. Who would have thought liquidity pools can be drained even though you are holding the LP tokens? If I hold the LP tokens, my cryptos should be there, right? Many users are oblivious to the risk until it actually happens, which forces them to understand the mechanism and the risks.
Did you remember how scared you were when Tinyman got hacked? I do. I don’t know if @Massimo you were participating in defi at that time, but I was. I was genuinely scared because I bridged my BTC to goBTC on Algorand. Just a few days before the hack, I was considering putting all my goBTC into the goBTC-Algo LP on Tinyman. In the end I didn’t because I didn’t want to have impermanent loss on my goBTC so luckily I didn’t lose that part of my holdings. But I had various LPs on Tinyman which suffered from the exploit. This is speaking from an experienced developer and an avid defi participant’s perspective.
Letting smart contracts hold your savings is extremely risky. If the Foundation wants to incentivise defi participation, the Foundation will have to also take on the responsibility of educating people on the smart contract risks involved, and be prepared for exploits and compensate people who were convinced by the rewards programme but would otherwise not have put their money into the smart contracts for liquid governance.
There is risk involved, and people need to make an educated, informed choice. Throwing incentives out without highlighting the risks, and simply telling people “you should know it is risky. If you lose money it’s not our fault for incentivising you to do so” is unarguably irresponsible.
Thanks Fionna for the very serious answer, and the points you highlight. I totally agree with your aversion to incentivizing without highlighting the risks. But it is not the case in our context. Rewarding a risky engagement more than a less risky one is totally in line with this principle: it is a way to highlight risk properly, not certainly to hide it.
I was in a similar situation as the one you describe at the time of Tinyman’s hack, I was assessing the different opportunities and their risk, but it was the beginning of our Defi and I ended up not being involved. Today my share in Defi may be more than 10% (it actually varies with the exchange rate), but there’s no investment advice in stating this, it’s just transparency. It also depends on my position, and a lot on my avid tech and economic curiosity and desire to experience directly our decentralized solutions. And I do not expect to be compensated for a loss due to market or tech, not even for the part in solutions that can give access to governance. But being rewarded at a competitive level, with respect to other opportunities, is a normal expectation for anyone.
You are making the assumption of every user understanding higher rewards = higher risk. It is not necessarily the case if we look at Anchor’s UST 20% APY, how it turned out, and what people are saying on reddit and twitter after the catastrophe.
I understand your stance of users knowingly taking on the risk and should be prepared to lose whatever they invested in defi. I take it that this is your personal view and you are not speaking for the Foundation regarding this scenario. What we are discussing now - whether users should be compensated when there is an exploit, is an old debate in blockchain.
To set correct expectations for governors, I’d suggest a few things:
as few assumptions should be made as possible
every assumption should be articulated and explained
what will the Foundation do (compensate? or not?) if an exploit happens to a liquid governance protocol / defi pool that participates in governance
Only then could governors make an informed choice since Algorand governance is targeting Algorand users from total beginners to experienced users. Relevant materials should be provided for complete beginners if Algorand aims at onboarding new users who have 0 experience with crypto but might still be interested to learn and become part of the ecosystem.
Ultimately, our discussion is about inclusivity. Most people here have no problem for the Foundation to incentivise defi usage on Algorand, but we are expressing concerns on how it should be approached to make it the best amongst blockchains. As Algorand has such beautiful tech, it is only fitting to have elegant incentive schemes and a well-thought-out governance system.
Great post. This is the issue, though: Governance is not investing. It’s governance. I expect to have risk of loss in investing/trading - this is expected and acceptable. But to have that same risk to participate in governance is the point I take issue with.
@Massimo - you stated above that you keep roughly 10% of your crypto in defi. I have fluctuated at around this same level. The proposals which combine governance and defi effectively force people to either put a MUCH higher percentage of their holding at greater risk (with no guarantees from anyone doing the forcing) OR to further dilute the voice of the “fish” who aren’t comfortable putting their algo in defi. This is why I have a problem with this. If we want to incentivize defi, then lets do it. And if we need to figure out a workaround to allow defi to have a vote, that’s totally understandable. But, I do not agree with combining governance and defi, and I do not agree with coercing those that aren’t comfortable with it to risk their assets to participate in governance. I think Algorand will lose the voices of a lot of people that way.
Why do need to be “rewarded” for choosing Algorand, when the reason they chose Algorand is to protect their savings? That is the incentive. If they want to earn interest on their ALGO, then they can deposit their ALGO in lending protocols.
I’ll say this as many times as needed … there is no free lunch. Everything has an economic cost. Participation rewards paid to attract and build the initial user base. It’s time to move on. We now need to use ALGO rewards to attract and build an initial DeFi user base and grow on-chain liquidity.
You said it - not me. You know what I am about to say … Governance participation should be voluntary with no ALGO rewards. Reallocate all Governance rewards for ecosystem growth initiatives. Instead of wasting time debating Governance rewards, we could more effectively use our time to debate how to deploy ALGO towards Algorand ecosystem growth.
Think long-term. As ALGO gets distributed we need to grow on-chain liquidity to support transaction volume and activity that generates sufficient fee revenue to support, maintain and upgrade the network, e.g., funding development, relay node runners, grant programs, etc.
This is an excellent idea, and should be trivially easy to implement too.
Not only will it allow filtering out votes that should never have been counted in the first place, but it will also bring into light an important data point that is currently hidden, which could be a major factor guiding us to a better form of governance.
For example if the “don’t care” percentage is always high, then perhaps that means that governance rewards are too high, and lower rewards would work just as well (or even eliminating the rewards altogether, although even if the act of voting itself shouldn’t be rewarded, it may be justified as a form of interest payment for the algos that are locked during the governance period).
Or if the “don’t care” percentage is high only for certain types of questions, that would be useful information as well.
Of course, this type of a statistic could never be used directly for purposes such as adjusting the governance rewards, as otherwise it would only incentivize the governors to game the system and bring the percentage down… Which would then make the metric meaningless…
Still, having the option to vote “blank” is better than not having it at all.
There are countries where voting is mandatory (i.e. not participating is punished) which is effectively the same. See Australia for example: Electoral system of Australia - Wikipedia
Personally I think mandatory voting is a horrible idea (at least in theory, though perhaps slightly less horrible in practice). As any practical problem it tries to solve would be better solved by other and more focused means.
Perhaps I have misunderstood the proposal by the foundation, but can you explain why exactly there is dilution occurring with these proposals/forcing people into defi? Are we saying this is occurring due to the increased rewards being given to Defi, or are you saying that someone who holds Algo in say the Pera wallet would no longer be able to perform governance?
I ask because if its the first, than I can live with it from a risk tolerance perspective, but if I’ve misunderstood and this proposal would remove ones voting ability unless you participate in Defi, then my opinion on this would change. Thanks.
I don’t disagree that in general people should understand that greater reward=greater risk. Having said that, there are numerous examples in crypto (and traditional finance as you’ve noted) where average folks don’t understand this. I think its pretty fair to assume that a sizeable number of users could just simply say “oh more money this way and the foundation is supporting through governance so it must be vetted” even though that is not the intended goal. We saw this somewhat in 2008 where mortgage securities with AAA ratings were piled into even though the underlying collateral was becoming garbage.
I think after reading the posts above, there is a question in my mind regarding risk to the foundation and governance. Has there been a consideration as to whether this program could generate a reputational or other risk if a defi project blows up and we are granting more incentive directly through governance rewards vs. stand alone grants? If so, is there any consideration towards ensuring the community is notified they should perform due diligence before just going after these defi rewards or some other risk mitigation?
I ask because again, a large barrier to mass adoption is the lack of average joe user ability. I’ll admit defi has great potential to add some of this, but it can also have its harms. The average person does not have the same finance knowledge as you, I, or others have. Just don’t want to see a few years down the road the foundation/governance become embroiled in a blow up where it drives users out of governance/Algo. Thanks.
I think there should be rewards for governance. Time is money, and the debating over proposals sure is taking up time in my book. We are in here debating like real governors, they get paid, why shouldnt we be rewarded for giving our feedback/proposals.
Governance and defi should be separate staking options as mentioned before.
Algo can grow outside of just defi. Bring real world use cases and defi might not be as important. Too much focus on defi.
I know there are a lot of die hard blockchain fanatics who want to stick to the code (pun intended) but Algorand can grow and be successful without having to stick so strickly to the code. Blockchain will inevitably evolve and it wont be the same as it is today. Got to accept that.
Investing in traditional markets isnt exactly the same as crypto markets. People arent getting their schwab/etrade accounts hacked. There is a greater risk with crypto. So i think participation rewards still need to be rewarded. maybe not a high amount but still give the people who are investing in Algo that option. The more you engage, the more you are rewared, because you are taking on more risk.
Maybe the foundation should go public, probably get a lot of traditional money invested in Algo that way. Have stocks and coins. Acquire companies that can bring in use cases like they did with Napster.
Great post. This is the issue, though: Governance is not investing. It’s governance. I expect to have risk of loss in investing/trading - this is expected and acceptable. But to have that same risk to participate in governance is the point I take issue with.
if you don’t want to take the risk then then earn your passive yield from the 90% allocation. it’s not that hard no one is forcing you
First, to clarify, in my answers I am referring to crypto / cryptocurrencies only to L1s like Algorand which actually fulfill the mentioned purposes of a cryptocurrency, and not the many tokens for which a case could be made that they are actually investments in a business. I assumed this was implied from the context of the discussion.
You are misinterpreting what I wrote. It was a response to your statement that “no one (or at least very few) is buying Algorand for a reason other than a desire to create ROI, and treat it like investing in a business”.
Acquiring cryptocurrencies is not investing in a business. Too many people do not understand this as well as the purpose of crypto. I am not disagreeing that investors aid in growth of ecosystems and that they expect to make a profit. I am saying that reckless investing (i.e. just expecting profit) without understanding the purpose of crypto is restricting the space and its potential.
Already now, multiple cryptocurrencies fulfill the purpose of security and unconfiscatability of value as well as its trustless and efficient transacting. There are difference how well different cryptocurrencies provide these services but they are already available.
The problem is that the majority of people do not understand why these matter. They have been fortunate enough to never experience (to a sufficient degree to make them care) e.g. that they were prevented from sending funds to someone or got their funds confiscated due to political oppression, had to send funds abroad quickly and were charged abnormal fees on top of that, or saw their hard-earned savings devalued into oblivion due to irresponsible/corrupt governance. Unfortunately, people tend not to care about these things until they do - when they experience it first-hand.
As exemplified above, I am not even talking about DeFi as a use case. That is already a next step, which is being built on these fundamentals that are already available.
As already said, crypto already solves tangible issues for the average person. Most do not see it yet because of a lack of understanding. Same as in your example of email (basic purpose of which stayed the same since its inception).
That might be true as long as you are treating crypto just as a business investment. If you use crypto for what it was meant (see above), there are more than enough incentives. These will only increase with the new use cases being developed (e.g. DeFi, real estate ownership or control over your personal data).
Again, the point is a lack of understanding of the importance of voting. If there are funds available for rewarding participation, they would be much better spent on educating why voting is important than paying someone just to go vote. In the latter case, one might just go vote (at random) to receive the reward - producing little value. In the former case, one would understand why one should go vote, thus perhaps even take more time to make an informed decision and teach others on the importance of voting - producing much larger value to the system. Something similar to the saying: “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
Giving rewards for participation or punishment for not participating is equivalent only for completely rational subjects. Humans are complex beings and these two types of incentives have completely different influences on one’s emotions, perception and consequent decisions. Hence, I would not equate them.
Nonetheless, you highlight an interesting view. If one agrees that either giving rewards for voting or punishment for not voting are effectively the same, and that one is against mandatory voting (i.e. punishment for not voting), it follows one is also against giving rewards for voting. Perhaps something to consider for anyone thinking participation in Governance should be rewarded.
At one time, before people just gave their opinions away for free on Facebook, people were paid for their opinions in market research for just about every major company on the planet. I see Algo as a token that provides the utility of being apart of the economy of Algorand, which rewards me for my time and continued interest in the project. Whether that interest be in staking my Algo in Defi, liquid governance, NFT’s, or just sitting on a hardware wallet being used for a participation node. All of these and more are the answer, not only this or that.
If facebook were letting ALL shareholders make proposals to be implement to the company then sure you can compare. I dont see them as the same. I gave multiple options for staking, just like you said.
With all the opportunities there is still a big risk with crypto with hacks. The crypto space needs to provide assurance and insurance if they want more adoption in defi.
Just like Algorand provides you with opportunities, we (investors) provide opportunities to help Algorand grow. It works both ways.
Both suggestions are interesting, BUT they should be implemented on the application side, NOT core protocol. These DeFi applications should offer to the users best services, and as such, with open market rules, best DeFi will win. It’s not that hard for DeFi app to offer to the users assets locking in exchange for extra rewards.
Essentially, I believe, most of the DeFi activity should happen with stakedAlgo (staking liquidity) rather than base Algo.
I would love to see measures related to the feedback from Governance Period #3, and the measure #3 that period (which was supported by 98.89% yes votes): " XGovs: Proposing & Upvoting Measures".
Not really talking about a FB comparison so much as they, and others, broke the market research model. That last part was more in general, not specifically a reply to Domenico.
An option to indicate the user is abstaining from voting is required if Governance pays ALGO rewards because users who are participating in Governance simply for the ALGO rewards should not simply vote with the Algorand Foundation. They should not vote. This reinforces my rationale to eliminate Governance rewards. If you want to abstain, then don’t vote.
Valuable point - you are 100% correct with everything you said in your reply.
It is in fact a well known psychological phenomenon in gambling, investing, and other similar activities, that the pain of losing for example $10 is much greater than the joy of winning an equal amount.
And thinking about it, the psychology of reward vs punishment would be valuable to keep in mind when designing governance. Currently we have rewards for voting with no punishment, but in Governance Period #1 the proposal was specifically to punish those governors who fail to vote (by slashing their committed algos by 8%, on top of losing out on the rewards).
True, if we are thinking about a specific vote. Voting blank or not voting at all would make no difference to the outcome of that vote.
However, I do think there is additional value of being able to vote blank, even when voting is not rewarded.
If both options are available, it may be different types of people who choose to vote blank and those who don’t vote at all. For example, those who don’t care about governance would not bother to vote even blank, while those who care about governance and want to participate by taking the time to read the proposals, are more likely to vote blank in those specific questions that they don’t care about or don’t have an opinion on.
Having visibility to this type of voting behavior could be used to prioritize types of questions that matter to more people, and to avoid such questions in the future that very few people care about (unless they are important enough to get on the ballot regardless).
I do admit that I’m not sure how easily this information would actually translate to actionable items (without creating opportunities to game the system), but the main point is to have visibility to such voting behavior that is otherwise hidden.