Here is the current structure of the Algorand network: instead of collecting revenue from network and database users, the Algorand Foundation sells its own ALGO holdings and draws funds from the pool of capital that ALGO buyers have put into the market, then distributes those funds to public goods. In other words, those who purchase ALGO are ultimately funding the maintenance and operation of these public goods through the dilution of their token’s value. Under this current structure, an influx of users and developers who hold only the bare minimum amount of ALGO simply means an expanding public goods deficit. For this network to become sustainable, there is no other way around it—we must increase the number of people who buy ALGO.
To achieve this, we face three structural problems that prevent people from buying ALGO:
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No incentive for investors: Under the current mechanism, the price of ALGO is structurally pushed downward, giving investors no incentive to buy.
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Lack of attractive utilities: There are no compelling investment opportunities on Algorand that can only be purchased with ALGO, leaving no reason to buy it.
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Fees are too low: Because transaction fees are negligible, the amount of ALGO that users and developers actually need to purchase is minuscule.
In my personal opinion, the current KPI of simply increasing the number of developers in the Algorand ecosystem is flawed. For example, let’s say a developer builds a dApp used by 10,000 users. If that dApp utilizes fee sponsorship mechanisms so the developer covers the users’ gas fees, those 10,000 users do not have to pay anything to use it. Even if each user generates 100 transactions, the developer only needs to purchase 1,000 ALGO. Since those 10,000 users do not hold any ALGO, they will neither participate in the broader Algorand ecosystem nor purchase any ALGO themselves. If 1 ALGO is worth $0.10, the economic value of attracting this developer is only $100.
Our KPI should focus on how much capital is actually flowing into the network.
I also do not personally think the current xGov mechanism is working well. The aspects that xGov grants currently evaluate focus heavily on metrics like the “10,000 users” mentioned above, rather than assessing whether capital is actually flowing into the network. What xGov changed was simply the flow of the funds that had already been drawn from the market. Previously, those funds were spent almost exclusively by the Foundation; now a portion of them also reaches ecosystem developers. In other words, the distribution of resources has changed, but the total amount of resources has not.
Therefore, the fundamental problem remains unchanged: once there is no more capital left to extract, the system effectively comes to an end.
Because most other Councils are on the receiving side of this distribution, discussions tend to focus on how to reallocate the available funds rather than how to structurally transform the economy. If full authority is delegated to xGov in its current form, I fear it will end in a situation where the network collapses, but participants are satisfied because they managed to extract some value before it happened.
