Introduction
In this publication, we will approach the new decentralization proposal proposed by founder Silvio Micali, which besides bringing more decentralization, will also allow investors to have a more protagonist role in governance, besides greater rewards. You can also participate in this discussion through the channel at Discord, or if you prefer to participate in our group at Telegram, feel free.
Discorc Channel about Algorand Governance
Telegram Algorand Community - Global
Telegram Algorand Community - Brasil
Current state and perspective of innovation
Currently, all Algorand accounts can participate in the consensus, but not in governance. What is governance for? It is through it that the participants can decide non-consensus tasks, being the financing of aid proposals or incentives, for example. It is like in a government itself, the members elected by society have the power to vote on proposals and projects that change the way things work based on their proposals and perspectives.
As the next step toward responsible decentralization of the network, we want to introduce a mechanism so that any account not only participates in the consensus, but also governs.
Objective
What is the objective? The objective of the proposal is to decentralize the governance of Algorand, in order to align the rewards of the network with it. More precisely, it presents the mechanics and incentives that guarantee a governance such as the consensus protocol, which is simultaneously decentralized, safe and efficient, based on the blockchain trilemma solution.
Summarization
This participation in governance will be voluntary, that is, those who choose to participate in governance will lock up their assets for a certain period of time, initially proposed to be one year. The governance accounts will be rewarded for their work. We anticipate that the rewards obtained by the management accounts will be higher than the current rewards that will be replaced.
We propose to implement gradually, starting with the decentralization of funding for grant proposals submitted to the Foundation.
Consensus x Governance
Consensus
Before understanding the guiding principles for participation in governance, let's remember the principles for participation in consensus and highlight the differences between these two forms of participation through Algorand. The consensus consists of the process of launching the next blockchain and checking if the transactions are valid. But, in Algorand, consensus enjoys some unique characteristics, as we will see below:
Easy: it does not require any significant computational resources and can be executed in the background, by a common computer;
Voluntary: Algorand accounts can freely choose whether or not to participate in the consensus;
Uncompensated: since consensual participation requires only minimal computational effort, it does not require any separate compensation and is not compensated;
Unmonitored: since there is no compensation linked to consensual participation, there is no need to verify whether an account actually participates in the consensus and such participation is in fact unmonitored.
The above-mentioned guiding principles have been in force since the network was launched. There are currently procedures in place to approve and implement updates to the consensus protocol. Three main consensus updates have already been successfully implemented, without changing the characteristic principles of the consensus protocol. These principles are in line with this proposal. Participation in governance, however, is quite different and requires different principles.
Governance
Governance is not algorithmic. It requires personal attention and time. Consequently, it has been proposed that, in Algorand, the participation in governance will be as follows:
Voluntary: Algorand accounts can freely choose whether or not they want to participate in governance;
Compensated: the management accounts will be compensated;
Monitored: governance accounts will be monitored to verify real participation in governance;
Blocked: governors make decisions that deeply affect the growth of the Algorand ecosystem. To ensure that they will be affected by the votes they cast, the governors of the accounts serve for one year and block their assets throughout the year. The rewards that governors earn, however, are not locked up, i.e. they are deposited directly into the unblocked accounts chosen by the governors themselves.
The objective is to decentralize governance and synchronize the rewards of the network with it, through the creation of structures that ensure secure, proficient and decentralized governance. In simple terms, Algorand doing what it did by consensus protocol for its governance.
We can understand what Algorand proposes to do through four aspects:
Compensation;
Mechanics;
Early withdrawal;
Network rewards.
Compensation
Currently, governors receive rules from the Foundation regarding compensation to be paid, but it is unlikely that there will be great adherence to the governance plan if the compensation was not favorable. Instead of a centralized method of compensation levels, governance reward rates can be chosen in a more decentralized manner. This attracts Dutch action and clearly this will be within the constraints set by the Foundation.
Mechanics
In relation to the mechanics of Algorand's governance, we will see that it implies the voting process that allows the decision to govern to be taken collectively and not individually, from the advent of decentralization. Generally, the mechanics of governance is restricted to governors and the Foundation. These two parties have roles that they play in the system: the governors decide, while the Foundation facilitates.
The mechanics of governance is governed by a series of protocols, which are: convenience, monitoring, voting options, transparency, zero censorship, zero spamming, voting deadlines, voting sessions, separate governance keys.
Convenience: mobile portfolios should be available for governance voting;
Monitoring: currently, monitoring has been feasible through the transparency of the blocking chain;
Voting options: Voting sessions should be equipped with the Foundation's voting option;
Transparency: for transparency, session items could be suggested by any member of the community. The following items should be posted in the blocking chain before being included in a session. All polls on items requiring a vote should be conducted by the Foundation and all votes should be taken by the Foundation first. This also applies to publication if votes are published at the time of publication of a session.
Zero Censorship: refers to the event of an item being posted for up to 6 months without having obtained inclusion in a voting session. Governors should then vote on a session with an item, publishing on the chain transaction if 25% of the governors' participation is in support.
Zero spamming: regular transactions are processed algorithmically while government items are processed by human beings. Spamming should therefore be excluded to avoid wasting the time of both governors and the Foundation.
Voting deadlines: The Foundation should give people a maximum of 30 days to vote. Voting deadlines for sessions posted on D-Day and votes posted on that deadline have the exclusive right to be posted.
Voting sessions: This requires governors to vote on a set of items, providing each item with a brief summary, options for YES and NO, a link to details of that item, and the name of the item.
Separate governance keys: for governance votes to be transitional and expire quickly after each voting session, governance votes must be digitally signed by governance-participation keys that are separate from consensus and expense-participation keys. Users can also maintain management accounts with custody providers without losing the power of the governance vote.
Early Withdrawals
Early withdrawals from governance accounts should be imbued to encourage blocking for participation in governance. These withdrawals would be made on the condition that governors withdraw a maximum of 90% of the blocked assets within 30 days. Through penalties, governors would be discouraged from withdrawing from their blocked accounts. For each withdrawal, governors pay 10% of the tokens withdrawn and lose all rewards for the month in which the withdrawal occurred.
Network Rewards
The network's rewards will cover the seven-year period with an annual fee of 8% in 2021, which will be reduced to 1% by 2028. This is a very interesting change from the previous network reward asset rate, which amounted to 6% in 2020, which according to estimates was slowly heading towards zero within 3.5 years. Without a doubt, it would be impossible to achieve functional and efficient decentralization in all aspects of governance. The proposed strategy is to work in a stable but effective way, starting from vital areas before integrating other areas in this change.
Benefits
The extension of the symbolic dynamic will lead to a more significant innovation in the Algorand network, will contribute to business and good social projects, which will advance the relevance of Algorand. The benefits will provide support to the ecosystem, community incentives, decentralizing decision making, the latter already proposed by founder Silvio Micali and his team. About this proposal, Algorand moves away from its initial concept of rewards, which aimed to benefit all participants in the network. A new reward system will help participants to contribute to the governance of the ecosystem. However, these users will first have to lock up their assets for a potentially long period. This is necessary for the alignment of incentives, so that participants will have to play a key role in allocating funds to various projects that can benefit the ecosystem.
Therefore, the levels of these rewards will be competitive and the shift from the current design of rewards to the future will be carried out through a careful and balanced transition process that will positively affect tokenomics. The funds initially foreseen for sales will be allocated instead to community incentives, governance participation and ecosystem support with a distribution rate that will avoid inflation and maintain scarcity; thus benefiting Algo tokenomics by providing predictability. Two key areas will be affected by this review: community rewards and ecosystem support program. These areas will be considered to facilitate understanding of the type of DeFi designed by Algorand.
Conslusion
The new ALGO dynamic provides rewards for participation, governance in a community voting system, and service, while developing technology and companies in the lockdown chain and eliminating market uncertainty. This optimizes the economic structure of ALGO, as it moves from initial assignment to long-term assignment of the asset. Blocked tokens for ecosystem support will be transferred, after approval by community governance, to Algorand partners in universities, institutions and investment funds, including organizations and companies committed to network ecosystem development.
This review is a wise move by the foundation because it promotes a greater level of network decentralization and decentralization of governance, overall of the entire ecosystem.
This whole movement that is emerging reaffirms Algorand as a solid company with great potential in the sector, not only in the short term, but essentially in the long term, building the confidence of investors and owners and making them involved. All this is sustainable and will lead to a greater demand for the ALGO asset.
