Governance Period no. 1, Vote no. 1, Measure no. 1 (G1V1M1)

Option A: The Governance rewards amount for 2022 will be 282M Algos (70.5M per quarter) while maintaining the current simple locking mechanism: the rewards are distributed among the governors who vote and maintain the committed Algos in their wallet for the entire quarterly period. Governors failing to do so will lose their rewards, but will incur no further penalties.

Option B: The Governance rewards amount for 2022 will be 362M Algos (90.5M per quarter) with a slashing mechanism: the rewards are distributed among the governors who vote and maintain the committed Algos in their wallet for the entire quarterly period. In case of failing to do so, Governors will be subject to an 8% slashing of their committed amount, on top of losing their rewards.

The Algorand Foundation supports Option A. 

In-depth Economic Context to support decision making on G1V1M1.  

It’s worth noting that in both options the total allocated amount for governance rewards for the period 2021-2030 is fixed, the choice of the governors themselves is whether to accelerate a fraction of the allocated amounts or otherwise postpone them for future years.

The rationale behind the proposal is based on community input, during the exploratory governance discussions, that an increase in the rewards should always be coupled with an increase in the commitment level, and this is discussed in detail in the Algorand Economic Evolution Report.

An important context for 2022: 2022 participation rewards will decrease slowly through the year until they are exhausted at year end. This will mark the completion of the Participation Rewards program. This is modeled below.

Economic Considerations of the Options in G1V1M1.

Option A (283m) prescribes a saving of 10% of the allocated amount for governance rewards for 2022. This amount will be transferred equally toward the next three years, 10m Algo per year, thus increasing the future allocation for governance rewards in 2023-2025. 

Option B (362m) prescribes an increase of 15% of the allocated for governance rewards for 2022, which will be subtracted equally from the next three years,12.5m Algo per year, thus decreasing the future allocation of governance rewards for 2023-2025.

A complete simulation of the possible paths for the next 9 years is described in detail in the Algorand Economic Evolution Report. The plot below, extracted from the Report, describes the possible future distribution of allocated amounts which will be decided by governors.

In order to receive the rewards, in both options the governors must participate in all the voting sessions for the whole governance period.

In Option A governors must guarantee that the balance of their wallet is above or equal the committed quantity during the entire governance period, which is currently 3 months. If a governor fails to meet both the requirements, she is not entitled to receive governance rewards, even if her committed quantity is preserved.

In Option B governors send 8% of the committed quantity to an escrow account and commit that the balance of their wallet will remain at a level above or equal the remaining committed quantity during the entire governance period. Governors that fail to meet all the requirements are not entitled to receive governance rewards, and their 8% escrow quantity is recovered into the AERP (Algorand Ecosystem Resource Pool).

It’s important to stress that in both cases the retained quantities, which could derive from unclaimed rewards or escrowed transactions, are returned to the AERP and dedicated to future rewards. The total amount allocated by the foundation to governance rewards remains unchanged.   

The Algorand Foundation supports Option A. As noted in the Decentralizing Algorand Governance proposal, the Algorand Foundation will not participate in voting and will not earn any governance rewards.

Over the next weeks, the Foundation will provide further information and context to aid decision making on this measure