February 3rd, 2022 - The Algorand Foundation is committed to a fully decentralized Algorand ecosystem. We believe that a governance structure that allows the Algorand community to impact the most important economic, technical, and policy decisions is fundamental to the long-term stability and continued growth of the Algorand ecosystem.

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We were heartened by the level of thoughtful engagement of the more than 50,000 governors that participated in our successful first round of voting. That vote – to determine the mechanism for sharing governance rewards - was a critical first step in our path toward responsible, decentralized governance. Building on that vote, and the community feedback that we have received, the Foundation proposes taking the next significant step along this path by creating a mechanism for the Governor community to put forward measures to be voted on.

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Currently, the Algorand Foundation listens to the broader Algorand community and chooses the measures to be voted upon in the quarterly Governance periods, utilizing the experience and the strategic view of a dedicated team. However we think that our Governance would benefit from a more direct involvement of the different views of the decentralized Governors. Thus in this vote the Foundation proposes establishing a layer of Expert Governors (xGov) which, via decentralized aggregation mechanisms such as DAOs, will have the power to put forward measures for the quarterly governance votes. The Governors that want to support this direction vote A, while those who prefer to keep the current setting vote B.

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Recall that the Foundation does not vote in Governance. Instead, it indicates what it believes to be the most inclusive choice, and allows Governors to select this choice by the ‘vote with the foundation’ functionality in voting. For this vote, the Foundation choice is A.

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Below we expand on the context of this proposal, describe the motivations for it, and outline a possible implementation. This is provided to give the community a better understanding of the direction in case A is chosen by the Governors in the vote, and to receive feedback from the community. Should this initial proposal be accepted, subsequent votes in future governance periods will set the details of the different aspects of the xGov system.

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The Role of Experience

The goal of this proposal is creating a cohort of decentralized decision makers who demonstrate enduring commitment, are knowledgeable of the realities of the Algorand community, and whose interests are aligned with the good of blockchain.

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Our current decentralized community Governance requires that governors have skin in the game, i.e. that they must stand the consequences of their choices on the ecosystem. This principle, implemented via a form of 'locking' for a quarter, serves to incentivize responsible governance: a governor supporting a choice against the interest of the ecosystem is putting at risk some of their own stake.

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Being able to put measures for a vote is a significant upgrade to the power of the governors. It becomes even more important that governors with this power understand the needs of the community and have their interests aligned with those of the Algorand ecosystem. Requiring the support of a higher stake to put a measure to a vote is a necessary step in this direction, but we think that stake is not the only principle to select xGovs. The willingness to commit for a longer time than normal governors, and the experience built through continued service in governance, must also be taken into account. Thus at least one year of commitment is required to become an xGov.

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What happens when expert governors, after completing the one year of commitment, continue to commit their stake for governance? We propose to have this additional commitment increase the weight of their stake when supporting a voting proposal. For example, after a few years of governance, 1 Algo in the hands of a 2-year xGov may have the same weight as 2 Algos of a 1-year xGov.

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The Role of DAO Aggregation

Implementing the principles from above, there are two main issue to solve:

1. There needs to be an aggregation mechanism, so that smaller stakeholders also get an opportunity to influence voting measures. The possibility to aggregate the support of a measure (both stake and experience) should be automated as much as possible.
2. We must  measure upfront the willingness of a governor to commit for a long period and become an xGov, enforcing the commitment and recognize in the blockchain the xGov state when achieved. It would be desirable to tokenize this recognition as NFTs associated with specific governors and their experience.

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Therefore we seek a decentralized framework for aggregating expert governors, based on smart contracts to avoid manual intervention and arbitrary judgment by the Foundation. A DAO structure seems to be the right concept for implementing such an aggregation mechanism. Together with the community, the Foundation will define this DAO structure. A DAO (or a few DAOs) could aggregate governors and mutualize their rewards to distribute them only at the end of the commitment. It could also automatically issue xGov NFTs giving the receiver the rights to propose measures within a DAO, proportional to the length of the commitment.

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It is important to stress that participating in a DAO does not require that the expert governors lock all their stake in that DAO. The necessary commitment we are envisaging is different, as outlined in the concrete example below.

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As an aside, another reason to use a DAO is that it may allow governance to become more ‘liquid’, combining governance and economic activities. A DAO mechanism can be written to give expert governors some ASAs that represent their committed Algos, freeing those governors to use the ASAs in Defi applications even as the Algos remain tied in governance. This could increase the liquidity in the overall platform economy and contribute to the TVL on Algorand. We emphasized that the Foundation DOES NOT propose such a mechanism at this time, but the future feasibility of it provides yet another motivation to use DAO structures for xGovs.

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A Concrete Example

To provide more context on the role of DAO and experience in creating a cohort of xGov, we describe below a concrete example of how the xGov platform can be set up, as a starting point for the discussion. In the example, the principle is to apply extended locking only to the rewards received in regular governance periods. We stress that the description below is only meant as an example and a starting point. Approval of option A in the vote does not imply that the xGov platform be built exactly as described below.

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The xGov platform is implemented as DAOs that intermediate between the expert governors and the existing governance system, as illustrated below. Each Algorand governance period will have its own DAO (or DAOs) for expert governors, so that each xGov token is associated with a different starting point for the computation of experience.

An expert governor's term consists of three phases:

1. Registration phase: In this first phase expert governors serve as regular governors, and in addition they register with the DAO for the period.

• When registering as governors, they specify the DAO as the beneficiary account that should get their governance rewards.
• The DAO verifies their registration as governors, and gives them xGov tokens, which are frozen and cannot be transferred.

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The xGovs must commit their Algos and vote during this phase, exactly like all the other governors. An xGov that becomes disqualified from regular governance is also disqualified from their xGov DAO, and their xGov tokens are clawed back and burned. Once a governance period is over, the governance rewards are sent to the DAO.

2. Extended governance: After registration, the xGov continues to govern with the rewards kept in the DAO for a minimum number of periods, say at least four. The rewards collected by the DAO in previous governance periods (both registration and extended phases) are used to sign up as a governor in the next period. The DAO will vote on behalf of all the xGovs that are registered with it based on their individual indications. xGovs that fail to specify their votes are disqualified from the DAO and their xGov tokens are clawed back and burned.

3. Redemption or transfer. Once the extended governance phase is over, eligible expert governors can use their xGov tokens to claim their pro-rata share of the rewards that were collected by the DAO. The xGov token can also be used to support advancing measures to a vote, for a certain period of time. Also, these tokens can transfer into a new DAO for a new extended governance period, in which case their weight will start growing by the accumulation of experience.

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The Current Governance Vote

In the current voting session for Q1 2022, we ask the Algorand governors to approve in principle the creation of an xGov layer, based on the principles outlined in the question;

• becoming an expert governor entails longer commitment than a current governor
• both stake and experience determine the measure-support power of an expert governor
• serving as an expert governor is done via participation in a DAO.

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Some context and examples have been given above to collect community feedback for the future steps. In principle every xGov will be able to write a measure (minimal rules will be set up to avoid spamming). Then the xGovs will aggregate their experience-weighted stake to select which ones which will be passed to a general vote involving all the governors.

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Importantly, the xGov program will be governed by a set of ground rules, protecting the rights of all governors and the community at large. For example, these ground rules will disallow discriminatory measures that harm some groups and favor others. (An extreme example is a proposed measure to give all governance rewards to a given individual.)

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If approved in principle in this vote, the Foundation will start the process of fleshing out this proposal. The details of the xGov platform and the rules that govern it will be discussed with the community over the coming quarters, and governance will be called on again to approve this program after all these details are determined.