December 24th, 2021 -An overview of the Community Governance Rewards model for period 2.
The Decentralized, Community Governance Rewards model has been designed to highly value and reward the commitment of Algorand Governors to the Algorand ecosystem and their participation in voting.
Let’s look at the rewards that Governors could earn in the second governance period, starting January 1st:
The first important information to note here is that the existing participation rewards program will finish on approximately February 27th, 2022 and participation rewards will be earned alongside governance rewards during this period. So each Algorand Governor who is holding Algo in a live wallet will receive their participation rewards as before up to February 27th, 2022, when the program closes.
Participation rewards are now running at a rewards rate of ~1% annualized. On top of this, 70.5M Algo has been allocated as the governance rewards pool for the 2nd Governance period as a result of the first ever Governance vote in Governance period 1. As modeled using the same method as the Decentralizing Algorand Governance Proposal this will lead to a range of scenarios depending on the level of participation in governance:
- If there are 3 billion Algo committed in Governing Accounts for that quarter, their rewards will be 70.5m/3b = 2.4% for every Algo committed for the quarter, corresponding to annualized 9.4%, to be added to the return from participation rewards, totalling 10.4%.
- If there are 2 billion Algo committed in governing Accounts for that quarter, their rewards will be 70.5m/2b = 3.5% for every Algo committed for the quarter, corresponding to annualized 14%, to be added to the return from participation rewards, totalling 15%.
- If there are 1.5 billion Algo committed in Governing Accounts for that quarter, their rewards will be 70.5m/1.5b = 4.7% for every Algo committed for the quarter, corresponding to annualized 19%, to be added to the return from participation rewards, totalling 20%.
An Algorand Governor, participating in the second Governance period can expect to claim an annualized rewards rate of ~1% from the old participation rewards model and also claim a Governance reward rate (annualized) that will likely fall in the range of 9.4% to 19%. So a Governor could expect to claim a total annualized reward rate between 10% and 20% in that first period. These are the likely upper and lower bounds of what will be possible and a governor might expect to see the initial reward rate fall between these 2 levels. The reward level for this governance period is consistent with the long term economic design underlying the LTAD, whose sustainability under Community Governance is explained in the Algo Economic Evolution Report.