Algo Liquid Governance 2.0
How gALGO transforms Governance and DeFi on Algorand
The Algorand Foundation introduced decentralized governance in Q4, 2021. Algo holders can participate in the growth and development of the Algorand ecosystem, and in return, they are rewarded for their contribution.
In order to be a governor, the current model requires users to commit their ALGOs for three months. During this time, users must maintain their ALGO balance above their committed amount in order to be eligible for rewards. This means that users’ ALGOs are illiquid and effectively locked.
Folks Finance Liquid Governance aims to solve this problem by introducing a new token called gALGO, minted one-to-one with committed ALGO used in governance. Users can use their gALGO freely in the ecosystem: as collateral on Folks Finance, liquidity on DEXs, to purchase NFTs etc.
On July 1st, the 4th cycle of the Algorand Foundation Governance period will begin. This presents an excellent opportunity for increasing Algorand DeFi TVL through the usage of Liquid Governance. gALGO and the dynamics generated from its use will help the ecosystem grow despite the falling markets, enhancing the strength of a built-to-be sustainable chain like Algorand.
The New Design
Folks Finance has always believed and strongly supported the development of the Algorand ecosystem. The new Liquid Governance design reaffirms that commitment by emphasizing the long-term sustainability of governance and DeFi on Algorand. In particular, the new design includes several upgrades:
- gALGO is now continuous. There will be a single gALGO asset, not connected to a single governance period (unlike gALGO3 which was only for the third governance period). Moreover, the new smart contracts are built to be flexible and adaptable to the future development of the AF governance through xGov.
- New voting system. The Algo liquid governance will allow Folks Finance Liquid Governance users to vote on the Algorand Foundation proposals. Voting will respect our governors’ choices proportionally. In addition, Folks Finance will have its own proposals for how to run the Folks Finance Liquid Governance program.
- No Fees & Early Claim. The new Liquid Governance will not have any fees and will allow users to early claim their expected rewards in gALGO. Users will then be able to burn the gALGO rewards for ALGO as usual at the end of the governance period.
Revenue Share with Algorand Partners
A key advantage of the gALGO design is that users who mint gALGO for the period are guaranteed to receive rewards. There is no expectation to maintain your gALGO balance or vote on governance proposals.
With the standard way of participating in governance, if a user’s ALGO balance falls below their commitment, they become ineligible and will not receive any rewards. The effect of this is that the rewards APR increases throughout the governance period as more and more users become ineligible.
When a user mints gALGO and early claims their rewards, they are banking the current APR offered at that time. If the APR increases later as the governance period continues, the protocol will earn the difference between the final APR and that of the APR paid out on an early claim.
One might question why anyone would claim their rewards early then? Here are some reasons why:
- A user could generate additional yield with their extra gALGO, which is greater than the potential loss in rewards.
- A user could require additional liquidity for a loan.
- A user could want to cash out of their position during the governance period.
- A user could buy an NFT, which they’ve been eyeing up.
- Alice mints 100 gALGO and thereby commits 100 ALGO in governance.
- At the end of the commitment, the APR is 12%; Alice can early claim 3 gALGO.
- A month has passed, and the APR is 13%; Alice early claims 3.25 gALGO.
- At the end of the governance, the APR is 14%; the protocol receives 3.5 ALGO for Alice’s commitment.
- Alice burns her 3.25 gALGO for 3.25 ALGO; Folks Finance revenue is 0.25 ALGO.
Folks Finance has always considered community and ecosystem involvement a key pillar of its philosophy. The Algo Liquid Governance revenue will be distributed to gALGO partners and supporters of the ecosystem, including:
- gALGO minters, i.e. wallet, protocols, marketplaces etc. that will embed the Algo Liquid Governance commitment (see our SDK)
- gALGO pools in DeFi i.e. DEXs/Staking/Lending
- gALGO payment integrators, i.e. NFT marketplaces that gALGO as payment kept at a one-to-one ALGO rate
- gALGO supporters, i.e. will be gALGO Bullish Bounty winners
The final design and percentages will be defined together with the partners and community.
The mission is simple, gALGO and Algo Liquid Governance will be an ecosystem feature from which everyone can earn revenue, the most inclusive and accessible way of empowering Algorand Governance.
Algo Liquid Governance and Aeneas
In order to provide higher competitive rates, Algo Aeneas incentives will be distributed in the Algo Liquid Governance together with strategic incentives to the DEXs’ pools in which gALGO is paired.
gALGO and Algorand TVL
During the G3 period, 12.5M ALGO were committed in the Folks Finance Algo Liquid Governance. These were then used for obtaining loans, providing liquidity on DEXs or for other DeFi strategies. Roughly 12.5M gALGO generated 27M TVL growth across the ecosystem.
The newly-designed Folks Finance Liquid Governance is meant to improve the current model by introducing a single and continuous gALGO, voting system, fee cancellation and the ability to early claim the expected rewards in gALGO. These implementations, together with the composability of gALGO in the ecosystem, will enhance the growth of Algorand DeFi TVL.
Including the ecosystem supports thanks to the revenue share, Algo Liquid Governance and gALGO will empower the Algorand Foundation Governance. gALGO, which is now continuous and not connected to a single governance period, will allow users to optimize their capital efficiency.