Algo Liquid Governance
This section describes the functioning behind the Algo Liquid Governance. The feature allows Algo holders to participate in the Algorand Governance maintaining their liquidity.
The Algorand Foundation introduced decentralized governance in Q4, 2021. ALGO holders can participate in the growth, direction 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 ALGO for a 3-month period. During this time, users must maintain their ALGO balance above their committed amount in order to be eligible for rewards. This means that users’ ALGO 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 access their gALGO freely and utilize them as they wish within the Algorand ecosystem: as collateral on Folks Finance, liquidity on DEXs, to purchase NFTs, etc.
Folks Finance Liquid Governance implements a series of unique features that makes it the optimal choice for participating in the Algorand Foundation Governance.
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. Voting allows the user to express his/her voting wishes for Algorand Foundation Proposals and also the Folks Finance Governance proposals. Folks Finance is the first Algorand protocol to effectively delegate its governance vote to its user community.
gALGO 1:1 to ALGO minting/burning along with gALGO's composability within the Algorand ecosystem, makes it the best product for increasing the ALGO capital efficiency.
Aeneas Rewards are distributed to users of ALGO Liquid Governance to enhance APR.
Rewards Early Claim allows users to further increase their capital efficiency as they need.
Users can participate in the ALGO Liquid Governance using Ledger wallet
During the Folks Finance commitment period for a new governance cycle, users can mint gALGO using ALGO at a one-to-one rate. Any user that mints gALGO during this time will receive governance rewards for them, irrespective of what they do with their gALGO. Users will be able to continually mint gALGO for ALGO at a one-to-one rate outside the commitment period, but they will not receive rewards for this.
Users who minted gALGO during the Folks Finance commitment period are NOT forced to hold it to be eligible to receive the governance rewards.
The Folks Finance commitment period timings will differ slightly from that of the Algorand Foundation's commitment period timings. In particular, the Folks Finance commitment period will end 6 hours before that of the Foundation's.
At the end of the governance period, users will be able to burn their gALGO and redeem ALGO at a one-to-one ratio.
The ability to burn gALGO for ALGO at a one-to-one rate is a crucial mechanism that helps gALGO maintain its peg with ALGO. Due to on-chain technical limitations, a given gALGO’s origin cannot be tracked. This is relevant because at the same time Governance Period X ends, Governance period X+1 begins. If the burning of Governance Period X overlapped with the minting of Governance Period X+1, a user could theoretically mint gALGO in the new period (thereby guaranteeing themselves rewards) and then burn that gALGO in the old period; stealing from other users at no cost to themselves. Therefore the burning of old gALGO and minting of new gALGO cannot overlap.
After the gALGO holders vote, it has been decided that the burn period lasts seven days starting from the end of the previous Governance period (e.g., from September 30th 18:00 CET to October 7th 18:00 CET). This is 24 hours after the deadline for Algorand Foundation to distribute governance rewards.
This burning mechanism entails consequences.
- 1.PRE-MINT. If the users have never minted gALGO (or want to mint more) are they forced to wait one week to mint gALGO? No, users will be able to mint gALGO for the new Governance period also during the burn period. The gALGO will then remain locked and automatically sent to them as soon as the burn period has ended. Users will still be able to unmint and get the ALGO back before the end of the commitment period. This function is called pre-Mint.
- 2.BURN AND PRE-MINT To make the transition between two Governance periods easier and smoother, Folks Finance implemented the Burn and pre-Mint feature. Thanks to this, the users, who have previously minted gALGO, can simultaneously burn them in the finished period and pre-Mint gALGO in the new one.
In order to receive rewards, all users will need to do is mint gALGO during the Folks Finance commitment period. There is no expectation to maintain your gALGO balance or vote on governance proposals.
A unique feature of Folks Finance Liquid Governance is that users can early claim their rewards in the form of gALGO. The option to claim your rewards early will be available throughout the governance period (Note: the commitment period is not included). The user will then be able to burn the received gALGO rewards and redeem ALGO at a one-to-one rate as per normal, at the end of the governance period.
By claiming your rewards early, you are actualizing the current APR offered at that time. If the APR increases later as the governance period continues, the protocol will retain the difference between the final APR and that of the APR paid out on an early claim.
If a user does not claim early, they will earn their governance rewards in ALGO in its entirety. However, this will only be available at the end of the governance period once the rewards have been distributed by the Algorand Foundation.
One might question why anyone would want to claim their rewards early? 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.
- 1.Alice mints 100 gALGO and thereby commits 100 ALGO in governance.
- 2.At the end of the commitment, the APR is 12%; Alice can early claim 3 gALGO.
- 3.A month has passed, and the APR is 13%; Alice early claims 3.25 gALGO.
- 4.At the end of the governance, the APR is 14%; the protocol receives 3.5 ALGO for Alice’s commitment.
- 5.Alice burns her 3.25 gALGO for 3.25 ALGO; Folks Finance retains 0.25 ALGO.
During Governance period 4, governors, through the official Governance and Folks Finance, voted to designate 7M ALGOs from the Q4 2022 governance rewards to DeFi governors. These 7 million ALGOs, starting from GOV5, will be split in proportion to the commitment between DeFi protocols that contributed to the governance.
Only users who minted their gALGO during the Folks Finance commitment period will be eligible to vote on governance proposals.
These voting rights will include:
- Proposals of the Algorand Governance program.
- Proposals relating to the Folks Finance Governance program.
- You do not need to hold gALGO in your wallet to participate in voting.
- gALGO looping could be used to increase your voting power.
There is no economic incentive for users to vote. Users are encouraged to vote purely to have their voices heard on Algorand governance and Folks Finance Liquid Governance.
Users will be able to vote on the same proposals as the ones listed in the original Algorand Governance program. Folks Finance will run its own internal vote which mirrors each Algorand Governance program vote and then relay the vote of its users.
Imagine there is 10 million gALGO minted in the commitment period and a proposal with two options A or B. We offer the same vote to Folks Finance Liquid Governance users and the results are:
- 6 million votes for A
- 2 million votes for B
- 2 million unvoted
Folks Finance will then vote with 6 million ALGOs for A and 2 million ALGOs for B.
What about the other 2 million? Folks Finance will divide proportionally the 2 million votes into both options e.g. 6 + (6/8) * 2 = 7.5 million for A and 2 + (2/8) * 2 = 2.5 million for B.
Folks Finance believes in growing the ecosystem, which is why it intends to distribute surpluses due to the Early Claim and the rewards given thanks to the commitment of the unburned gALGO from the previous Governance period. Surpluses will be distributed to our partners that integrate gALGO into their projects.
This could be:
- Projects that allow users to mint gALGO,
- Projects that use gALGO in DeFi. (e.g. DEXs, lending protocols),
- Projects that accept gALGO as payment. (e.g. NFT marketplaces),
Folks Finance together with the gALGO community will decide on the eligibility requirements and exact breakdown of how the revenue will be shared.
Do you want to integrate the ALGO Liquid Governance? Have a look at our official SDK