ALGO Liquid Governance
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 Algorand Foundation model requires users to commit their ALGO for a 3-month period. During this time, users must maintain their committed ALGO balance in their wallet in order to be eligible for rewards. This means that users’ ALGO are illiquid and effectively locked if they plan to earn rewards.
Folks Finance Liquid Governance solves 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.
gALGO (Governance ALGO) is a wrapped version of ALGO, minted by Folks Finance, that allows users to participate in Algorand Foundation Governance without renouncing their liquidity. In other words, it is the Folks Finance Algorand Governance token and it is minted at a one-to-one rate with the committed original ALGO in the Folks Finance platform. Therefore, users who minted gALGO during any relevant Governance commitment period are eligible to participate in the Algorand Foundation Governance and any Folks Finance proposals related to it. Users can use their gALGO freely in the ecosystem – for example: as collateral on Folks Finance, to interact with DEXs, to purchase NFTs, and to use in games.
Folks Finance Liquid Governance boasts a series of unique features that make it the optimal choice for participating in the Algorand Foundation Governance. Following is a list of advantages:
✅ Users who commit their ALGO by minting gALGO for the period are guaranteed to receive rewards. ✅ There is no expectation to maintain your gALGO balance or vote on governance proposals to receive rewards. ✅ Voting allows the user to express his/her voting wishes for Algorand Foundation proposals and also the Folks Finance Governance proposals. ✅ gALGO 1:1 to ALGO guaranteed on Folks Finance. ✅ gALGO ecosystem. ✅ DeFi boost: The Algorand Foundation decided to incentivize DeFi platforms by allocating 15 million ALGO to be distributed as a governance incentive. ✅ Up to 4x leverage available.
During the commitment period on Folks Finance, users can commit their ALGO into governance by minting, at a rate of 1 to 1, gALGO. 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 committed ALGO during the Folks Finance commitment period are NOT forced to hold gALGO to be eligible to receive the governance rewards.
Starting from Governance Period 7 Q2 2023, Folks Finance allows users to sign up as xGovs. When committing your ALGO on Folks Finance, users will have 2 options: sign up as an xGov or sign up as a general governor.
Leveraged commit allows users to loop their governance commitment with up to four (4) times multiplier. It is a loan position using gALGO as collateral to borrow ALGO.
- FLASH LOAN A flash loan is used when the user does not have in their wallet enough ALGO to complete the loop. Here is an example. No flash loan case: - User A has 300 ALGO in his wallet, and wants to commit 100 ALGO with a 3x multiplier, - The loop operation uses 300 ALGO from his wallet to complete the operation, - 200 ALGO are returned to the user's wallet. Flash loan case: - User A has 100 ALGO in his wallet, and wants to commit 100 ALGO with a 3x multiplier, - The loop operation, through a flash loan, borrows the missing 200 ALGO to complete the loop.
- Can users be liquidated? gALGO is pegged at a one-to-one rate with ALGO on Folks Finance. This means that the only way users can get liquidated is from the accrual of high borrow interest. This scenario is unlikely as the frontend limits the maximum LTV ratio such that there is a considerable margin of safety. However, we recommend users still monitor their loan positions throughout the governance period. For more info on how interests work, read the Interest rate model page.
- How do you close your Leveraged Commit? To close your Leveraged Commit, you will have to repay the ALGOs you have borrowed, withdraw your gALGO collateral and uncommit from liquid governance. At the end of the governance period, there will be a single operation that you can use to redeem your gALGO collateral for ALGO (at a one-to-one rate) and use that to repay your loan.
- Fees If the user performs a Leveraged Commit, they will pay the normal fees of a loan operation plus, if necessary to complete the operation itself, those of the flash loan. To get a better understanding of the fees, see this page.
The ability to redeem 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 redemption period of Governance Period X overlapped with the commitment period of Governance Period X+1, a user could theoretically commit ALGO in the new period (thereby guaranteeing themselves rewards) and then give back his/her gALGO in the old period; stealing from other users at no cost to themselves. Therefore the redemption of old ALGO and the commitment of new ALGO cannot overlap.
After the gALGO holders vote, it has been decided that the redemption 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 mechanism requires the introduction of a function, the pre-mint.
Thanks to the pre-mint, users who have never minted gALGO (or want to mint more), are not forced to wait one week to mint gALGO. The gALGO will then remain locked and automatically sent to them as soon as the redemption period has ended. Users will still be able to un-commit and get the ALGO back before the end of the commitment period.
During the Redeem period of ALGO Liquid Governance, repaying an ALGO loan with gALGO can be done by redeeming the gALGO at a one-to-one rate instead of swapping with slippage.
Folks Finance governors are eligible for governance rewards regardless of what they do with their gALGO, and with no requirement to vote. In addition, all Folks Finance governors will receive higher APY thanks to a DeFi boost of 15 million of ALGO.
The rewards of the governance period will be sent directly to your wallet as soon as the foundation distributes them
Only users who committed their ALGO 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. If a user does not vote for whatever reason, Folks Finance will vote on the user's behalf proportionally to the preferences of other Folks Finance Liquid Governance users.
In Governance Period 3, Algorand Governors voted to implement a community-sourced solution for proposing measures into traditional Algorand Governance.
Starting from Governance 7 Q3 2023, Folks Finance started to support xGov signup in Liquid Governance. xGov will offer users of Liquid Governance the option to strengthen their impact toward building a more decentralized ecosystem, via on-chain proposals and votes.
The process is quite simple. Users can choose to take part in the xGov program or not.
- In the first case they will block rewards from that governance period for the next four quarters. During the next governance period they can then choose to remain xGov by blocking new rewards for the next four quarters or decline the option.
- If one chooses to be an xGov, the Algo rewards that one would have received are now the xGov’s voting power in the xGov program.
- Once Folks Finance registers an xGov, it is the xGov’s responsibility to fulfil all further requirements in order to maintain their eligibility in the xGov program.
The option to commit in Governance as an xGov on Folks Finance is reversible while the commitment window is still open. When the commitment window closes, your decision will be finalized for that specific Governance Period.
Due to the change in design, Early Claim in gALGO will no longer be available
The potential xGovernor must also be aware that failure to use 100 percent of their voting power each period will be grounds to become ineligible. For example:
1) If you had 100 Algo committed to xGov, and 1 Algo = 1 Vote, then you have 100 votes.
2) If three xGov proposals must be voted on, then you must distribute each of your 100 votes across all three proposals (eg. 50 on Proposal ‘A’, 20 on Proposal ‘B’, 30 on Proposal ‘C’). Should you have any votes leftover, there will be a mechanism or “mock proposal” to use this “excess” voting power. At the end of the 1-year lockup, assuming you have fulfilled your duties, your Algo will be unlocked and awarded.
xGov program is not mandatory, nor are there any minimums or maximums to commitment levels should one choose to participate. Traditional Governors may continue to use Folks Finance and will never have to worry about becoming ineligible or losing rewards due to not voting. This is due to the passing of a Folks internal measure to proportionally allocate unused voting power equally amongst Folks Finance Governors who did vote in a given period. Read all the details about xGov program here.