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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.

ALGO Liquid Governance Advantages

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.Early Claim allows users to claim in advance their rewards in the form of gALGO. ✅ 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. ✅ x4 times automatic loop.

Commit

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.
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.

Leveraged Commit

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.
  • NET APY The Net APY takes into account the APR you will earn from Governance and the APY related to the interest on the ALGO loan that you will have to repay.
  • 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 button 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.

Redeem

At the end of the governance period, users will be able to redeem their ALGO by giving back gALGO at a one-to-one ratio.
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. In addition, to make the transition between two Governance periods easier and smoother, Folks Finance has implemented the possibility to Redeem and Commit through only one operation, available through the Redeem feature. Thanks to this, the users, who have previously committed ALGO, can simultaneously redeem them in the finished period and commit in the new one.
Please note.
During the Redeem period of ALGO Liquid Governance, repaying an ALGO loan with gALGO will be done by redeeming the gALGO instead of the swapping.

Rewards and DeFi boost

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.

Early Claim

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 redeem ALGO at a one-to-one rate as per normal, at the end of the governance period through the Redeem operation.
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. Folks Finance will distribute these revenues in the Algorand Ecosystem.
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.
Why anyone would want to claim their rewards early?
  • 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.
Numerical Example:
  1. 1.
    Alice mints 100 gALGO and thereby commits 100 ALGO.
  2. 2.
    At the end of the commitment, the APR is 12%; Alice can early claim 3 gALGO.
  3. 3.
    A month has passed, and the APR is 13%; Alice early claims 3.25 gALGO.
  4. 4.
    At the end of the governance, the APR is 14%; the protocol receives 3.5 ALGO for Alice’s commitment.
  5. 5.
    Alice redeems her 3.25 ALGO giving back 3.25 gALGO; Folks Finance retains 0.25 ALGO.

Voting

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.
Note:
  • 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.

Algorand Governance proposals

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.
Suppose there are 10 million gALGOs eligible to vote 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.

Early claim interests and unredeemed ALGO

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 unredeemed ALGO 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 commit ALGO,
  • Projects that use gALGO in DeFi. (e.g. DEXs, lending protocols),
  • Projects that accept gALGO as payment. (e.g. NFT marketplaces),
  • Community gALGO supporter.
Here is the distribution of the last governance period: