Cross-chain ALGO Liquid Governance

The Algorand Foundation introduced decentralised 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 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 Cross-Chain Liquid Governance aims to solve this problem by introducing a new token called xALGO. The “x” is for cross-chain as the token can be bridged to other chains such that non-Algorand users can benefit from the liquid governance yield.

xALGO has become the first cross-chain governance DeFi product between Algorand and other chains, opening up new opportunities for users to capitalize on ALGO holdings.

xALGO is an interest-bearing asset that brings Algorand governance yield to other chains, allowing for a continuous governance commitment without periodic burning.

The first chosen chains are Avalanche and BNB Smart Chain, and the bridging process is operated using Wormhole technology.

Economic Model

The xALGO is an interest bearing where its underlying value increases after each governance period. Its value in ALGO is defined by the formula:

$$xALGO\ value = 1\ ALGO,\ if\ xALGO\ circulating\ =0$$

$$xALGO\ value= \frac{\text{ALGO locked}}{xALGO \text{ circulating}},\ if\ xALGO \ circulating > 0$$

When minting and burning xALGO, the ratio of ALGO locked to xALGO circulating remains the same.

E.g. if there is 110 ALGO and 100 circulating xALGO, you must provide 1.1 ALGO for every 1 xALGO you mint and you will receive 1.1 ALGO for every xALGO you burn.

Minting and Burning

Users can mint and burn xALGO on Folks Finance only during the Algorand Governance commitment period, which occurs at the beginning of each quarter.

When xALGO is burned, the initially deposited ALGO and the underlying accrued governance yield will be redeemed.

Trading

Folks Finance UI integrates LI.FI aggregator to simplify the xALGO trading directly on the dApp. Users are able to freely trade xALGO on BNB Smart Chain and Avalanche outside of the commitment period.

If a user buys xALGO outside the commitment period, they are always able to burn them during the commitment period to redeem the underlying ALGOs.

Fees

A fee will be charged each governance period after the commitment period has ended. The mechanics of the fee is that the treasury is able to mint a percentage of xALGO at no additional cost. The fee is currently set to 0.3% of the xALGO circulating supply, which corresponds to roughly 10% of rewards based on historical governance periods' APRs.

Algorand Governance Voting

Currently, xALGO minters face technical limitations preventing them from participating in Governance voting directly. The discussion for solutions has been held on the Folks Finance Forum.

xALGO holders intrinsically hold voting power in Algorand Foundation Governance; their voting power is being delegated to Algo Liquid Governors as approved in Folks Finance governance measure N°2 GP7.

E.g. If 60% of Algo Liquid governors (who mint gAlgo) vote for the first option and 40% for the second option, xALGO votes will be distributed proportionally as 60 % for first option and 40% for the second one.

xALGO vs gALGO

xALGO	gALGO
An interest-bearing asset that brings Algorand governance yield into Avalanche and BNB Smart Chain	Wrapped version of ALGO, allowing to participating in Algorand Governance while maintaining liquidity
Available on Avalanche and BNB Smart Chain	Available on Algorand
xALGO doesn’t need to be recommitted/burned each governance period	gALGO needs to be recommitted/burned each governance period
Dilution fees, 0.3%	0.3% on the minted amount
xALGO value= ALGO locked / xALGO circulating	Minted 1:1 to ALGO
It can be minted during the whole commitment period	It can be minted during the second week of the commitment period
xALGO accrues Algorand Governance yield intrinsically during the distribution period.	The Algorand Governance yield is not accrued on gALGO but directly on the wallet address that committed the original ALGOs.
The voting power is being delegated to Algo Liquid Governors as approved in Folks Finance governance measure N°2 GP7.	Users can either vote according to their preferences directly on Folks Finance or not vote but still be eligible for rewards