xALGO FAQ
What is xAlgo, and how does it work?
xAlgo is an interest-bearing asset that is backed by underlying Algo committed to Algorand’s governance.The vital thing to note here is that xAlgo is always backed by the Algo committed to Algorand’s governance mechanism.
What does it mean for a wrapped token to "depeg" from its underlying asset?
When a wrapped token "de-pegs" from its underlying asset, it means that the market value of the wrapped token has deviated from the value of the underlying asset. Ideally, a wrapped token is intended to be maintained at a predefined ratio with its underlying asset. However, external factors such as market fear, uncertainty, and doubt (FUD) can cause the wrapped token's value to fluctuate independently.
What is the ratio of xAlgo to Algo?
The ratio depends on the amount of Algo deposited in the xAlgo mint pool compared to the amount of xAlgo in circulation.
For example, if there are 100 Algo and 100 xALGO at the beginning of governance, the ratio is 1:1. At the end of governance, assuming a reward rate of 15%, 15 ALGO will enter the pool. The new ratio will be 115/100 = 1.15
This means that to mint 1 xALGO, you will need to burn 1.15 ALGO.
You can calculate the current ratio by taking the amount of the Algo deposited in the xAlgo mint pool (decreased by the minimum balance amount required to be kept in the pool that is equal to 0.2 ALGO) here and dividing it by the xAlgo’s circulating supply which can be found here.
You can refer to the documentation on the economic model of xAlgo here.
Is ALGO still held and maintained at this ratio with xAlgo?
The underlying Algo is still held and maintained at the above-mentioned ratio. The de-pegging is a market phenomenon and does not affect the collateralization or backing of the xAlgo token by the underlying Algo.
How does temporary market volatility affect xAlgo’s peg?
When there is heightened volatility in the market, i.e., excessive selling pressure, combined with a lack of liquidity, the price of xAlgo can deviate from the underlying Algo. However, as volatility reduces and normal trading activity resumes, combined with arbitrageurs who spot the price mismatch and buy the underpriced xAlgo to be redeemed subsequently, the peg is restored eventually.
Have there been any other de-pegging incidents like this in the crypto space in the past?
Yes. There have been multiple incidents like this in the past with various wrapped assets.
Eg. A de-peg incident happened in 2022 where the liquid staking token stETH, which is backed 1:1 by the ETH staked in Ethereum’s network security mechanism, lost its peg. It was trading at a discount of as much as 7% to ETH. Eventually, it regained its peg as the ETH backing stETH was safe and could be redeemed later.
What factors will contribute to the resolution of the de-peg?
At the end of the current governance period, xAlgo can be burned for the committed Algo + the accrued rewards (through the mint and burn mechanism). This burn would be at the ratio computed in FAQ no. 3 irrespective of the current price of xAlgo. Therefore, the burning mechanism would eventually provide the resolution for the de-peg.
How can token holders protect themselves and mitigate risks during temporary market volatility?
Token holders can protect themselves during temporary market volatility by avoiding panic selling, and conducting thorough research on xAlgo’s underlying asset (Algo) and the redemption/burn mechanism. Also, understanding that short-term market fluctuations are part of the crypto market's nature can help mitigate emotional decision-mak
What is the difference between xALGO and gALGO?
xALGO | gALGO |
Interest-bearing asset that brings Algorand governance yield into the BNB Smart Chain | Wrapped version of ALGO, allowing to participating in Algorand Governance while maintaining liquidity |
Available on 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 GP8. | Users can either vote according to their preferences directly on Folks Finance or not vote but still be eligible for rewards |
What is the difference between xALGO and gALGO?
Open your Metamask wallet
Enter 0x0034719300501B06E10Ebb1D07ea5967301F0941 as token address
Enter xALGO as a name
Type in 6 as a number of decimals
Click on Add Custom Token
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