🏛️xALGO - Liquid Staking

Algorand is undergoing a significant shift from its traditional governance rewards system to a new consensus rewards model. This transition marks a strategic evolution in how Algorand incentivizes network participation, aligning with its commitment to decentralization and security.

Why the Change?

The shift to consensus rewards is driven by the goal of directly incentivizing participation in the network’s core consensus mechanism, rather than governance alone. While governance rewards were designed to encourage community engagement in decision-making, consensus rewards focus on rewarding those who actively contribute to the security and operation of the Algorand blockchain.

Folks Finance's xALGO and the Shift to Consensus Rewards

The transition from governance rewards to consensus rewards in Algorand is directly tied to the evolution of xALGO. As Algorand shifts its focus toward incentivizing consensus participation, xALGO has been adapted to align with this new rewards structure. Previously, xALGO was associated with governance rewards, allowing users to stake their ALGO and earn rewards. With the introduction of consensus rewards, xALGO now represents staked ALGO and the relative consensus rewards.

What is xALGO?

Folks Finance's xALGO is the primary liquid staking token on the Algorand blockchain. It represents staked ALGO and allows users to earn Algorand Consensus Rewards while remaining liquid on DeFi. By staking ALGO through Folks Finance, users receive xALGO tokens, which accrue value over time as they earn rewards. These tokens can be traded, used as collateral, or borrowed against within the DeFi ecosystem, offering flexibility and continuous yield generation. The value of xALGO increases relative to ALGO as it collects rewards, and it can be redeemed for ALGO at any time.

How Does xALGO Work?

Staking ALGO to Receive xALGO

Users can stake ALGO by depositing it into Folks Finance’s Liquid Staking system

$$\text{xALGO}_{\text{received}} = \text{user\_stake} \times \text{rate} \times (1 - \text{premium})$$

Where:

• ${user\_stake}$ is the amount of ALGO the user is willing to stake
• $\text{rate}$ is the current exchange rate between ALGO and xALGO

$$\text{rate} = \frac{\text{xALGO circulating}}{\text{total\_active\_stake} + \text{total\_rewards} - \text{total\_unclaimed\_fees}}$$

• $\text{premium}$ is the adjustment factor for immediate minting

Premium in xALGO minting compensates for the 320-round delay before newly staked ALGO begins earning rewards. Without it, immediate minters could unfairly benefit from rewards generated by other users’ staked ALGO during this delay. The premium ensures fair distribution of rewards across all participants.

Earning Rewards

xALGO is designed to continuously increase in value as it accrues Algorand Consensus Rewards. These rewards are compounded into the xALGO token, increasing its value relative to ALGO.

Using xALGO

• Deposit (soon): Users can deposit xALGO in Folks Finance

• Collateralization (soon) : xALGO can be used as collateral within the Folks Finance platform, allowing users to borrow against their staked assets.

• Borrowing (soon): Users can borrow xALGO

• Leveraged Staking (soon): Users can employ strategies to maximize their returns by leveraging xALGO within the lending markets.

Burning xALGO

Users can burn xALGO to redeem their underlying ALGO at any time.

$$\text{ALGO}_{\text{received}} = \frac{\text{user\_unstake}}{\text{rate}}$$

Where:

• ${user\_unstake}$ is the amount of ALGO the user is willing to unstake
• $\text{rate}$ is the current exchange rate between ALGO and xALGO.

Advantages of xALGO

• Continuous Yield: xALGO automatically accrues Algorand Consensus Rewards without the need for active management.

• Liquidity: Users can maintain liquidity while staking, allowing them to participate in the DeFi ecosystem.

• Flexibility: xALGO can be used in various strategies, from borrowing to leveraged staking.

Folks Finance's Fees

Folks Finance implements a fee structure that deducts a portion of the rewards earned through Algorand Consensus participation to support the protocol’s sustainability. This fee is automatically calculated and retained from the total rewards before distribution to users. The fee is set at 10% of the rewards.

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What should I do if I still hold xALGO on some EVM chains?