Algorand’s Foundation states it is wholly dedicated to creating a blockchain ecosystem that is not only equitable for its users but also built on a carbon-negative network. But they recently caused friction with their user base when their APY was cut drastically. Users may have no need for concern, however.
Recently, many users were quite disappointed at the sudden slash of Algorand’s APY. People closer to the project probably were ready for this, but more casual holders probably weren’t as informed and were caught by surprise. While the slash in APY seems bad, things are actually good for ALGO holders as their Governance system takes place instead of the Rewards program and can actually net an even bigger APY.
Recently the Algorand project moved to a decentralized Community Governance model which is a system that enables all the ALGO holders to participate in the decisions taking place in the ecosystem. The system can be described as follows:
- Each year is divided into 4 quarters (4 governance periods), and each period will have, at least, one voting session, and you (the governor) will need to vote
- Every period each governor can submit whichever ALGO they decide
- The voting sessions will have a specific place explaining all the information you need to know to decide on the vote
- Should you be uncertain about the vote, there is a “vote with the Foundation” option to simplify the process
- If you do everything correctly (the process is quite straightforward), at the end of the Governance period you will be able to claim your rewards
- The rewards you will collect are tied to the amount of ALGO you committed and the Rewards Pool is different each period, according to the number of governors and ALGO submitted
The existing rewards program, the one that got its rewards slashed is stabilizing at 1% annually. Now, I’m not sure if that program is already over or not because I’m not an ALGO holder and the Algorand website itself lists two different dates for the end of the rewards program. One is February 27th and the other page lists May 15th (although the former seems to be the correct one). Nevertheless, if you were in the Rewards program, you should’ve received your rewards by now, and if you’ve joined the Governance Program (the 1st governance period of the year is ending March 31st), you can claim the rewards from both. If you haven’t been a part of any of it, you can join the next governance period, which starts on April 1st and should end on June 30th.
How Governance Rewards Work
The way to initiate participation is easy. You only need to connect your wallet to the Algorand Governance, then you vote and commit whichever amount of ALGO you decide and that’s it! The committed ALGO doesn’t leave your wallet.
If you fail to vote or fail to maintain the committed number of ALGO in your wallet, you will lose the rewards for that quarter. This means you can still use your ALGO, just make sure to keep as much as you’ve committed in your wallet. (Let’s say you have 600 ALGO and you commit 500 to governance, you can still use 100 or less for whatever you need) Should you need to use a greater amount of ALGO making you ineligible to receive the rewards for that quarter, you can leave that quarter’s governance at no penalty.
- There are about 300 million ALGO committed to the Reward Pool for Governance in 2022 and that means each quarter will have 75m ALGO up for reward distribution. Now, the amount of ALGO you will receive is always going to be a % of what you allocate for the governance, but the fewer total ALGO submitted means the higher the rewards for each user. So let’s say in Q2 2022 there are 4 billion ALGO committed for governance, you will net 1.875% reward that quarter. But if there are only 1 billion ALGO committed, then those 75m for rewards will net each governor a much higher rate, setting at 7.5% per quarter.
- Note that these % rates are per quarter. So if there are 1b ALGO committed for governance each quarter of 2022, you can net 7.5% per quarter, adding to a 33.5% APY on your committed ALGO. Obviously, there will be a varying degree of ALGO committed per quarter, so the APY will differ, but that isn’t a problem because you get your rewards every quarter! Note that on top of whatever rewards you get from governance, you will also get a 1% annual bonus from the old Rewards program!
So, as you can see, while the slash in the Rewards program was unpleasant, Algorand’s Governance system can actually net you greater profits, and it’s making you a vital part of the ecosystem and its future.
As always, you should inform yourself more. Research is the backbone of good investing.
Via this site.