Algorand Governance: Beginners Guide
Algorand Governance: Beginners Guide
Learn what Algorand's Governance is and how to get started with it today!
Welcome back to the Club, gov!
And if you’re new to Algorand, let us be the first to welcome you to this great ecosystem.
In fact, this article is for all you Algorand newbies.
If you need help getting started with and committing to Algorand’s Governance, including choosing a wallet, the Club has you covered.
And if you’re an Algorand vet already in the know, do us a favor and share this with someone who needs it.
We have a lot to cover, so let’s dive right in – starting with an overview of Governance.
What is Governance?
Governance empowers all ALGO holders to participate in the decision making process of the Algorand ecosystem by voting on key issues. To participate and receive rewards, you must commit to maintaining a predetermined minimum ALGO balance (decided by the holder) in your wallet and voting on key issues provided by the Algorand Foundation.
Gov Tip: Your voting power is tied to the amount of ALGOs you committed in a 1:1 ratio (i.e., 1 ALGO = 1 vote).
Each Governance period is three-months long and has at least one voting session, but this is dependent on how many issues are up for a vote. At the end of each session, rewards are distributed to all Governance participants – dubbed “governors” – who kept their minimum balance and voted. Governance APR fluctuates between 6% - 24% each period based on level of participation. The more people that commit to Governance, the lower the APR goes.
In Governance period #2, governors voted to expand the Governance system by introducing Expert Governors, or xGovs. In the future, xGovs will have the power to put forward measures for the quarterly governance votes, effectively replacing the Algorand Foundation’s role in the Governance structure with invested community members.
The xGovs system is still being finalized between the Foundation and the community through Governance voting; however, it’s likely that xGovs will receive more voting power based on their experience. For example, after 1 year of xGov service, your voting power is doubled (i.e., 1 ALGO = 2 votes). But as mentioned, these details are still being decided.
Gov Tip: You can learn more about Governance here. If you want an overview of xGovs, you can find more information here.
Governors have traditionally committed to Governance through the Algorand Foundation’s website directly by locking in the minimum ALGO balance they will hold within their wallets for that period and then voting on the issues proposed later in the period. However, period #3 and #4 have and will introduce new ways to commit to Governance without having to fully lock your liquidity for three months.
Let’s review those options next.
Liquid Staking
Liquid staking enables governors to unlock their committed Governance liquidity and use their capital to earn both Governance and DeFi rewards simultaneously. This is done through the use of staking tokens that are typically pegged to the value of ALGO. The first protocol to introduce liquid staking to the Algorand ecosystem was Folks Finance with their Liquid Governance feature.
With Liquid Governance, governors who commit their ALGOs to Governance through Folks Finance will receive a new asset named “gALGO” – which is pegged to the value of ALGO – in a 1:1 ratio. gALGO can be deposited, leveraged as collateral, or taken off the platform to participate in other DeFi protocols.
Gov Tip: Learn more in our Folks Finance Liquid Governance Guide or within the Folks official documentation here.
Our favorite feature of gALGO is you can immediately begin to participate in DeFi with the asset by swapping it for ALGO directly, using it as collateral, or even providing it as liquidity in ALGO/gALGO LPs. It truly is the most frictionless option to unlock your Governance liquidity, so you can earn a Governance yield while you go to work in the DeFi ecosystem.
The trade-off to unlock your liquidity is your inability to vote on issues directly since the ALGOs committed to liquid staking are pooled together and committed by protocols like Folks. Instead, these protocols will likely hold community votes to determine how to vote. With that being said, these products are fairly new and are still evolving.
Gov Tip: Other protocols like Hone and Ally will be available with liquid staking features tied to Governance in this upcoming period.
Vaults
The third method you can leverage to commit to Governance is vaults. Vaults allow you to take a collateralized position and take loans against your Governance position. The two protocols that have enabled this are Algofi and GARD.
Gov Tip: Check out our Definitive Algofi Vault Guide and our GARD Explained post if you want to learn more.
For the sake of simplicity, let’s review how Algofi’s Vault works to bring this to life.
Algofi’s Vault unlocks users’ Governance stakes through the protocol’s lending protocol. When a user supplies ALGOs to their Vault, Algofi creates and provides them with a new asset named “Vaulted ALGOs” or “vALGOs” which has the same price and collateral factor as ALGOs.
Gov Tip: Check out our Definitive Algofi Vault guide if you want to learn more about how this all works.
Unlike gALGO, vALGO can’t be used on other protocols. Instead, you must take a loan against your vALGO to unlock your liquidity. Obviously this introduces liquidation risks (if loan isn’t taken out in ALGO) as well as interests that must be paid back to receive your original ALGOs. Not quite as frictionless and easy as gALGO; however, Vaults allow users to vote directly on Governance issues vs. relying on a community vote like liquid staking protocols.
Before features like Liquid Governance and Algo’s Vault were available, Algorand users needed to withhold a certain amount of ALGO from Governance if they wanted to participate in DeFi. Now we can commit that allocation back to Governance, earn a passive yield on our positions, and still go to work thanks to assets like gALGO and vALGO.
Check out the below one-sheeter to see how each compares to one another. Note that only one feature could win the point per category.
While there are pros and cons to each method, all three serve a purpose. If you want to learn more about how to leverage all three in your own Algorand DeFi portfolio, check out our latest post on portfolio theory.
Algorand Wallet Options
Now that you’re ready to join the Algorand community and become a governor, let’s review the wallet options you have so you can get your ALGO off exchanges.
My Algo Wallet
Overview: My Algo Wallet is an all-purpose, desktop Algorand wallet that supports DeFi and NFTs as well as basic and advanced wallet actions. With My Algo Wallet, you can interact with all the popular Algorand dApps, purchase NFTs, send and receive assets, and even create multisig accounts. If you prefer interacting with blockchains on your desktop, My Algo Wallet might be the right Algorand wallet for you.
Pros: Desktop compatible, Ledger support, support for all popular dApps, NFT friendly, Moonpay integration, and multisig support
Cons: Limited mobile support; no mobile app
Official link: https://wallet.myalgo.com
Pera Wallet
Overview: Formerly known as the Algorand Official Wallet, Pera wallet is an all-purpose, mobile Algorand wallet. With Pera, you can connect to the most popular dApps as well as send and receive assets. Additionally, Pera has the best NFT support in the ecosystem allowing you to view each NFT you own in a clean UI experience. Speaking of the UI, Pera is a slick app that enables you to see an aggregated view of your holdings / portfolio value in any currency.
If you prefer a mobile experience, Pera definitely has you covered. However, it's worth noting the UX experience can sometimes be clunky with Pera – especially when trying to connect to dApps and/or Governance.
Pros: Mobile compatible, Ledger support, support for all popular dApps, fantastic NFT experience, and Moonpay integration
Cons: No desktop support and occasional clunky UX that can cause frustration
Official link: https://perawallet.app/
Defly
Overview: Defly is Algorand’s first fully functional DeFi wallet mobile app compatible. It enables the use of multiple decentralized exchanges (DEXs) at the same time (aggregator) and helps to find the best rates (arbitrage) – with a slick and user-friendly UI. And it operates as a fully functional wallet, allowing users to send and receive assets. If you’re a DeFi enthusiast who loves trading assets, Defly is definitely a wallet you should consider as a compliment to My Algo or Pera.
Pros: Mobile compatible, DEX aggregator, trading & charting functionality, price alerts (push notifications), and ambitious roadmap (NFT support, cross-chain swaps, and desktop support)
Cons: No desktop support, no Governance support, limited support for NFTs and other dApps (at this time)
Official link: https://defly.app/
How to Commit to Governance
Once you’ve selected a wallet, it’s time to commit to Governance period #4. For demonstration purposes, we’ll showcase how to do this from the Pera wallet, but note that the steps are mainly the same no matter which wallet you’ve chosen.
To begin this process, navigate to the Algorand Foundation’s Governance website and select “Connect Wallet.” Select the wallet you’re using on the proceeding screen:
Connect the account you want to commit to Governance with and select “Use” on the Foundation’s website once connected:
Once your account is connected, select “Commit Algos”, input the amount you want to commit to Governance, and select “Commit Algos” when you’re ready:
Finalize the process by signing the transactions with your wallet:
And it’s that easy to get started with Algorand and its Governance platform!
Gov Tip: You can check out our Algofi Definitive Vault and Folks Finance Liquid Governance guides if you want to commit to Governance through either protocol.
Make sure you share this with any friends who are interested in trying Algorand – especially with prices for ALGO this low.
If you want to upgrade your Algorand DeFi game, use the button below to subscribe to the Club.
And if you want to supercharge your Algorand DeFi earnings, be on the lookout for our Governance period #4 guide set to be released this Friday to our Alpha Club members.
See you around, gov.