In April 2022, popular cryptocurrency blockchain Algorand announced that it would no longer issue staking rewards to ALGO holders. Instead, the network would now offer rewards through its governance mechanism. So how does this work and can you still profit with your ALGO holdings?
Algorand’s move to governance rewards
Algorand, a popular blockchain and cryptocurrency, launched its staking rewards program in 2019. Algorand has provided 200 million ALGO here to distribute to those who have wagered their ALGO funds.
Before April 2022, you could stake your Algorand funds the same as Ethereum, Cosmos, Tezos, or other popular staking assets. This is because Algorand works with the proof-of-stake consensus mechanism. A number of exchanges offered Algorand staking, including Binance, Coinbase, and KuCoin, as well as numerous software and hardware wallets.
But after all of that 200 million ALGO was dealt, Algorand’s passive staking program ended. However, this does not mean that Algorand holders cannot continue to earn rewards. With Algorand’s Governance Rewards program, you can still make a profit on top of your existing ALGO, but the process is different.
So how does it all work?
Algorand’s governance rewards program
In the crypto world, the term “governance” refers to the decisions made about the progress of a network or project. Many people can participate in governance, including developers, network nodes (validators or miners), and regular users. This ensures that the decisions for the future of a project are not made solely by its creators or operators.
Governance mechanisms have become very popular among DeFi and crypto projects, including within Algorand’s network.
The governance rewards process is powered by Folks Finance, a zero-carbon lending and borrowing DeFi protocol.
Within governance, programs are governance tokens. In the case of Algorand, a token called “gALGO” is used. gALGO is pegged to ALGO on a 1:1 basis, meaning that the prices of the two assets are the same.
If you are eligible to vote within Algorand’s governance program, you are rightly referred to as a “Governor”. But you can’t become a governor just by enrolling. Instead, you must submit a certain amount of your gALGO to qualify for the governance program. In this way, Algorand’s Governance Rewards program is similar to staking.
However, governance rewards are distributed in ALGO, not gALGO. But gALGO can be used as collateral within the Folks Finance ecosystem for lending and borrowing.
Algorand’s Governance Rewards program moves through distinct phases referred to as “Periods”. The network has now reached the end of its period three voting window, with the period four window expected to open in early September 2022. You must commit your ALGO for three months for the governance period.
Algorand currently has over 33,000 governors in its network, each with the power to vote within Algorand’s development. This growing network of governors makes Algorand’s decision-making mechanism even more decentralized.
Your winnings in Algorand’s Governance Rewards program depend on how much gALGO you initially deposited. This is because the rewards given to each user are proportional to their initial stake.
One great thing about Algorand’s Governance Rewards program is that you don’t have to pay any fees. Fees are fairly common in the staking space (although some platforms offer free staking) and can significantly affect your overall earnings. So, by participating in Algorand’s governance mechanism, you don’t have to worry about losing your rewards to fees.
It’s worth noting that you must vote on every decision presented to the governors in order to remain eligible for your rewards. This ensures that all governors participate in the process. If you withdraw your promised ALGO during those three months, your award eligibility will also be revoked.
Users can earn up to 10.02% APY on their committed ALGO through Algorand’s Governance Rewards program.
Algorand’s governance mechanism offers rewards for your votes
By participating in Algorand’s Governance Rewards program, you can have a say in the progress of the network while earning some healthy rewards. While passive rewards are no longer available on Algorand, you can still earn a profit by casting your vote.