Algorand Staking & Governance

Algorand Staking & Governance

This week we are focusing on Algorand staking options and it's governance program. Staking and Governance are excellent ways to earn passive rewards simply by owning ALGO. You can look at it like earning interest through a bank on your fiat currencies (USD, EUR, etc). Well, at least you could back in the days before the deflationary market hit the world. 

In this article I'll shortly explain the Governance Program and how to participate in it, as well as provide different staking options for Algorand. 

It's important to realize that staking and governance are two separate things. While the Algorand protocol itself is true Proof-of-Stake (and continues to be so) it's important to acknowledge that the Algorand Foundations official way of rewarding it's holders will be shifting. The previous staking reward from passively holding in the wallet will be slowly phased out over 2022, and instead rewards will be given through an incentivized governance program. 

Algorand Staking AlgoDaddy

Algorand Staking

There are multiple ways earn passive interest on your ALGOs. I'm presenting them below:

1. The official Algorand Wallet 

Unlike most other cryptocurrencies Algorand offers a way to stake your cryptos without transferring them away from your account - staking through the official Algorand Wallet app on iOS or Android. It's also possible to access the staking rewards by holding your ALGO on a Ledger device. 

After you download the app and set up your account you can transfer ALGOs to it and immediately start earning rewards. You can even see how the reward ticks up in real-time! The accumulated rewards get's transferred to your account every time an transaction from or to your account takes place.

Current offered APY = 4.77%

You see the current staking reward APY and can calculate how much ALGO you can earn here on AlgoExplorer. The APY will slowly decrease throughout 2022 as it's being phased out, and instead holders in the wallet will earn ALGO through the Algorand Governance Program (see below for more information).


Algorand Staking Reward
Algorand Staking Reward Calculator on AlgoExplorer

2. Staking on Exchanges 

You can stake directly on exchanges instead of using the wallet. The benefit is that you don't have to set up the wallet, but the downside is that its always more secure to hold your own keys in your own wallet (like the good old saying goes - "Not your keys, not your coin"), incase something happens to the exchange. Only use trusted exchanges and a limited amount of ALGOs if you're not gonna hold them on the Algorand Wallet app or a ledger. Additionally most platforms only pay out once-a-week or every second week.

A) Kraken - Offers up to 4.75% APY without locking period.
B) Binance - The page states that they offer 8-10%, albeit last payout indicates 4.37% APY
C) BitFinex - Offers between 3-5% APY. 
D) Coinbase - Currently offers 4% APY on staking Algorand. You're automatically opted-in just by holding it in your Coinbase account. Daily payouts.

Algorand Governance Program

Starting from October 1st 2021 Algorand is transitioning to it's governor program and phasing out passive staking rewards as described above (phased out through 2022). The Governance Program was founded to decentralize Algorand even further.

In essence governance means that everyone who owns Algorand can participate and vote on important topics and decisions that will impact the Algorands ecosystem. In practice you'll have to commit a certain amount of ALGO's during a 2 week period before every new 3-month governance period starts, as well as participate in every vote during the three month governance period. You'll get kicked out of the program if you fail to vote or if you fall under your committed amount of ALGO in your wallet during this period. This means no rewards, however there are no other penalties. Don't sweat it though, you can always sign up for the next period!

Every period has a total reward pool of 60 million ALGO. So the reward % for the 3 month period depends on how many ALGO's in total are committed to the program each round.

Calculating the Algorand Governance Reward 

The Algorand Governance Reward Equation:
60 Million / (TOTAL COMITTED ALGO AMOUNT) x (YOUR COMMITTED ALGO) x 4. 

Example:
If you have committed for example 10,000 ALGOs and the total pool of committed ALGOs are 1000 million - 60,000,000 / 1,000,000,000 x 10000 x 4 = 2400

We multiply by 4 to get the theoretical reward for 12 months instead of 3. Now you have your total APY in amount of ALGOs, to get it to % just divide it by your original committed amount i.e. 2400/10000 = 0.24 = 24%. This concrete reward from the 3-month period on the other hand would be 10000 x (0.24/4) = 600 ALGOs.

Of course math is hard and it's easier to just let someone else do it for you. Go checkout algorandstats.com for easiest way of calculating your governance rewards. It also have tons of other useful statistics related the Algorand and Governance. 

Algorand Governance Webpage
Algorand Governance Webpage


How to participate in the Governance Program

Next period begins on December 31th of 2021, so I'll use it as an example. This means that you'd have to take the following steps anywhere during 15th-30th of December. 

I don't recommend waiting until last minute, unforeseen events can always occur. That said - you can change the amount of committed ALGO's at any time during this 2 week period before a new period starts.

Anyways heres how to do it:

1. Have the official Algorand Wallet installed
Make sure it has the amount of ALGO's in it that you want to commit and some more. 

2. Head over to the official Algorand Governance webpage.
In the top right corner press "Connect Wallet" and follow the given steps in order to connect your Algorand Wallet with the webpage. 

3. Commit X amount of ALGO to governance
You will only earn APY/rewards on the amount you stake. Chose an amount that you'd be certain you don't have to withdrawn during the upcoming 3 months.

4. Congratulations you're now a governor!
With great titles comes great responsibilities - i.e. you HAVE to vote on EVERY topic at hand. Every vote is open for 2 weeks at a time during the 3 month period (in our example until March 31st 2022). Make sure you write it down in your calendar. 

5. Enjoy your sweet rewards!
The rewards will be transferred to your account during the 2 following weeks after the Governance Period has ended. Hopefully you made it without accidently dropping out. 

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 HOT ADVICE 

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Have 2 different wallets if you use Algorand for anything else than governance and staking. That means having one wallet dedicated only for governance,  and one for everything else (transfers, Tinyman, Yieldly, etc), so that you never accidently make transfers that put you below your committed ALGO amount. 

Final Words

Now you know pretty much everything about Algorand Staking and the Algorand Governance Program. This means that you can start earning interest on your ALGO already today, without much hassle at all. Likewise you should be ready to participate in the next governance period starting. During 2022 you can earn both passive staking APY, as well as the additional APY provided by governance. Pretty great if you're asking me.

That concludes this topic. If you found this post useful, why not check out any other Algorand articles & guides that I've written.

Until next time - Algo and Out!

AlgoDaddy

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