What Are Users Swapping gALGO3 For?

    gALGO3 is an asset that is pegged to ALGO. Users can lock their ALGO up on Folks.finance for governance and while their ALGO is locked they receive gALGO3 and you can use it for other defi activities. Read more about it here: https://docs.folks.finance/protocol-architecture/algo-liquid-governance Let’s look what users are swapping their gALGO3 for while their ALGO is locked in governance.

    Algorand Governance goes for a drink!

    Introduction

    Since October 2021, the Algorand ecosystem has moved to a decentralized Governance model. Algo holders can commit their own Algo, becoming governors, and participate in the Governance decisions. Unfortunately, the Algo holders have to lock their Algo for a quarter losing the possibility to use their own liquidity for that commitment period.

    Algorand Foundation brought liquid staking to the 3rd Governance Period (Commitment betweeen March 31st and April 14th) to overcome the above limitation. The concept is easy: you get to commit your ALGOs to the Governance Period as you would do in previous Governance periods, but are able to use your investment to search yield additionally to the governance / staking rewards. This is being already used in other networks (i.e. Marinade in Solana) with great success and will be available through 3 selected partners:

    • AlgoFi (AF): you can use your commited ALGO as collateral for lending and borrowing through the Vault.

    • Folks Finance (FF): when commiting your ALGO through FF, for each ALGO you mint one gALGO3 token.

    • Gard: Another use of governance ALGO as collateral, you can read more in this previous dashboard

    Folks Finance and gALGO3 token

    Folks Finance designed a new system that allows the users who wish to participate in the Algorand Governance not to lose the liquidity for the voting period by distributing a liquid asset named gALGO3, minted at 1:1 to the value of ALGO. Each governance period willhave its own liquid ASA.The user is free to use the gALGO at their convenience, i.e., deposit it in gALGO/fgALGO pool and lock them as collateral to request a loan, or move it outside Folks Finance.

    Users do not need to hold gALGO to be able to claim their rewards. After minting, users are guaranteed to receive rewards, even if they sell their gALGO. FF applies a 5% fee to this rewards upon distribution.

    Regarding voting, FF's choice will be aligned with Algorand Foundation. The implementation of their own FF Governance will allow the users to express their preferences.

    Sources:

    Methodology

    Several queries will be used to obtain the data from algorand.swaps table.

    The daily number and volume of trades in both directions will be calculated in 2 separate CTE by counting the tx_group_id and adding swap_to_amount and swap_from_amount where asset_id = 694432641, aggregating only by date.

    A similar setup but aggregating also by swap_program will add the breakout of number of swaps and volume per dex daily.

    Results

    Number and volume of gALGO3 swaps

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    Breakout by DEX

    The following visualizations are a breakdown of the data from previous section by DEX:

    Figures 1. and 2. show the gALGO swaps to and from by number of swaps and by volume in gALGO3. We see two high activity periods, especially in terms of volume. The first around the end of the commitment period on April 14th and a second one, probably linked to the price drop in ALGO below 0.7 USD.

    Figures 3. and 4. show the cumulative swaps and volumes for both directions. There is a different trend in number of swaps to and from, but not in volume, most probably due to the different habits of big and small swappers.

    Until April 17th, the cumulative volume of swapped from gALGO3 was higher since the users were using the newly minted gALGO3 to search for yield. Then, the trend reverse because they would want to recover the initial amount of gALGO3 to unlock their committed ALGOs. These volumes were the same on April 25th. Currently, the swapped to volume has around 20k gALGO3 more than the swapped from.

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    Overall, we see a dominance of Tinyman on both metrics. In terms of volume, Tinyman has 86% and 88% of the swapped to and from volume respectively.

    Activity in PactFi is mostly limited to the high activity periods (towards the end of commitment period and after the ALGO price drop), so it looks like users may go to PactFi when liquidity is draining in Tinyman.

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    Figures 11. and 12. show the gALGO3 number and volume of swaps in both direction by asset. THe results show that all gALGO3 was swapped to/from ALGO and only a minuscule amount of around 1 ALGO was swapped to/from Yieldly. Although this might suprise at first, it is an obvious result since gALGO3 didn't have any pool apart from the gALGO3/ALGO (I assume the gALGO3/Yieldly Pool was some kind of experiment). This might be a point looking forward to other Governance Periods, to extend liquidity to other pools.

    Conclusions

    • In terms of number of swaps, more swaps to gALGO3 were made than swaps from gALGO3.
    • In terms of volume, a similar amount of gALGO3 were swapped in both directions.
    • Both metrics shows two high activity periods, towards the end of the Commitment Phase and around April 25th were a drop in ALGO price occurred.
    • Tinyman accounts for over 85% of the total volume swapped and it seems users go to PactFi in times of high demand.
    • The only practical pair for gALGO3 is ALGO.

    Liquid staking is looking at new developments in Algorand. As a first experiment, FF has created an interesting way for users to look for yield while their ALGO are commited. It seems that a swap volume of around 0,5M ALGO in each direction is not a huge number, but it is the first such token created. It has potential to grow more for the next Governance Periods. This would need maybe a different strategy, either more pools or a different general crypto market, which at the moment is seeing a downturn in ALGO's price.