Algorand Inc. is a tech company that concentrates on the development of blockchain technology. It specializes in creating scalable cryptocurrency protocols that support the development of smart contracts and decentralized applications. ALGO is the native cryptocurrency to the Algorand protocol. Its current CoinMarketCap ranking is #18, with an estimated market cap of $11.2 Billion dollars.
Algorand’s founder is Silvio Micali, who is a Computer Science Professor at Massachusetts Institute of Technology. His research has long been centered on cryptography and information security. Algorand’s unique architecture and fixed supply rate helped the project to be widely adopted by those seeking avoidance from high transaction fees and protection against the effects of inflation.
Earlier in the year, Algorand announced that it will be growing its ecosystem into a decentralized Governance model. Meaning, the protocol will be governed by a number of its stakeholders. Algorand’s Governance is one of its special and newly-developed qualities. As it inputs trust within its stakeholders and provides an interactive ecosystem. In return, ALGO stakeholders earn rewards for their input. So, how exactly does Algorand’s Governance model work? And when is Algorand Governance Period 2?
What Is Algorand Governance?
On October 1st, the Algorand establishment introduced its first decentralized Governance period. In hopes of maximazing the potential of blockchains and continuing its path to becoming fully decentralized. Using a decentralized Governance approach creates trust within the community and ensures fairness in any decision making processes.
Developers of Algorand define Community Governance as a “program that marks the shift from the early days of the Algorand network to a more mature phase in which the community takes charge of its own destiny and rewards are distributed in return for verifiable engagement in the program.”
The Algorand Foundation believes in a fully decentralized Algorand ecosystem. Such a decentralized ecosystem, in which everyone can impact monetary, technical, and other policy decisions, best enables the Algorand community to shape the shared future of the Algorand network.Algorand Foundation.
The Community Governance approach is specifically designed to be a simplistic model that withstands maximum participation. It allows Algo holders to participate in any decision making processes regarding Algorand’s growth and development. Algorand Governors have decision making powers over the Algorand Ecosystem Resource Pool (AERP).
All decentralized governors can provide their insight on how to utilise the AERP, by conducting periodic voting sessions. The AERP includes Participation Rewards, Research and Innovation funds, Algo Grant Program, Research and Social Good Program and Contingent Incentives: for a total of 3.2 Billion Algos.
How Does the Algorand Governance Model Work?
The Governance model ensures simplicity by committing to the following procedures. First, the Governance approach is split into 4 quarterly periods. And in each period, at least one voting session takes place. Second, those who would like to participate in the Governance model must commit to staking a certain amount of Algo coins for each period.
Third, Governors have the responsibility of participating in each voting session. However, a “Vote-with-the-Foundation” option is always available. Whereby, a governor’s vote is automatically generated according to the organization’s recommendations. Moreover, the foundation will announce the date of each voting session ahead of its time. And each measure that requires a community vote, will have an information pack explaining its details.
Last but not least, Compliant Governors, those who were actively participating in the Governance period, will be able to claim their rewards at the end of each quarter. Where reward levels are associated with the level of commitment and compliance in each Governor. The Rewards Pool for each Governance Period is decided by a Governance vote before the next period begins.
What Happened in Algorand Governance Period 1?
The Algorand Governance Period 1 started on October 1st and lasted until the end of December. Its first-ever Governance voting session took place between Oct. 31st and Nov. 14th. It was marked as the largest community governance vote in the history of blockchains. With around 70,927 registered for the electorate, the committed Algo balance totaled to 1.88 Billion ($3 Billion USD).
The first community vote concerned the distribution of the community Governance Rewards for the year 2022. Thus, two options were presented. The first option was to keep the current system, which is a simple Governance model with no slashing penalties. You are only required to commit and vote. However, the annual reward pool will equal to 228M Algos (70.5M Algos per quarter).
The second option was to have a higher annual reward pool of 362M Algos (90.5M per quarter). However, governors will face 8% slashing penalties if they failed to maintain the committed Algo balance or participate in the voting sessions.
A number of 51,700 governors participated in the electorate, with a total of 1.8 Billion Algo combined. 43.42% of the governors voted for the “higher rewards and slashing” option. On the other hand, 56.58% of the governors voted with “keeping the current system”. Therefore, the Governance Rewards for the year 2022 will equal to 70.5 Million Algos per quarter.
When Is Algorand Governance Period 2?
After witnessing how successful Algorand Governance Period 1 was, get ready for Period 2. With 70.5 M Algos allocated for this quarter’s governance period, the official start date for Algorand Governance Period 2 is January 1st. If you would like to commit your Algo coins for the upcoming period the commitment duration for Period 2 already began on December 25th and will last until January 7th.
Each governor will earn an annualized reward rate of 1% for their participation. However, the Governance rewards are split based on the committed Algo balance.
If 3B Algo coins were committed for the Governance quarter, then Governors will get a return of 2.4% per every Algo committed. Therefore, totaling the amount to an annualized reward rate of 9.4%. If 2B Algos were committed, then a return of 3.5% per Algo is generated for the Governors, which corresponds to an annualized rate of 14%. Last but not least, if 1.5B Algos were committed for this period, then the total annual reward rate will equal to 19%. Hence, a return of 4.7% would be generated for every Algo.
How To Become An Algorand Governor?
The Algorand Foundation created a step-by-step instruction guide for those who would like to register for the upcoming period. It’s been updated to meet the latest requirements for Algorand Governance Period 2. It is not a complicated process, as it only consists of two main steps. In the first step, you are required to connect to the Algorand wallet, which is explained in the instruction manual. The second step requires you to specify how many Algos you would like to commit for you to be eligible as a Governor.
Below is a video call that was conducted by the Algorand Foundation, explaining all details regarding Algorand’s Governance model. From how to participate, to how to earn your rewards while also detailing the overview of Algorand Governance.
The Algorand Foundation has been taking the lead in becoming a fully decentralized blockchain. With its newly-developed Governance mechanism, its users can decide where they would like their assets to be allocated. This enables Algorand users to trust that the Foundation is working to better its community, by allowing its users full control over their assets.
Sally is a student of International Business Management and is interested in topics related to blockchain technology. She is an author for gBlogo’s “Crypto World” column and provides insight on topics related to cryptocurrencies and NFTs.