Algorand Staking & Governance: What is it & How To Participate

Algorand Staking Governance AlgoDaddy
 
Algorand Staking & Governance

Last Reviewed: August 2023

This article focuses on Algorand staking and explains the Algorand governance program. Due to passive staking through the Algorand Wallet (now known as Pera Algo Wallet) ending as of March 2022, this article mainly teaches you about Algorand's governance program. Staking and Governance have been excellent ways to earn passive rewards by owning ALGO and participating in quarterly voting, similar to earning interest through a bank on your fiat currencies (USD, EUR, etc.).

In this article, we'll explain the Governance Program and how to participate in it, as well as talk about staking on Algorand.

Do note that staking and governance are two separate things! While the Algorand protocol itself is a Pure Proof-of-Stake protocol, it's important to be aware that the Algorand Foundation's official way of rewarding its ALGO holders has shifted. In other words, staking has been replaced by Governance. 

❗ You can find a FAQ about Algorand Governance and Staking at the bottom of the page or keep reading for an in-depth explanation. 

Recommended Read: 

Algorand Staking on Exchanges

Staking Algorand on exchanges is the only real option left if you just want to stake Algorand and forget about it, not having to participate in Algorand's Governance program and what it entails. The upside is that it's convenient and easy, but the obvious downside is that it's always more secure to hold your own keys in your own wallet (like the good old saying goes - "Not your keys, not your coin"), in case something happens to the exchange where you hold your ALGOs. The most relevant example of this is the famous crypto exchange FTX collapsing and customers losing their funds. Only use trusted exchanges and a limited amount of ALGOs if you're not going to have them in your own hot- or cold wallet. Additionally, most platforms only pay out once a week or after a longer lock-up period.

A) Kraken - Offers up to 1-4% APY without a locking period.
B) Binance - Currently offering over 6.5% with a 120-day lockup.
C) Coinbase - Sadly, Coinbase decided to shut down their ALGO staking service in early 2023.

Recommended Read:

Algorand Governance Program

Starting from October 1st, 2021, Algorand transitioned to its new Algorand governance program, and through 2022 they phased out passive staking rewards, such as those described above. The Governance Program was founded to decentralize Algorand even further.

Governance essentially means that everyone who owns Algorand can participate and vote on important topics and decisions that will impact the Algorand ecosystem. In practice, you'll have to commit a certain amount of ALGOs 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 below your committed amount of ALGOs in your wallet during this period. This means no rewards; however, you can reapply in the future.

ALGO rewards for participating in governance typically depend on a few things: the total number of participants, the total amount of committed ALGOs, and how active you are. Rewards are then paid out once the Governance Period ends, typically a few weeks after the quarter ends.

Calculating the Algorand Governance Reward 

The reward could previously be calculated using a simple formula. However, since the introduction of DeFi participation rewards the calculation has become much more complicated. Hence, AlgoDaddy recommends the website algorandstats.com and use their rewards calculator for the easiest way of predicting your governance rewards. Additionally, it offers other useful statistics related to the Algorand governance program.

💡 Important Update💡
Since the introduction of DeFi participation rewards the above calculation doesn't completely accurately produce the exact correct reward. However, it still gives a good estimate.


Algorand Governance Webpage
Algorand Governance Webpage


How to participate in Algorand Governance

UPDATE: The current governance period (G7) is ending on June 30th, 2023, and the rewards will be distributed from the 1st through the 5th of July, 2023. You can commit to the 9th period of Algorand governance (G9) from the 1st to the 15th of October, 2023.

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

Anyways Here's How To Participate:

1. Have your ALGOs stored on either a ledger or a software wallet
Make sure it has the amount of ALGOs 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 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. Choose an amount that you'd be certain you don't have to withdraw 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 months (in our example until May 31st 2023). Make sure you write it down in your calendar. 

Note: You must vote to stay eligible for the governance reward.

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 accidentally dropping out. 

🔥 HOT ADVICE🔥
Have 2 different wallets if you use Algorand for anything else than governance and staking. That means having one wallet dedicated only to governance, and one for everything else (trading, swapping, buying NFT's, etc.) so that you never accidentally make transfers that put you below your committed ALGO amount. 

📚 FAQ: Algorand Staking & Governance

1. What is Algorand Governance?

Algorand governance is a program that allows Algorand (ALGO) holders to participate in important decisions and voting that impact the Algorand ecosystem. In essence, it aims to decentralize Algorand further by giving token holders the ability to have a say in the platform's direction.

2. How to participate in Algorand Governance?

To participate in Algorand governance, follow these steps:

  1. Store your ALGO tokens in a ledger or software wallet.
  2. Visit the official Algorand Governance webpage and connect your Algorand wallet.
  3. Commit a certain amount of ALGO to governance during the specified period (typically 2 weeks).
  4. Vote on every topic during the three-month governance period.
  5. Stay eligible for rewards by voting, and enjoy your rewards transferred to your account after the Governance Period ends.

3. When are Algorand governance rewards paid?

Algorand governance rewards are typically paid out during the two weeks following the end of a Governance Period. Specific dates may vary, so it's essential to check the official Algorand Governance webpage for the most up-to-date information.

4. How to claim Algorand governance rewards?

To claim Algorand governance rewards, follow these steps:

  1. Successfully participate in the Algorand Governance program by committing the required amount of ALGO and voting on every topic during the governance period.
  2. After the Governance Period ends, rewards will be automatically transferred to your account.

5. How to stake Algorand? Can I still stake Algorand for passive rewards?

No, as of March 2022, passive staking (earning passive rewards by simply holding ALGO in your wallet) has ended. Algorand phased out passive staking, which allowed users to earn rewards by holding ALGO in a wallet. The Algorand governance program is the primary way for ALGO holders to earn rewards and participate in the platform's decision-making process.

6. Are there any risks with participating in Algorand Governance?

While participating in Algorand governance can be rewarding, it's essential to understand the risks. If you fail to vote or fall below your committed ALGO amount during a governance period, you won't receive rewards for that period. Additionally, be cautious about holding your ALGOs on an exchange supporting the governance program, as they may participate in governance without your consent.

Conclusion

Now you know pretty much everything about Algorand Staking and the Algorand Governance Program. If you're not already participating in governance we highly suggest you do so the next period. You can earn free ALGO for voting once a quarter. It's a good deal.

That concludes this topic. If you found this post useful, why not check out any other Algorand articles & guides by AlgoDaddy.

Article Author: Martin
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