Improved ALGO Token Dynamics: For a better understanding of Defi and Governance

Algorand's commitment to a completely decentralized finance platform continues to be realized by introducing brand innovations and revising existing ones in the network. Consequent to its focus towards complete decentralized finance (DeFi), Algorand announced a revision of its token dynamics, allowing for the complete distribution of the fixed and immutable total supply of 10 billion Algos 2030 instead of 2024 as initially planned.

This new type of digital economy can only run on Algo, a truly digital currency that works instantly, the native cryptocurrency for Algorand blockchain.  Algo has excellent features, making it one of the influential and trustworthy crypto-currencies available today. Transferring Algo is swift, with a speed of about 4.5 seconds. The Algorand blockchain was built to entertain billion of users, so traffic is never an issue. There is never going to be a fork on the Algorand blockchain, making it trustworthy. Algo is also transparent and secure; all the personal and private information in your Algo payment remains that way as they use the most advanced cryptography.

Algorand has laid out a clear plan for distributing the remaining locked supply of Algos into the Algorand Ecosystem. As of November 2020, approximately 16% of total Algo supply was injected into circulation through the inaugural auction in June 2019, via community rewards, grant funding, relay node runner, reward vesting, and structured sales.

The proceeds of these have been used to finance the development of several academic, community, and development projects to support the development of business opportunities and economic infrastructure on the Algorand blockchain.

In response to community feedback regarding the Algo dynamics, Algorand has resolved to a long-term program that will support the adoption of the Algorand native currency, Algo.

Benefits of the Improved Token Dynamics

The extension of the token dynamics will lead to more significant innovation on the Algorand network, contribute to business and good social projects, which will lead to the advancement of the economical relevance of the Algo and its inclusivity on the Algorand ecosystem.

The many various benefits the revised token dynamics will bring to the protocol will also assist in the ecosystem support, community incentives, decentralizing the blockchain's decision-making and governance, the latter already being proposed by Algorand's founder, Silvio Micali, and his team.

Consequently, on this proposal, Algorand is moving from its initial reward design, which aimed to benefit all network participants and a new system of rewards that will help participants contribute to the ecosystem's governance. However, these users will first have to lock their Algos for a potentially long time.

This is necessary for the alignment of incentives. Participants will have to play an essential role in giving funds to several different projects beneficial to the Algorand Ecosystem.

Therefore, the levels of these rewards will be competitive. The shift from the current reward design to the future will be carried out through a careful and balanced transition process that will positively affect the tokenomics.

Funds initially slated for sales will be allocated instead to community incentives, governance participation, and ecosystem support with a distribution rate that will prevent inflation and maintain scarcity; thus, benefiting Algo tokenomics by giving certainty predictability.

Two key areas will be affected by this revision: community rewards and ecosystem support program. These areas shall be considered for easy understanding of the kind of DeFi projected by Algorand.

Community Rewards

Earlier mentioned is the new rewards program to be introduced in place of the already existing one. This new rewards program focuses on catering to the inclusive governance protocol proposed for the network.

To this end, 2.5 billion tokens will be initially locked and allocated as governance participation rewards for over ten years. These tokens will be automatically injected into the governance reward mechanism through operating smart contracts. Recipients of these rewards shall be users participating in the network's governance, who have locked their tokens accordingly.

Ecosystem Support Programme

Like the community rewards program, 1.25 billion tokens will be locked in a smart contract for extended ecosystem support. Over ten years, these tokens would be periodically unlocked, with no more than 200 million tokens unlocked per year. These would occur as part of the overall token distribution plan as laid out in the revised Algo dynamics.

These unlocked tokens shall be used to incentivize long-term holding, economic, and business activity on the blockchain to increase the growth rate of chain loyalty and financial adoption.

These tokens will support grants, research and development projects, and strategic initiatives brought forward for approval by the foundation or by other partners.

Final Words

The new and improved Algo token dynamics includes plans to reward participation, usage, community governance, and service to the Algorand blockchain while at the same time developing the technology and businesses in the blockchain and eliminating market uncertainty.

It improves the Algo economic structure, bolsters tokenomics as it moves from the initial to the long term Algo allocations.

Tokens locked for ecosystem support will be moved upon approval by the community governance to Algorand partners in the universities, institutions, and investment funds, including organisations and companies committed to developing the network's ecosystem.

Revision of Algo token dynamics appears to be a wise move by the Algorand foundation because it fosters economic decentralization, network decentralization, and governance decentralization.

Meanwhile, the new rewards system and ecosystem support proposal will be funded by allocating previously unassigned funds from within the 10 billion Algos minted at the Genesis block.

These new Algo dynamics show that Algorand is here for the long term, building investors and holders confidence and making them involved. Sustainability-wise is excellent and will lead to more demand for Algo.