*obligatory not financial advice*
What is Algorand?
Algorand is a smart contract blockchain that has gained a lot of popularity since the crypto market started to rally again in 2020. That is because it’s practically feeless and is so fast that its transactions are finalised almost instantly. Up until recently the blockchain distributed staking rewards to all holders of ALGO, but this has recently stopped because the rewards are now going to the participants of the on-chain governance to encourage people to actually take part in shaping the future of the blockchain. This will hopefully improve the chain further, but it has left some ALGO holders with the question of how to earn a yield on the blockchain now that merely holding ALGO isn't enough anymore. That’s why I am writing this article.
#1 Governance
The best way to earn some more ALGO is to participate in governance. To do so you just have to visit the governance homepage, or the governance section in the My Algo Wallet if you use that, and commit a certain amount of ALGO to the current governance period.
There is a new period for each quarter of the year and you can only join when the next period is about to start. If you commit 100 ALGOs to governance, then you will have 100 votes for all the proposals in that period and you will receive your rewards at the end of the 3 month period if you vote on all proposals.
Your committed ALGOs are never frozen and could still be used if needed, but you will not get any rewards if your wallet ever falls below the committed amount. So you should only participate with ALGOs you believe you don’t have to use during the next 3 months. Another downside is that you can only commit ALGOs every quarter. Still you can earn an APY that can easily be in the double digits depending on how many people participate.
You can currently join the 3rd period up until the 14th April 2022.
#2 Algofi
If you don’t want to commit your coins because you are sure you will have to use them within this quarter, then you could still earn a yield with them by putting them into the first lending protocol of the blockchain.
Algofi allows you to supply a few Algorand assets for lending or to use them as collateral to borrow other digital assets. If you don’t want to borrow anything yourself, then you can still enjoy a small interest rate while having your tokens withdrawable anytime. The platform also distributes extra ALGO rewards to both lenders and borrowers. There is also a native DEX were you can supply liquidity and you can stake your LP tokens to receive extra rewards from partnered projects. And there is a native decentralized stablecoin called STBL that you can stake to receive a stability fee.
The platform really offers countless of ways to earn a yield on Algorand and it still has to launch its own governance token which could be airdropped to early users.
If you are interested, I wrote a more detailed article about Algofi.
#3 Tinyman
Tinyman was the first DEX on Algorand. It uses an AMM and liquidity pools much like Uniswap. Most trading on Algorand is happening there and you can find almost every ASA token there.
If you want to earn a yield on your ALGO or tokens then you can put them in a liquidity pool on Tinyman. If you do that, then your assets will be offered for trading at a price that is set automatically by the protocol. Each trade has a fee of 0.3% which is added to the used liquidity pool which makes your share of the pool grow. If you pick a trading pair with a lot of traffic then you could earn a decent yield, and because they are added to the pool directly, your rewards are also compounding.
This is not without risk because you could suffer from “impermanent loss” which happens when one of the tokens in a trading pair changes its value drastically while the other one stays stagnant or changes in the opposite direction. In that case you could have gained more if you kept your tokens separate. That’s why you should pick liquidity pools were you believe that both tokens will perform similar, like a stablecoin pair, or a pool that you believe will have a lot of traffic and earn you enough fees to compensate any impermanent loss. You could also keep hodling your tokens in a liquidity pool until they reach a similar ratio like they had when you initially supplied them to beat the loss. In either chase, supplying liquidity to a DEX is best used as a long term strategy.
However, the Tinyman DEX has been attacked before and somebody managed to drain all its liquidity with an exploit. The DEX has been updated since and has compensated the victims of the attack but there is still always a smart contract risk in DeFi. Tinyman also still hasn’t launched its token and could airdrop some to early users.
If you are interested, I wrote a more detailed article about Tinyman.
#4 Yieldly
Yieldly was the very first DeFi application that launched on Algorand. Originally it was mostly a no loss lottery game, where users could pool their ALGO into a pool that would receive interest just like any wallet did, and then every week one user would receive all the collected interest of the pool but the losers would keep the ALGO they supplied.
This has been quite the hit in the Algorand community, but since simply holding ALGO no longer gives you such a nice yield, the game no longer works. However, there are still other ways of earning crypto on Yieldly.
Projects that want to distribute their native tokens can do that on Yieldly and let its users earn them by staking YLDLY tokens. There are also distribution pools where token holders can earn more of the token they are staking, and if you are supplying liquidity on Tinyman to certain pools then you can also further invest your LP tokens on Yieldly to farm YLDLY.
Yieldly has been strongly hit by the loss of its lottery game but you can still earn the tokens of many projects that are launching on Algorand, however you need to either invest in the YLDLY token or supply liquidity on Tinyman to earn most tokens.
Conclusion
I hope this little list was helpful. The Algorand ecosystem is constantly growing and there will hopefully be many more ways of using your ALGO and ASA tokens but for now this are the best options for people that are invested in Algorand.
If you are holding your ALGO long term and are sure you will not use them within the next 3 months then you should definitely use them for governance to vote on proposals because the on-chain governance is an integral part of improving Algorand, but if you need to keep your crypto more flexible or can’t add them to governance right now then you should consider one of the other options.
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ALGO: 2LPXBHC5WIAOYESBJ4JTRYEQC6PUO4HZLZBY42V4XANUKGYZT6SWRMLDH4
NANO: nano_31nwmmab1pykptytqn9tzj684f3hhhwpawxaneefwqhxtw363ytwuo6uuuhs
BANANO: ban_31nwmmab1pykptytqn9tzj684f3hhhwpawxaneefwqhxtw363ytwuo6uuuhs
XLM: GCQ6ACH3WBHI5JBYHPEZUEETLM4SAMINNCBBQVHIH2F3A7SVALXX773P
