Thank you for stopping by and checking out this series detailing tokens with market caps below one billion dollars $US. We'll be examining their history, their role in the greater crypto exosphere, and if they're poised for major growth that's worth your time and money.

Today, we'll be checking out the Algorand protocol and its utility token: ALGO

Primary Info:

Accurate as of 12/23/20 from coinmarketcap.com and flipsidecrypto

Supply (Circulating/Total): 1.175 Billion / 10 Billion

Total on Exchanges: Estimated 14 Million / ~1% of Circulating

Primary Exchanges: Hotbit, Coinbase, Binance, OKex

Going live in mid-2019, the Algorand protocol and its native utility token ALGO came out with little fanfare but a lot of backing in terms of funding and brainpower. Headed up by Turing Award winner Silvio Micali and an impressive brain trust, Algorand is a highly developed protocol that features a unique proof-of-stake mechanic they call "pure proof-of-stake" that along with other features promises to provide a solution to the blockchain trilemma and a strong challenger to Ethereum and other protocols.

If they can fix their tokenomics.

The Protocol

While I encourage you to check out Algorand's white papers to gain a full understanding of how their protocol works, I'll provide a brief summery here.

The backbone of Algorand's system is their Binary Byzantine Agreement protocol, which unlike bonded or delegated proof-of-stake system allows ANY token that's staked to be involved in the proposal and approval of a block without having to lock them into a contract or risk slashing. These tokens are selected at random using verifiable random functions (VRFs) that change with each block which are then formed into a committee to approve a block that's been proposed buy a completely different token. This makes it impossible for a hostile actor to try and compromise a token that's been selected because by the time they could identify one that's been selected the token would have voted and then lost its status as a committee member.

Now a hostile actor could in theory try and obtain enough ALGO to secure a majority of voters at any one time, but in this case their efforts would be pointless as such actions would just tank the price of their tokens and cause a loss greater than anything that could be gained from such actions.

Tied together with Zero Knowledge Proof protocol, immediate transaction finality, a guarantee not to fork, and the ability to handle 5000 transactions/block with each block being finalized within 4.5 seconds, Algorand's protocol certainly seems to be an improvement on most others currently out there.

So why is their token trading at such a lower level? To put it simply; they're just too much of it.

Tokenomics

In June 2019, Algorand held it's initial token sale that raised $60 million from the sale of 25 million tokens at $2.40 each. A quick glance at the price widget I placed up top as well as their current supply might give you an idea of how ALGO has done since as well as why.

While the technology is first class and Algorand hasn't been short on projects looking to run on their protocol (having $250 million in funds in their Algorand Foundation to promote projects will help), there has not been enough demand to soak up the supply that has flooded the market from the auctions, community rewards, and other sources.

These all combined to drive ALGO down to its all time low of $0.10 in March of this year. While having transactions costs fixed at 0.001 ALGO is great for those fleeing the insane gas prices of Ethereum, it also doesn't necessarily promote a huge demand for the token and help balance out supply issues.

Now this isn't to say Algorand's team isn't taking actions to address these issues. They've already conducted some buybacks to help take a small chunk out of the excess supply, and as you can read here they've stretched out the release of the tokens minted in their genesis block from 4 years to 10.

There are also a number of significant projects coming down the line that could help drive up demand of ALGO. The announcement in September of Algorand becoming an official blockchain of USDC as well the Canadian stablecoin QCAD choosing to use Algorand in December of this year can provide much needed traffic and demand for ALGO. Algorand was already chosen to power Marshall Islands' digital currency and it's reasonable to assume that other national groups may follow. ALGO has also been added to payment platforms like NOWPayments and Bleumi Pay, which could help increase consumer use and demand.

Finally, Algorand has started to make a play at the on fire DeFi market. Their recent upgrade of their protocol to Algorand 2.0 adds in ASA functionality, smart contracts, and atomic transfers in Layer-1 as well as faster speeds for transactions. If they can manage to get their foot in the door in this market, its quite possible Algorand could pull significant share away from Ethereum.

Final Thoughts

While ALGO has recovered a bit from its all time lows, there is still a long way for it to go. While the technology is top notch it can only take the token so far. What will make the difference will be the general acceptance of the token and if the supply/demand imbalance can be corrected.

I personally don't think we're going to have consolidation when it comes to protocols in the foreseeable future, so Algorand has room and time to grow. Getting into DeFi is significant but not exactly make or break for the token either. If Algorand can maintain a speed and cost advantage vs Ethereum even after ETH moves to a proof-of-stake model I believe it can become a profitable token compared to current prices.

Whether they can pull it off is of course another matter, but I do believe Algorand has the resources and know how to have better than even odds of doing so. Whether you take up a position in ALGO will depend on how much you believe in their tech and their plan to get their tokenomics in order.

(Disclosure: The author owns some ALGO currently staked in the ALGO wallet as well as Coinbase. You should consider your own investment plan and research before purchasing any type of security.)

Resources:

https://www.algorand.com/ - Project homepage

https://www.crunchbase.com/organization/algorand - Organizational / Funding Information