Sirwin
Sirwin

Farming Algo and Rewards in the Folks Finance Ecosystem

By Rone | Folks Finance | 26 Feb 2024


Algorand Defi and the Foundation Rewards

DeFi (Decentralised Finance) offers early blockchain users the prospect of high returns. While it has had a slow start, DeFi on Algorand is now booming. The ease of use and the great tech specs of the Algorand blockchain have allowed many protocols to develop advanced products with high composability and interoperability. This recent boom has been propelled by grants and substantial ALGO rewards provided by the Algorand Foundation.

For the past couple of years, on top of incentivizing voting in governance, the Algorand Foundation also has provided large DApps with targeted farming rewards. These platforms can distribute those extra rewards to users, as they see fit through different Rewards Programs. In my previous article, I have presented general strategies to take advantage of these rewards in the Folks Finance ecosystem. In the present article, I present more concrete farming options to profit from this vibrant ecosystem. If you missed the governance period, or are new to Algorand, here is a good place to start. If you are not familiar with DeFi or some of the actions described below, please check Folks Tutorials for a detailed explanation.

Lending and Lending Pools

Folks Finance is first and foremost a Lending and Borrowing protocol. Folks Finance is distributing mainly their targeted rewards to Lenders in two ways.

  • They incentivize depositing stablecoins. Deposit your USDc, USDt, or EURs, and start earning rewards paid in ALGO on top of the Lending APR. This one is very straightforward. Since the value of stablecoins does not fluctuate, you can withdraw at any moment, and lenders pay no fee, this approach offers a low-risk way to accumulate ALGO while preserving your capital.
  • Folks Finance recently inaugurated Lending Pools which are Lending + Liquidity Pools. Roughly speaking, you provide liquidity on a partner DEX using your lent assets. An important part of the targeted rewards goes to these Lending Pools. Subsequently, some pools offer stupidly high rewards, with some pools consistently offering 50%+ APR. This approach is more rewarding as you earn Lending APR, the Swap Fees, and higher rewards. It should also be noted that Folks Finance incentivizes more assets than only stablecoins, such as ALGO, BTC, ETH, but also real-world assets, such as GOLD or SILVER. This allows users to gain exposure to and earn passive income on a larger class of assets, including some that normally do not offer high returns. However, this requires finer management than the previous strategy since the price of those assets can fluctuate, and the position can be subject to impermanent loss.

Arbitrage options

Folks Finance has expanded from Algorand to Avalanche and Binance Smart Chain with xALGO which is a yield-bearing ALGO derivative. It automatically accrues interest from Governance, and at the end of each period, you can redeem it for its true value. During a Governance period, you can only swap it on DEXs and the price fluctuates according to offers and demands. Since xALGO is a new product with low liquidity, this offers very good arbitrage opportunities: wait for the actual price to decrease below its theoretical price, buy at a discount, and hold till the end of governance. At some point xALGO was trading at a more than 10% discount. You can follow the price fluctuation on the dedicated webpage.

It is also possible to arbitrage directly on the Algorand blockchain with gALGO, the other ALGO derivative from Folks Finance. However, the liquidity is higher and the price fluctuates less making this strategy less profitable.

Cross-chain liquidity rewards

Additionally, Folks Finance has incentivized some Liquidity Pools on Trader Joe with a very high APR. However, providing liquidity while xALGO price is depegged means that you are accepting to sell your ALGO at a discount and that people will arbitrage your position. Moreover, Trader Joes uses a concentrated liquidity model with order books which is rather complicated to use and requires active management. Thus, this is a more advanced strategy that I would only recommend for seasoned DeFI users.

Consensus rewards

If you have minted Folks Finance gALGO for liquid governance, you can put your stash online for consensus. In this case, you should either run your own node or join a public node. Being online for consensus helps the network to stay healthy. While this might sound technically difficult, it is easy to find resources on Youtube on the subject, for instance here to join a node or here to set up your own in the cloud. In addition, Folks Finance has dedicated parts of their targeted rewards to consensus participants who have joined through gALGO. While predicting the final APR is challenging, anyone who proposes one block will be rewarded., and the more blocks you propose the higher the rewards.

 

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Rone
Rone

Curious explorer of blockchain technologies


Folks Finance
Folks Finance

Sharing my experience on the largest DeFI protocol on Algorand. Critical and hopefully objective reviews. Views are my own.

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