xALGO on Avalanche: Why I Am Using It
xALGO is a cross-chain derivative that represents stacked ALGO in Governance. xALGO exists (so far) on two EVM (Ethereum-like) blockchains: BSC (Binance chain) & Avalanche. xALGO is fully liquid and automatically accrues interest. In particular it can be used in DeFi. In between governance periods, users can mint xALGO with their ALGO, or burn their xALGO back to Algorand. Users can also swap their assets to xALGO at anytime on a DEX.
xALGO has launched on Avalanche recently, just in time for Governance Period 10. As I have experience using the two blockchains, and planing on taking advantage of Folks new product, in this article, I share my personal opinion on the advantages on Folks solution (another article with critics and suggestions for improvements is on tap).
Benefiting from Ethereum ecosystem
The structure of Avalanche is a bit complex (more details here), but the C-chain where more of the activity happens is your usual Ethereum copycat. You can use it with Metamask, or Rabby, and use the same 0x address as most people are used to. Being EVM-compatible developers can also very easily clone existing projects and launch them on Avalanche.
For better or for worst, Ethereum, and related chains, still benefit of Eth’s first-mover advantage: high TVL, vibrant ecosystem, larger communities, and so on. From the perspective of an Algorand user, xALGO is a way to benefit from this environment while keeping their money where their heart is.
Promoting Algorand beyond the AlgoFam
In a sort of reverse mechanism, xALGO will also bring visibility to Algorand beyond its usual market. Chances are many Avalanche users never heard of Algorand, or know of it but don’t care. By bringing ALGO directly onto well-known protocols on the other side of the bridge, Folks Finance makes a statement : “We are here, we are here stay, and we are here to matter. Come discover what we have to offer.”
Of course, measuring the exact effect of xALGO on Algorand adoption is a difficult task. I want to believe that it will steadily and surely play its role in this long journey.
Diversification
I love Algorand. It’s fast, it’s simple, it’s cheap (if you are reading this article I probably don’t need to convince you). ALGO is main bag by far. However, in the same there is no unique dominating programming language, I postulate an Web3 ecosystem where multiple chains coexist. In that regard, Avalanche early adoption alongside its efficiency (relatively to Bitcoin, or Ethereum, for instance) makes it a solid competitor for a share of this multi-chain future.
In that regard, diversifying into AVAX seems reasonable (I already hold a smaller bag). With xALGO on Avalanche, and the xALGO / ALGO liquidity pool on Trader Joe, Folks brings an easy way to Algorand users to diversify in AVAX while keeping a foot in Algorand. Moreover, you’ll earn xALGO extra farming rewards.
Partnership With Benqi
But there’s even better. Avalanche uses a Proof-of-Stake consensus approach. Users can either stake at least 25 AVAX to start their own validator node, or delegate the amount they want to an existing node. In any case, they earn rewards proportionally to their share. Normally their stake would be locked. This is why Benqi has launched its liquid staking solution sAVAX. Informally, sAVAX is to AVAX what xALGO is to ALGO: it is a liquid derivative representing staked AVAX in consensus. It automatically accrues rewards.
For investors looking to hold both ALGO and AVAX, providing liquidity in the xALGO / sAVAX pool, thus accomplishes this goals while earning rewards from Avalanche, Algorand, as well as trading fees. On top of that, Folks Finance and Benqi have partnered to offer massive farming in the form of xALGO and QI (Governance Token for Benqi).