Hello there! First post here!
I'm an Algorand maximalist: fast, cheap, instant finality, super secured, what more can you ask for??
Yeah, token price could be better, but we are talking BLOCKCHAIN, not CRYPTO: in the long run, it's the only thing that matters for success.
But today, I'm going to talk about Folks Finance, the leading DeFi platform in Algorand which will introduce its cross-chain lending platform and its $FOLKS token this year.
Let's start from the beginning
When and why?
was founded in the year 2021 amid the boom of DeFi platforms on Algorand. Before 2021, there was no DeFi platform, and when they started emerging in late '21, blockchain users grew exponentially.
Folks' mainnet was launched in April 2022 with what is now its main attraction, Liquid Governance. But let's take it step by step.
What can I do on Folks?
- Participate in Liquid Governance
- Lend and borrow
- Lending Pools
- Asset swapping with Folks Router
Liquid Governance
Algorand is a Pure Proof of Stake blockchain but does not have native staking for its token like other PoS blockchains (it had it until a couple of years ago). To receive rewards, you need to commit a certain amount of ALGO during what is called Governance Periods, where you commit to not falling below the committed ALGOs and vote on all Q measures to receive proportional rewards. These ALGOs are not immobilized in wallets; you can move them whenever you want, but if you fall below the committed amount even once, you lose rewards for that Q.
You can participate in Governance either through Algorand's Governance page or through a DeFi platform, which not only pays a higher percentage than traditional Governance but also allows you to use your holdings without losing rewards.
Almost two years ago, Folks Finance introduced Liquid Governance, first with gALGO and recently with xALGO, which will be discussed in another Medium article.
How does it work? It's quite simple. For every ALGO you commit to Liquid Governance, you receive 1 gALGO. The ALGOs will be in escrow until the Governance Period ends. You won't be able to use them, but you can use your gALGOs in almost the entire Algorand ecosystem (lending pools, NFT marketplaces, swapping for other assets, etc.) Once the Governance Period concludes, you can exchange the received gALGOs 1:1 for the ALGOs you deposited. It's not necessary to claim the ALGOs to receive rewards; you will receive rewards regardless of whether you claim 100%, 30%, or none of the ALGOs. You will always receive your rewards.
It's essential to emphasize that the 1:1 exchange of gALGO for ALGO occurs ONLY during the week following the end of a Governance Period. If this exchange is not made, the gALGOs cannot be committed to Governance, and you will have to wait for a new period or make a swap in Folks Router or some other dex, keeping in mind that the exchange won't be 1:1.
To participate, go to 'ALGO Liquid Governance,' select the 'Commit' button. It will first ask if you want to participate in the xGov program; if you're a new user, you probably don't want to, so select 'No.' You can read more about xGOV here.
Enter the amount of ALGOs you want to participate with.
Once the voting opens, you must vote on each measure presented for that Q.
After the period ends, perform a 'Redeem' to convert your gALGOs to ALGOs at a 1:1 ratio.
Rewards will be automatically received in your wallet during the first week after the period concludes.
On the other hand, you can participate in Governance with leverage, but we'll leave that for later.
Lend and borrow
Folks' main function is to expand liquidity within the Algorand ecosystem, and one of the first ways to do this is through the 'lend and borrow' market.
The idea is simple: people make an asset available to others. Others can borrow these assets and pay interest over time. Those who deposited to lend receive a portion of this interest.
To deposit
Go to the Deposit tab and look for the asset you want to deposit from the list of supported assets to start earning interest. Check the APY in the corresponding column to get an idea of how much you'll receive, and keep in mind that this APY is dynamic and updates based on the amount of tokens deposited and whether there are any boost rewards (as is common during Governance periods).
Enter the amount you want to deposit and press Deposit. Once you sign the corresponding transactions, you'll be able to see the deposited assets above.
If you want to deposit an asset you don't currently have, you can swap directly from this interface by clicking on Swap and Deposit and exchanging an asset you have for the one you want to deposit.
To remove the assets, simply click on 'Withdraw,' select the amount you want to withdraw, and sign the transactions.
For more details, you can refer to the following video: https://youtu.be/o90LJdrFgD8
Taking a loan
Suppose we still have those 25 ALGOs and want to take a loan using another asset. To do this, I have to put these 25 ALGOs in 'collateral,' meaning, use them as security before taking a loan.
Before moving the assets to collateral, we need to create a loan. To do that, go to the 'Loans' tab and select the 'Create new loan' button. In the window that appears, you can name the loan and choose the type of loan you want to create. There are three different types:
- General: You can use all available assets as collateral and borrow.
- Stablecoin Efficiency: Allows using only stablecoins as collateral and borrowing stablecoins but achieving a higher Loan-to-Value (LTV) than 'General.'
- ALGO Efficiency: Only ALGO and gALGO can be used as collateral and for the loan, also with a higher LTV than 'General.'
A couple of considerations before proceeding:
- When taking a loan, there's always the risk of liquidation, so it's crucial to understand the risks. You can read more about liquidations here: https://docs.folks.finance/architecture/liquidation
- LTV is higher in Stablecoin Efficiency and ALGO Efficiency because there are fewer price variations between stables and ALGO/gALGO, resulting in a lower risk of liquidation compared to 'General.' In 'General,' the USDC collateralization factor is 80%, while in Stablecoin and ALGO Efficiency, it reaches 90%. Once the loan type is decided, select 'Create Loan' and sign the transactions.
In this case, we created a loan using ALGO Efficiency, so we can only add ALGO and gALGO as collateral.
Now, we can move the 25A we deposited earlier or directly transfer from our wallet to this loan. For the former, go back to the 'Deposit' tab and click on 'Move to collateral' next to the asset you want to use as collateral for your loan, select the quantity, and move it to collateral.
Alternatively, in the 'Loans' tab, you can directly deposit the assets to be used as collateral by selecting them from the available list on the left or directly within the 'Prestamito' loan we created earlier.
Once our ALGOs are collateralized, we can take a loan on the right side of 'Add to your borrows.' In the case of ALGO, we can choose Variable APY or Stable APY and see our liquidation percentage and the remaining APY (deposit APY - loan APY).
And now, we have our first loan, which we can use for various purposes.
In more practical cases, for example, you could deposit USDC as collateral to borrow ALGO, sell it if you expect the price to drop, and then buy it back cheaper to repay the loan and keep the difference.
Always consider the liquidation percentage. If you see that you're approaching the limit, you can add more collateral to protect your position and avoid liquidation, reducing the percentage.
To repay what you borrowed, you can use ALGO, the collateral, or another asset, simply by clicking 'Repay' in 'Your Borrows.'
Do Your Own Research (DYOR), Not Financial Advice (NFA), and I recommend reading the Folks guide: https://docs.folks.finance/introduction/get-started
Swap assets with Folks Router
Folks recently introduced its own 'Dex aggregator,' meaning a decentralized exchange that utilizes 3rd party dexes to perform swaps, always seeking the best price. Folks Router will consult with the three currently supported Dexes (Tinyman, Pact.fi, and Humble) and execute the swap where the best price is available. Additionally, an order can be subdivided into multiple orders if it improves the exchange price. For example, if I want to exchange 100A, I might get a better price by swapping 30A for UDSC on Tinyman and the remaining 70A on Pact.fi. Folks Router takes care of this process automatically.
Folks Router is already integrated into all sections of the Folks Finance app where swapping is allowed, namely 'Swap and Deposit,' 'Swap Collateral,' 'Repay with Collateral,' 'Buy/Sell gALGO,' and the recently added Ultraswap function under the 'Convert' option.
Lending Pools
Folks collaborates with Pact.fi to promote specific liquidity pools. In the 'Deposit' section of Folks, you can observe pools promoted by Folks within the Pact.fi platform. During governance periods, Folks usually allocates a percentage of the rewards received from the Foundation to enhance the rewards of the ALGO/gALGO pool, for example. However, a certain percentage of rewards is also assigned to other pools on different platforms.
You can view all the pools supported by Folks Finance in the 'Deposit' section of their page. By adding liquidity to a pair, you receive a percentage of Annual Percentage Yield (APY) corresponding to the transaction fees for that pair and the lending APY related to the rewards in that specific pool.
To add liquidity, simply select the 'Deposit' button next to the asset pair of interest, and you will be redirected to Pact to add liquidity.
Folks Finance is growing day by day. Not only do the new Ultraswap features make it easier to use advanced functions in a more user-friendly interface, but the recent alliance with Chainlink in joining their BUILD Program also expands the opportunity to participate in cross-chain Governance.
We now have xALGO, a cross chain yield bearing version of ALGO that continuosly keeps rising it's price according to the Governance Rewards. xALGO lets you participate in Algorand Governance in Avalanche and BINANCE Smart Chain.
Also, Folks cross chain lending app and $FOLKS, their governance token are coming this 2024. But we will cover all of this on a later post.
The future looks very promising for Folks.
