Algorand Q1 2024 Brief

Key Insights

• Algorand experienced a record-setting day, processing over 43 million transactions largely driven by the launch of the Orange memecoin project. Algorand ended the quarter with over 403 million transactions, a 288% increase QoQ.
• The increase in transactions driven by Orange (ORA) led Algorand's revenue to grow by 1,747% to $393,000.
• Algorand's market cap increased by 18%, ending the quarter at $2.1 billion after reaching $2.6 billion in mid-March.
• Algorand's DeFi TVL rose by 9% QoQ to $130 million, driven by AlgoRai Finance and Tinyman’s TVL growth of 53% and 43% QoQ, respectively.
• In Q1, the xGov grant program approved 18 grant applications for a total funding of 1.1 million ALGO ($190,000).

Primer

Algorand (ALGO) is a smart contract platform employing a variant of the Proof-of-Stake (PoS) consensus mechanism, termed Pure Proof-of-Stake (PPoS). The protocol was founded by Turing award-winning computer scientist Silvio Micali, also known for co-inventing Zero-Knowledge proofs, Verifiable Random Functions (VRF), and probabilistic encryption.

Unlike other PoS smart contract protocols, Algorand currently does not reward nodes that participate in consensus, nor does it include a staking lockup or slashing mechanism. However, Algorand plans to incentivize consensus in the near future. Similar to relying on stake weight in consensus, Algorand’s consensus mechanism randomly selects individual ALGO from online accounts. The selections are probabilistically weighted by each account's ALGO holdings using a Verifiable Random Function (VRF).

Algorand incorporates a system of peer-to-peer relay nodes, which can be configured in archival or non-archival modes, to propagate data across the network. Additionally, participation nodes execute consensus. Algorand’s PPoS consensus protocol ensures that only one block per consensus round can be included in the chain, making Algorand essentially unforkable.

Algorand’s smart contract execution layer is powered by the Algorand Virtual Machine (AVM). The AVM supports applications natively developed in Python, as well as in an assembly-level programming language, TEAL.

Algorand Technologies, the founding entity, is behind most of the network’s development. The Algorand Foundation is a not-for-profit organization focused on ecosystem initiatives like governance, funding Algorand-based projects, building developer tooling, and encouraging grassroots development. The Algorand ecosystem features a growing set of projects across many sectors, including DeFi, RWAs, payments, and gaming.

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Key Metrics

Performance Analysis

Revenue & Transactions

Revenue jumped 1,747% QoQ, partially driven by the 288% increase in transactions and the 50% increase in average price throughout the quarter. The Orange memecoin project also contributed to this growth. Orange incentivizes users to simulate Proof-of-Work (PoW) via “proof-of-transaction,” rewarding its most active users with newly minted ORA tokens. Its platform enables users to broadcast random transactions on the network, allowing them to adjust the number of transactions sent per minute and the amount of ALGO paid per transaction. After five blocks, the user that pays the most in ALGO fees gets rewarded with newly minted ORA. This incentivization plan proved attractive, as transactions spiked to over 43 million on the first day of the quarter before tapering off in subsequent days.

Governance Staking

Staking ALGO for governance is different from most other chains. In Algorand’s PPoS staking mechanism, users retain ownership control of their ALGO when they make them available to secure the network. Algorand governance currently operates independently from consensus staking.

In governance, users must commit a certain amount to governance. If their ALGO balance falls below their commitment, then their entire commitment is considered invalid. In addition to directly participating in governance through the Algorand Foundation’s interface, users can also participate via the Liquid Governance program of Folks Finance, Algorand’s largest DeFi protocol as of the past three quarters. Its Liquid Governance program enables users to participate in governance by staking (not committing) ALGO in exchange for gALGO, a liquid governance token.

In Q1 2024, the amount of ALGO committed to governance on Algorand fell by 60% YoY and 3% QoQ, reaching its lowest level in a year at 1.7 billion ALGO staked. This downturn can be partially attributed to the diminishing governance rewards allocated per governance period. To illustrate, governance participants were awarded 68.2 million ALGO in Q1 2023; however, this figure has since dropped to only 21.9 million ALGO in Q1 2024.

Stablecoins

The market cap for stablecoins on Algorand declined 6% QoQ, down to $73 million. USDC's market cap on Algorand decreased by about 9% QoQ to $50 million. Meanwhile, USDT's market cap remained stable throughout the same period with no change QoQ, though it recovered 2% of the stablecoin market share. Consequently, USDC’s market share decreased by 3%, down to 68% QoQ, while USDT’s market share increased by 2% QoQ to 30% of Algorand’s total stablecoin market cap.

DeFi

Algorand’s total DeFi TVL grew for the second consecutive quarter, increasing 9% QoQ to $130 million. Though TVL fell in Q3’23 due to the deprecation of Algofi, the entire DeFi market on Algorand has since recovered, exceeding Q2’23 levels and almost reaching Q1’23 levels. Folks Finance continued its reign as the top DeFi protocol by TVL on Algorand. Although its TVL fell by 5% QoQ in Q1, it retained just over 50% market share. Pact and Tinyman also showed notable gains, respectively taking approximately 15% and 18% to the DeFi TVL market share in Q1. AlgoRai Finance marked the most substantial growth, with a 53% increase in its TVL QoQ.

Market Cap

Algorand's market cap grew by 18% QoQ to $2.1 billion. In the first quarter of 2024, the global crypto market cap experienced significant growth, nearing all-time highs of around $3 trillion—a 50% increase from the previous quarter. Although Algorand capitalized on this upward trend with an 18% increase in its market cap, it had seen a more substantial increase of 123% in the previous quarter.

Qualitative Analysis

Governance

The Algorand Foundation hosts two governance programs, Algorand Community Governance and xGov. The Community Governance program occurs on a quarterly basis and encompasses developments in the Algorand ecosystem. For xGov, however, governance voters can opt-in during any quarter for a 12-month term with at least four voting periods. xGov voting encompasses the allocation of funding to grant applicants. Staking ALGO for xGov is not risk-free like Community Governance, as xGov participants who do not vote will forfeit their staked amount. The total amount forfeited is then rewarded to participants who completed their xGov term.

Although Governance Period 9 (GP9) occurred in Q4 2023, the proposed measures had implications going into Q1 2024. During GP9, four measures were proposed, allocating a total of 30 million ALGO. The outcomes of each measure are listed below.

• 15 million ALGO was allocated to funding DeFi and the Targeted DeFi Rewards program. Half of this allocation went to the Targeted DeFi Rewards program in Q1 2024.
• The NFT Rewards program ran again in Q1 2024 with no modifications.
• 650,000 ALGO was allocated to the NFT Rewards program in Q1 2024.

Governance Period 10 (GP10) took place in Q1 2024. During this period, two key measures were addressed. A proposal was passed to set the minimum staking requirement to 30,000 ALGO for consensus incentives. The proposal is set to be implemented in the next protocol upgrade, targeted for Q3 2024. Additionally, 27.5 million ALGO was distributed to 16 projects. The allocation details are as follows:

• 13.75 million ALGO, or 50% of the total, was allocated for DeFi Rewards, with specific distributions including:
  • Up to 7.5 million ALGO for Targeted DeFi Rewards, with approved allocations of:
    • 1,875,000 ALGO to Folks Finance
    • 245,000 ALGO to Meld Gold
    • 1,233,000 ALGO to Pact
    • 1,875,000 ALGO to Tinyman
    • 205,000 ALGO to Wormhole
  • A minimum of 6.25 million ALGO was set for general DeFi Rewards.
• 650,000 ALGO was capped for NFT Rewards, with specific allocations such as 178,000 ALGO to ALGOxNFT to enhance activity in the Algorand NFT ecosystem.
• Up to 2 million ALGO was reserved for xGov projects, dependent on the xGov voting session 3 outcomes.
• At least 11.1 million ALGO was designated for General Governance Rewards.

xGOV Period 3 occurred in February and March and saw 81% participation from unique accounts. Of the 49 grant applications, 18 were approved for 1,074,000 ALGO in total. The funded projects fell into the following categories:

Analytics: Platforms for blockchain education, smart contract development, and node management insights; onchain business directories and governance mechanisms; tokenization project monitoring.

Consumer Uses: Educational content hubs for NFTs and blockchain, community growth through media production, regional blockchain adoption campaigns, and marketing for trading applications.

Developer Infrastructure: Tools for enhancing codebase quality, API services for developers, onchain transparency facilitation, and authentication solutions using advanced cryptographic proofs.

Developments

• Dynamic Round Times: Algorand's "Dynamic Lambda" update. It reduced block creation times by 20% to below three seconds and significantly​ improved throughput and network performance.
• Python Integration with AlgoKit 2.0: Algorand launched AlgoKit 2.0, enabling developers to natively build apps in Python.
• Non-archival Relays: Algorand has deployed non-archival relay nodes to boost network efficiency and reduce operational costs by minimizing data storage and energy consumption requirements.
• Consensus Incentivization: Algorand plans to implement consensus incentivization, rewarding consensus nodes with ALGO for their participation in consensus execution, further securing and decentralizing the network.
• P2P Gossip Network: Algorand plans to transition from its current relay node topology to a P2P network topology. The upgrade aims to improve network decentralization and resilience by reducing reliance on specific nodes, thereby diminishing points of failure and spreading control more evenly across the network.

Ecosystem Updates

• Folks Finance announced that xALGO will yield consensus rewards after the network implements its Consensus Incentivization update.
• Pera Wallet surpassed 1 million downloads.
• Lofty AI leads in real estate tokenization on Algorand, having launched over 120 properties with a total value exceeding $30 million. It also introduced instant liquidity via its new AMM for property tokens.
• TravelX achieved a milestone with over 5 million passengers using its NFT plane tickets.
• HesabPay expanded its user base, facilitating over 500,000 monthly transactions.

Investments & Partnerships

• Algorand Ventures collaborated with HesabPay to support digital payments and facilitate humanitarian aid for the World Food Programme in Afghanistan.
• Algorand Ventures made strategic investments in projects including Vestige Labs, a blockchain software development company that focuses on the practical applications of Algorand Virtual Machine (AVM).

Technology & Infrastructure

• Hedera and Algorand co-founded a decentralized wallet recovery system termed “DeRec.” Its launch marked a significant advancement in securing digital assets across blockchain ecosystems and improving the user experience.

Closing Summary

Algorand implemented a series of developments in Q1, simultaneously seeing many metrics improve throughout the quarter. The launch of AlgoKit 2.0 enables support for smart contract development in Python, and Algorand implemented dynamic round times that reduced block time by 20%. Meanwhile, the community continued to pass proposals to spur growth in DeFi and NFTs on the network.

In Q1, revenue jumped 1,747% as transactions increased 288% QoQ. Algorand proved that it can tolerate increased activity as Orange helped inspire over 43 million transactions on the first day of the new year. As Algorand continues to build a more robust network, it will be prepared for the oncoming traffic from the pending bull market.

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