Algorand Q2 2024 Brief

Key Insights

• Average daily transactions on Algorand increased by 104%. It maintained momentum after the spike in transactions from the ORA memecoin project in Q1 2024.
• Messina.one’s TVL grew 440% QoQ, despite Algorand’s total DeFi TVL falling 32% QoQ.
• Algorand expanded its ecosystem through strategic partnerships with Nansen and Coinbase. The Nansen partnership will help enhance Algorand’s data visibility, and its partnership with Coinbase supports USDC’s expansion to the Algorand blockchain.
• In Q2 2024, the xGov program approved 23 grant applications, allocating a total of 2.35 million ALGOs in funding ($190,000).
• The “Change the Game” Global Hackathon had participation from over 2,000 individuals, with nearly 600 actively competing in the event.

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 future. Similar to relying on stake weight in consensus, Algorand PPoS randomly selects consensus nodes based on their ALGO balances using a Verifiable Random Function (VRF), where having a larger balance increases the holder’s chance of selection. Algorand’s smart contract execution layer is powered by the Algorand Virtual Machine (AVM). Algorand supports smart contract development in Python as well as other community-developed languages, and applications are then compiled to bytecode to run in the AVM.

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

Algorand's average daily transactions surged by 104%, reaching 4.7 million, while total transactions recorded a modest 6% QoQ increase to 425 million. Despite this heightened activity, revenue dropped by 61% to $152,000, primarily due to a 46% depreciation in ALGO's value against the USD compared to the previous quarter. Even though the average transaction fee rose by 44%, dollar revenue still declined. The significant 61% drop in quarterly revenue can also be attributed to a correction following a 1,747% surge in Q1, driven by a one-day spike of 43 million transactions linked to the ORA memecoin project. Nevertheless, on a YoY basis, revenue saw a remarkable 1,241% increase, climbing from $11,000 to $152,000. On its 5th anniversary, Algorand reached a significant milestone of 2 billion transactions. The network took four years to achieve its first billion transactions, while the second billion was reached within just one year.

Staked ALGO

Staking ALGO for governance is different from most other chains. First, users must commit a certain amount to governance. If their ALGO balance falls below their commitment, then their entire stake becomes ineligible. Instead of directly participating in governance through the Algorand Foundation’s interface, users can also participate via Folks Finance’s Liquid Governance program, 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 Q2 2024, the amount of staked ALGO on Algorand fell by 38% YoY and 6% QoQ, reaching its lowest level in a year at 1.6 billion ALGO staked. This downturn can be partially attributed to the diminishing rewards allocated per governance period. The percentage of eligible Algorand supply being staked decreased by 4.7% QoQ, now standing at 20.2%. Meanwhile, Algorand's circulating supply increased by 1.2%, reaching 8.2 billion ALGO. For more context, governance participants were awarded 56.3 million ALGO in Q2 2023; however, this figure has since dropped to only 21.3 million ALGO in Q2 2024.

Stablecoins

The market cap for stablecoins on Algorand increased by 15% QoQ, rising from $73 million to $85 million. This growth was primarily driven by a 32% increase in USDC's market cap, which now accounts for 78% of the total stablecoin market cap on Algorand. Meanwhile, USDT's market cap dropped by 22%, making up 21% of Algorand's stablecoin market share. EURD's market cap remained at 1% share of Algorand's stablecoin market cap.

DeFi

Algorand’s total DeFi TVL dropped from $130 million to $89 million (-32% QoQ). Folks Finance remained the leading DeFi protocol on Algorand, holding 47% of the total TVL, despite a 40% QoQ decline in its TVL and an 8% drop in its market share. Tinyman holds the second-largest TVL, with an 11.7% decrease in its TVL share, now accounting for 16.2% of Algorand’s total DeFi TVL. Pact, with the third-largest TVL, saw a 29% drop but maintained 5.4% of the total TVL. Notably, Messina.one experienced the largest growth this quarter, with its market share increasing from 1.2% to 6.3%, a 440% QoQ rise.

Market Cap

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. Governance voters that opted-in to xGov first pilot could do so between Q2'23 and Q1'24 for a 12-month term with at least four voting periods. The xGov pilot phase voting encompassed the allocation of funding to grant applicants. Staking ALGO for xGov was not risk-free like Community Governance. xGov participants who did not vote forfeited their staked amount, with the total amount forfeited being rewarded to participants who completed their xGov term. The xGov first pilot has now concluded, and the program will relaunch later this year with new participation rules.

Although the Governance Period 10 (GP10) took place in Q1 2024, proposed measures had implications into Q2 2024. During this period, two key measures were addressed. A proposal was passed to increase the minimum staking requirement to 30,000 ALGO for consensus incentives, which will be implemented in the next protocol upgrade in 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, were allocated for DeFi Rewards.
• 650,000 ALGO were capped for NFT Rewards, with specific allocations such as 178,000 ALGO to ALGOxNFT to enhance activity in the Algorand NFT ecosystem. At least 11.1 million ALGO was designated for General Governance Rewards.

Governance Period 11 (GP11) took place in Q2 2024. During this period, 16 key measures were addressed. The total rewards allocated amounted to 26 million ALGO, distributed across various projects and initiatives. The allocation details are as follows:

• 13 million ALGO, or 50% of the total, were designated for DeFi Rewards, with the following specific distributions:
  • Up to 7 million ALGO for Targeted DeFi Rewards, with approved allocations including:
    • 1.75 million ALGO to Folks Finance
    • 0.25 million ALGO to Cometa
    • 1.50 million ALGO to Pact
    • 1.75 million ALGO to Tinyman
    • 0.25 million ALGO to Wormhole
  • A minimum of 6 million ALGO was allocated for general DeFi Rewards.
• Also, 0.6 million ALGO was allocated for NFT Rewards, with specific distributions such as 160,000 ALGO to Gems to increase trading volume and liquidity within the Algorand NFT market. At least 10.6 million ALGO was designated for General Governance Rewards.

xGov Period 4 occurred in May and June and saw 77% participation from unique accounts. Of the 24 grant applications, 23 were approved for 2.35 million ALGO in total. The funded projects fell into the following categories:

• Energy and Environment: Proposals for decentralized energy token systems and EV charging infrastructure, focused on building carbon-neutral grids.
• Developer Tools and Infrastructure: Platforms for blockchain education, smart contract development, and open-source tool expansions, including IDEs and frameworks for Web3 development.
• Security and Monitoring: Tools for scam detection, identity verification, and security audits within the Algorand ecosystem, enhancing on-chain safety and compliance.
• Gaming and Consumer Applications: Retroactive funding for gaming platforms, NFT generation tools, and user onboarding solutions, aimed at expanding community engagement and blockchain adoption.
• Payment Processing and DeFi: Solutions for decentralized payment processing, auto-compounding yield farms, and staking contracts to enhance DeFi operations on Algorand.

Developments and Highlights:

Technical Developments:

• Liquid Auth: A replacement for WalletConnect that provides P2P authentication, enhancing the security of interactions between wallets and applications. This solution also transitions from WalletConnect's centralized authentication to a fully decentralized approach.
• Algokit 3.0: Algorand introduced updates including LORA, a tool for transaction visualization, along with improvements in Python testing for smart contracts and API functions.
• xHD Wallets: Expanding on the traditional HD Wallet framework, the latest features enable users to generate multiple accounts using a single mnemonic seed. This advancement not only enhances security but also streamlines account management by maintaining a unified backup for all accounts.

Partnerships and Integrations:

• Coinbase: Algorand added support for USDC on Coinbase, streamlining stablecoin transactions on the network.
• Nansen: Partnered with Nansen to improve data visibility within the Algorand ecosystem.
• Alchemy Pay: Integrated USDC, expanding its functionality within the ecosystem.
• Quantoz EURD, abrdn and Archax: The Euro Money Market fund from abrdn became the first of its kind to be tokenized, utilizing the Algorand blockchain through Archax and employing Quantoz EURD. This innovation enhances the accessibility and transferability of financial assets.
• Travala Integration: ALGO became a payment option on Travala, allowing users to book travel services with the cryptocurrency.
• Finboot: The green supply chain management company has shifted its MARCO Track & Trace platform from Ethereum to Algorand, opting for Algorand's characteristics of sustainability, scalability, and operational efficiency.
• Blockchain Humanitarian Council: Algorand Foundation spearheaded a coalition to help deliver blockchain-based cash assistance to crisis-affected populations in partnership with UNDP, Worldpay, Circle, HesabPay, Mercy Corps Ventures, and others.

Community Engagement:

• Decipher Conference: The third edition of Decipher was held in Barcelona, focusing on the projects and businesses within the Algorand ecosystem, with participation from both in-person and online attendees.
• Global Hackathon: The "Change the Game" Global Hackathon saw participation from over 2,000 people in developer bootcamps, and nearly 600 in the hackathon itself.
• Educational Initiatives: Algorand continued its blockchain education efforts in regions such as India and Nigeria, with various training programs and workshops.
• Developer activity : Algorand experienced notable developer activity following the launch of Algokit, which allows developers to use native Python for building and deploying on the platform. By the end of Q1, the number of monthly active developers reached 444, reflecting a 13% YoY increase, with 87 full-time developers. The platform also saw a significant rise in one-time contributors — developers who contributed code once within a three-month period — reaching 174, which marks a 135% increase from the previous year. Multichain developers totaled 335, showing a 68% growth within the year. Additionally, the number of new developers rose by 22%, reaching a total of 222 by the end of Q2.

Business Applications:

• Labtrace: Conducted a medical research study using its blockchain-based data authentication system, demonstrating the application of Algorand’s technology in healthcare.
• Rebranding: Algorand launched a new website and refreshed branding to improve the accessibility of information about Algorand’s ecosystem.

Closing Summary

Algorand introduced several key developments in Q2 2024. The network implemented technical upgrades, including xHD wallets and Liquid Auth, to enhance security for decentralized interactions. Average daily transactions increased by 104%, while revenue in USD declined by 61% QoQ but showed a 1,240% increase YoY. Following the launch of Algokit, Algorand saw a positive trend in development activity. As for community engagement, Algorand hosted the “Change the Game” Global Hackathon, attracting over 2,000 participants, highlighting its efforts to foster growth within its ecosystem. Governance activities included allocations for DeFi and NFT rewards. The quarter also featured strategic partnerships, such as those with Nansen to improve data visibility and with Coinbase to support USDC transactions, facilitating stablecoin use on the network.