Proposal 007 - Wrapped Algorand (5L8KLUvJ4)

This is the seventh proposal submitted by the Staker Operations team (Ops) based on STKR token holder feedback. The primary purpose of this proposal is to introduce Wrapped Algorand (wALGO) to the community, receive feedback, and approve its launch.

Proposal Items:

  1. Ops team, based on STKR token holder feedback, is proposing to build Wrapped Algorand (wALGO).

  2. Ops team is also researching other wrapped token opportunities and expects the community to propose Wrapped Tezos as a follow up to Wrapped Algorand. Other networks will also be evaluated.

ITEM 1:

The Algorand network is a Proof of Stake network that is growing to become a formidable layer 1 competitor. The network offers infrastructure consistent with Ethereum but with significantly enhanced scalability. The ALGO token has a similar risk/volatility profile to Ethereum, but also has the added advantage of generating yield making it more appealing to both holders and DeFi participants.

As the Algorand ecosystem is being built out, many ALGO holders are aware of the activity in the Ethereum DeFi ecosystem. The StakerDAO community has developed this proposal to provide those holders with a solution that both takes advantage of the emerging DeFi opportunities on Algorand while also enabling their holdings to participate in the Ethereum ecosystem. We consider the need for the native ALGO token to be staked to secure the network, but also have a liquid representation for speculation and other activities such as lending.

Wrapped Algorand (wALGO) will allow ALGO holders to create a fully collateralized staking position and unlock the power of DeFi.

Here is how it would work:

Minting

  1. A user, Alice, executes the wALGO TEAL contract on Algorand. This contract provisions Alice with a settlement wallet and associated secret key. This settlement wallet is termed a “vault”. The execution of the wALGO contract may take place by command line, within a non-custodial wallet, on a 3rd party site, or on StakerDAO.com.
  2. Alice then can deposit / lock ALGO into the vault.
  3. Once ALGO are deposited into the vault, the contract generates an equivalent quantity of wALGO in the vault (1:1)
  4. The contract automatically stakes all ALGO in the vault.
  5. ALGO rewards are accumulated in the vault
  6. Accumulated rewards automatically generate additional wALGO (1:1)

Transferring wALGO to another address on Algorand or to an Ethereum address

  1. Alice can choose to move her wALGO to an Algorand address. It is anticipated that wALGO will become a useful token in Algorand DeFi as it grows.
  2. Using a separate TEAL contract based on the StakerShift algorithm, Alice can choose to send her wALGO on Algorand to Ethereum. Once on Ethereum, Alice may choose to participate in Ethereum-based DeFi with her wALGO.

Redeeming

  1. Using an Algorand explorer or other front end interface developed by the community or StakerDAO, Alice can review her position in her vault, including the number of ALGOs locked in the contract and the number of wALGO in the vault available for usage.
  2. In order to unlock her ALGO, Alice can use the contract to “burn” a number of wALGO equivalent to the number of ALGO she wishes to unlock and withdraw.
  3. After Alice unlocks her ALGO, she sends the ALGO to an ALGO address.

Fees: 1% of generated staking rewards will be retained by the smart contract and deposited into a reserve. This fee can be changed via the StakerDAO governance process.

Funding: Borderless Capital, a community member, has led in the development of this proposal and is supporting the process of seeking a grant from the Algorand Foundation for engineering assistance as well as contract auditing.

Benefits

  1. As a primitive on Algorand, builders will have a liquid instrument to utilize in DeFi products (e.g. as collateral in a lending product) without reducing the amount of ALGO staked.
  2. Participants will receive staking rewards while utilizing wALGO to further increase yield (e.g lending on Compound, market making on CeFI or DeFi platforms, collateralizing a Maker Vault, etc).

ITEM 2:

StakerDAO and the community are exploring a similar implementation for Tezos. The overall architecture continues to be discussed, but there may be a proposal as early as September. Staker Ops would also like to solicit feedback from the community about other networks that may benefit from a similar implementation.