Token Dynamics

The Algorand blockchain network has its own official native token, called the Algo. The Algorand Foundation will initially use an auction mechanism to distribute algos to registered participants around the world who satisfy regulatory requirements. Auctions are conducted on the Algorand blockchain through a listing partner.

Why Auctions to Distribute Tokens

We believe that the market should determine the value  of the Algorand Public Blockchain, and by proxy, the Algo. We find that auctions, in particular Dutch Auctions, achieve this fairness for two main reasons. First, at every auction, everyone who buys an algo buys it at the same price. Second, the price is determined by the market.

There are other advantages to Algorand auctions, in particular:

Efficiency

Our auctions are efficiently conducted online and accessed simultaneously by users around the world. A user that temporarily loses their connection to the network can re-enter the auction and still participate.

Transparency

Algorand auctions are transparent; every bid is placed on the blockchain, so everyone can verify that the auction has been conducted properly.

In the Auction Section, we provide more details on how our auctions work.

Algo Distribution

There will be at most 10 billion algos in circulation. We anticipate that it will take at least five years of operation of the Algorand Public Blockchain to reach 10 billion algos in circulation. The algos will be introduced into the network over time as follows:

Relay Node Participation

The Algorand Foundation has given early supporters around the world who have agreed to run relay nodes the opportunity to earn Algos in exchange. Relay node runners earn tokens according to vesting schedules that range from 2 to 5 years. Any unvested amount will not participate in the consensus protocol.

Rewards

The borderless economy is an inclusive and decentralized economy. The notion of broad participation and equitable access to opportunity is fundamental to building an engaged and strong economic community. In Algorand, every user is an equal member of the community and earns an amount of rewards proportional to their stake for every block that is committed to the chain.  Rewards are earned by users who have correctly designated their status in the system as offline or online. This initial approach is designed to encourage broad participation in our ecosystem and reward all users in the Algorand Community.

This approach encourages users to join the Algorand community and accelerate our path to decentralization.

In the future we will introduce additional incentive mechanisms to ensure long term infrastructure support and health. The Algorand Foundation is committed to only introducing mechanisms that are permissionless and allow any interested party to join the network.

Many blockchain projects have adopted ad-hoc and immutable rewards distribution policies that have led to misaligned incentives. For example, Princeton researchers Miles Carlsten, Harry Kalodner, S. Matthew Weinberg and Arvind Narayanan (2016) have shown that in proof-of-work systems, miners may have incentives not to work on the longest chain.

Instead of adopting an inflexible policy, the Algorand Foundation will initially guide the rate at which rewards will be distributed to the community. Rewards will be deposited by the foundation into the rewards pool every 500,000 blocks (approximately every month). On an ongoing basis, the foundation will coordinate research on proposals for protocol upgrades that lead towards a robust and decentralized rewards system.

Based on the overall token distribution schedule above, there are 1.75B algos allocated to rewards out of the 10B total supply to be minted.

In addition, transaction fees will be accumulated in a transaction fee pool. These transaction fees will be used to pay for participation rewards after the initial participation rewards pool of 1.75 billion tokens has been exhausted. While transaction fees for ordinary transactions are minimal by design, it is expected that smart contracts and other enhancements to the platform will drive continued growth in transaction fees to ensure that rewards will drive network participation in the long run.

The projected rewards for the first 12 reward periods, each of which spans 500,000 blocks, are as follows:

These projections balance the tradeoffs between rewarding early participants and scaling the amount of rewards with the growth of the supply of algos.