"Analysis: Possible Reasons Behind ALGO's Surprising 40% Surge Against the Trend"

After Binance.US announced support for Algorand (ALGO) staking on February 17, 2020, the price of ALGO token has surged by over 40%. Apart from the bullish news from Binance, the recent unlocking of relay node tokens at the end of last year may also be a contributing factor to this significant price increase.

Binance Announces Support for ALGO Staking Mining

According to the latest announcement from Binance.US, the platform has announced support for Algorand (ALGO) staking mining service, which is also the first staking mining product launched by Binance.US.

Staking mining is one of the mainstream investment methods in the decentralized finance (DeFi) field, allowing investors to participate in network governance and earn block rewards as additional income.

The minimum staking amount for participating in ALGO staking mining is 2 ALGO, and investors do not need to take additional actions or meet lock-up requirements. Investors only need to hold ALGO in their platform accounts. Earnings are calculated daily and distributed to investors' accounts on the 20th of each month. According to the official announcement from Binance, the expected annualized yield can be as high as 16% - 20%.

But can ALGO soar significantly just by this?

The earnings from staking mining are distributed in the form of the underlying asset. Therefore, whether staking mining can be profitable largely depends on the price fluctuations of the token itself. In other words, if the token price falls, it will compress the profitability of staking mining and may even result in losses. The reason why ALGO can surge significantly after positive news may be closely related to the adjustment made by Algorand last year regarding the release plan for relay node rewards.

New Unlocking Solution for Relay Nodes

During the fundraising period of Algorand, investors who chose to operate "relay nodes" to participate in transaction verification could subscribe to ALGO at a cost of less than $0.09 per unit (rumored to be as low as $0.05), which would be released over a two-year lock-up period.

Initially, Algorand chose to unlock these tokens using a "quantitative release model," but this move sparked strong backlash from the community as this method would lead to an excessive influx of ALGO in the early stages of relay node development. Therefore, the community proposed a proposal called EIP-09092019PC, hoping to change the "quantitative release model" to a "conditional accelerated release model," and extend the release period to five years. This adjustment aims to regulate the supply and demand of tokens in the market, reduce the early selling pressure of tokens, and provide an additional 25% of tokens to relay nodes as compensation (without affecting the total supply).

Conditional Accelerated Release Model

The "Conditional Accelerated Release Model" extends the original two-year full release period to five years and changes the decreasing release method to the following release method:

It is important to emphasize that the above ratio is the minimum basic release ratio, and the actual situation may change depending on the price of ALGO in the market.

In short, the higher the market price of ALGO, the faster the token release, and vice versa. Therefore, there is a chance that the tokens of relay nodes will be fully released in less than five years. From the table below, we can see that if the price of ALGO reaches $1.20 by the end of 2022, the tokens of relay nodes will be fully released.

After understanding what the "Conditional Accelerated Release Model" is, we can draw the following conclusion:

"If relay nodes want to unlock their locked tokens earlier, they must ensure that the token price does not drop; if the token price falls, relay nodes will have to wait longer to unlock their tokens."

The relief of selling pressure may be the main reason why ALGO has performed so impressively recently.

Related Reading

• OKEx Announces Launch of OKChain, DEX Testnet, OKB Surges Over 40% in a Single Day
• PoW, PoS, and DPoS: Three Major Blockchain Consensus Mechanisms

Join Telegram now for the most comprehensive information on fintech, blockchain insights, and industry examples!