Introduction

This analysis looks at the following CEXs which have ALGO transaction data available on FlipsideCrypto:

• Binance
• Coinbase
• Crypto.com
• Hotbit
• Huobi
• Kraken
• Okex.

2. Analysis

Here is the overall Algorand token movement between CEXs and wallets from mid-August 2021 (a few weeks before the 1st token staking & governance period) to present day (in the midst of the 2nd governance period):

The graph above shows several spikes in ALGO sent to/from CEXs, specifically in September, November, and December 2021, and otherwise significant volatility.

Let's break down how Algorand Governance may have influenced the volumes of ALGO CEX action.

2.1. First commitment period

First, let's look at the first commitment period of Sept 30th, 2021 to Oct 14th, 2021 and compare it to the previous two weeks Sept 14th, 2021- to Sept 30th, 2021. Did we see more ALGO volume movement from CEXs to wallets by day during the commitment period compared to the previous period?

The chart above reveals no obvious difference between CEX-to-wallet transaction volumes once the first commitment period began (except the outlier day on September 22). From the chart alone, it is difficult to see whether more ALGO consistently came from CEXs to wallets during the first commitment period.

If we look at the average daily transaction volumes:

Between Sep 14-29th wallets received on average 25.7M ALGO a day from CEXs, and from Sep 30-Oct 14th - 25.1M, which translates to ~500k more ALGO per day coming from CEXs earlier, compared to during the commitment period. If we counted the outlier date, the figure before the commitment period would be even higher. This data does not suggest that users were buying more ALGO to stake for governance during the first commitment period, compared to equivalent weeks prior.

2.2. Earlier before first commitment period

Next let's zoom out a little, to verify if the counterintuitive trend holds on a wider time scale. We now compare August 14th, 2021 - Sept 13th (6 weeks out until 2 weeks out from the first commitment period) to Sept 14th, 2021 - Oct 14th (2 weeks leading up to the first commitment period + 2 weeks during the first commitment period). Do we see more ALGO volume movement from CEXs to wallets by day leading up to and during the commitment period than the month before?

The visualization above illustrates that a meaningful spike in ALGO transactions from CEXs to wallets took place between 8-9 September and also on 22 September 2021, both prior to the start of the first commitment period. It appears that once again more ALGO came from CEXs to wallets earlier, than in the actual first commitment period. But to see the trend more accurately, let's look at the calculations:

Between Aug 14-Sep 13th wallets received 29.6M ALGO a day on average from CEXs, and from Sep 14-Oct 14th the daily average was 28.8M ALGO. This translates to 800k/day less ALGO coming from CEXs to wallets in the 30 days that contained the first commitment period, compared to the previous 30-day window. This data, similarly to 2.1, also refutes the conclusion that more of the users purchased ALGO from CEXs in time to stake them for the first governance period.

2.3. First governance payout period

Finally, lets look at the first governance payout period(Jan 1st, 2022- Jan 5th, 2022). Do we see an increased volume of ALGOs moving TO CEXs from Jan 1st, 2022 - Jan 14th, 2022 (during and after the first gov payout period) compared to the two weeks prior Dec 18th 2021 - Dec 31st 2021?

2.4. Second commitment period

How did the second commitment period Dec 24th 2021 - Jan 7, 2022 impact the ALGO volume movement to and from CEXs during the first governance payout period? Show the volume of ALGOs to and from CEXs during Dec 24th, 2021 to Jan 12th, 2022.

The chart above reveals a spike in ALGO transactions both ways on Christmas Eve 2021, and another spike of ALGO received from CEXs to wallets on Boxing Day. Christmas holidays-related CEX trading may have affected these ALGO movements. What about any movement related to second period governance commitment?

In numbers:

For the entire period in the above chart, more ALGO came to wallets from CEX than went off to CEX.

During the second commitment period (Dec 24 - Jan 7, excluding the outlier on Dec 26 Boxing Day), 2M more ALGO was received from CEXs by wallets than was sent in the other direction.

But after the second commitment period ended (Jan 8-12), wallets received 3M more ALGO from CEXs than they sent. It appears that, like in sections 2.1 and 2.2 earlier, that there is no staking-driven acquisition of tokens for governance seen in data.

Furthermore, if we consider the Boxing Day outlier, then during the second commitment period ALGO even suffered a net loss of volume to CEXs, instead of the expected inflow of tokens to wallets for staking.

At the same time, staked ALGO almost doubled in the second governance period (from 1.7B to 3B). We discuss some of the ways this could happen in the takeaways below.

3. Final takeaways

From 1 October 2021, Algorand introduced the Decentralized Governance Model.

Governance periods are defined as quarters (4 periods per year). To vote, one has to sign up as a governor and commit to hold a certain amount of ALGO; governors must vote in each session. The governors that comply with all rules receive a reward at the end of the quarter.

As of 24 February 2022, there have been two Algorand governance periods. Governance period 1 brought in 50.1k governors who staked 1.7B ALGO, and governance period 2 (the quarter and voting session still ongoing as of this analysis) has had 62k governors who staked a combined 3B ALGO.

Image source.

1. Method

Image source.

This article will analyze the Algorand governance & transaction data to understand whether governance has any effect on buying/selling ALGO tokens from/to Centralized Exchanges (CEXs).

• In preparation for the first-ever Algorand governance period in September 2021, it does not appear that the wallets were purchasing more ALGO during the first commitment period (from the CEXs we examined) in order to stake & vote.
• After the first governance rewards were distributed in the new year 2022, there appears to have been some rush to get rid of extra ALGO from the payout and send them from wallets to exchanges.
• In the second commitment period before the second governance quarter, there was more inflow of ALGO from CEXs to wallets than outflow, but the trend continued even stronger after the commitment window closed.
• Users who participated in governance may have acquired ALGO tokens on their own timeline to stake later, as there doesn't seem to be a relationship between CEX-wallet flows and governance periods.
• Alternatively, is possible that wallets purchased more ALGO from other CEXs for which we did not have data, in order to stake them for governance during commitment periods.
• Finally, it is also possible that other factors (price fluctuations of ALGO and other tokens, seasonality and holidays, etc.) had a bigger influence on buying and selling ALGO at CEXs than the influence of Algorand governance periods.
• The types of wallets who staked ALGO for governance (especially in the 1st period) could have been predominantly the wallets who are interested in HODLing ALGO, who bought and who continued to HODL it before and after governance periods. Wallets who staked for the first governance period could have re-staked for the second quarter if they were satisfied with their experience and considered their participation in Algorand Governance important.

Were first period ALGO governance payouts immediately taken to CEXs to sell? The chart above supports this hypothesis. Although it shows that a notable amount of ALGO (73.5M) was sent to CEX on Christmas Eve 2021, which was before the payout hit at the beginning of 2022, on average after the rewards were distributed the daily transactions to CEX amounted to 5.8M/day more. Some of this could be the selling of the first period governance rewards.