I need a quick technical explainer on swapping to gAlgo

Algo Liquid Governance
1

Hi all,

I’d like participate on governance via Folks but I’m worried that the ‘swap’ from Algo to gAlgo looks like a taxable event for me.

Does Algo to gAlgo happen like a standard swap transaction on-chain, or does the Algo go to an individual address as collateral and my wallet is then issued gAlgo?

Cheers.

2

What you’ll want to do is commit the ALGO to mint gALGO, not swap it. Swapping ALGO to gALGO will not make you eligible for governance period 9.

3

Thanks for replying, Ibu. Yes, I understand I need to commit.

When I use Commit, Algo moves from my wallet to another address, and gAlgo is received to my wallet. What I need to understand is whether it looks like on-chain I have sold my Algo for gAlgo, or if I have just locked that Algo in an address that ‘belongs’ to me and gAlgo is issued as collateral.
The former is taxable. The latter isn’t.

Cheers.

4

We can’t give tax advice but the ALGO is locked in an ALGO address that belongs to you. However you do not have the ability to access these ALGOs. Moreover the ALGOs will be sent (at the end of the governance period) from the address to a communal pool which anyone can use to burn their gALGOs.

5

Thanks Gidon.

So just confirming … you can see on-chain at the end of governance that the Algo I locked moves to a large pool?

6

Yes, that will be visible on-chain

7

Okay. Damn! :smiling_face_with_tear:

Thanks.

8

Hi,

I don’t know in which country you live and I don’t know the tax practices of all countries, but in general the it doesn’t matter how transaction is implemented. it is more what is the purpose and reason behind of that transaction.

So good to check if it is actually taxable or not. in general it doesn’t matter if it is on chain or not. For example in here where I live, if I lend funds from my address, it is not taxed transaction, so it will not realize my profit/loss albeit it is visible on chain, because nature of that transaction is not to sell anything.

Just to make clear, not tax advice, but I suggest don’t assume things so quickly unless you are 100% sure how things work in your current location.

9

Hi Roam,

I’m in Australia. Yeah, obviously the intention is not to have sold anything, but it’s not really clear if going from clear ownership to a 1:1 claim constitutes a sale.

Thanks.

10

yep, that is tricky one, because taxman can see things differently… surprise surprise :smiley: Maybe you just have to make a call and ask from taxman.

Personally I think this is more like allocation to some third party that just holds my ALGOs until I will get them back, so I think this is not a sale. But gov rewards will be taxed, just like dividends, at least in here (Estonia & Finland).

Disclaimer: I don’t know absolutely anything :rofl: