How to Use xALGO on Folks Finance: A Step-by-Step Guide

xALGO is a liquid staking derivative on the Algorand blockchain that allows you to earn staking rewards while maintaining the flexibility to use your tokens for borrowing, lending, and other DeFi activities on Folks Finance. Unlike traditional staking where your ALGO tokens remain locked and illiquid, xALGO provides a tradeable representation of your staked assets, enabling you to participate in multiple DeFi strategies simultaneously. This guide walks beginners through the complete process of setting up a wallet, minting xALGO, and using it for both staking rewards and collateralized borrowing on Folks Finance—a decentralized finance platform built on Algorand that offers lending, borrowing, and yield optimization services.

Key Takeaways

• xALGO enables liquid staking on Algorand, letting you earn rewards while maintaining asset flexibility for DeFi activities
• This step-by-step guide covers wallet setup, xALGO minting, staking for rewards, and using xALGO as collateral for borrowing
• xALGO offers superior liquidity and composability compared to traditional locked staking methods on Algorand

What is Folks Finance and xALGO?

Overview of Folks Finance

Folks Finance is a decentralized finance protocol built on the Algorand blockchain that provides lending, borrowing, and staking services without requiring intermediaries like traditional banks. The platform operates through smart contracts—automated programs that execute financial transactions when specific conditions are met. Think of it like a digital vending machine for financial services: you insert your cryptocurrency, select the service you want (lending, borrowing, or staking), and the smart contract automatically processes your request according to predetermined rules.

The platform allows users to deposit cryptocurrencies to earn interest as lenders, borrow assets by providing collateral, and participate in liquid staking programs. According to Folks Finance’s official documentation, the protocol emphasizes capital efficiency, meaning users can maximize the utility of their assets by using them in multiple ways simultaneously. For example, you can stake your ALGO to earn rewards while simultaneously using those staked tokens as collateral to borrow other assets—something impossible with traditional locked staking.

What is xALGO?

xALGO is a liquid staking token that represents staked ALGO on the Algorand network. When you convert your ALGO into xALGO through Folks Finance, your original ALGO tokens are staked with Algorand validators to earn network rewards, but you receive xALGO tokens in return that you can freely trade, transfer, or use as collateral. The “x” prefix stands for “liquid” or “exchangeable,” indicating that unlike traditional staked tokens locked in the network, xALGO remains fully liquid and usable.

The value of xALGO relative to ALGO gradually increases over time as staking rewards accumulate. For instance, if you mint 100 xALGO today by depositing 100 ALGO, you might be able to redeem those 100 xALGO for 105 ALGO in six months as staking rewards compound. This mechanism allows you to earn passive staking income while maintaining the ability to participate in DeFi activities—essentially having your cake and eating it too. The xALGO token follows the Algorand Standard Asset (ASA) specification, making it compatible with all Algorand-based wallets and applications.

How to Create a Wallet for Folks Finance

Step 1: Choose a Wallet

Before using Folks Finance, you need an Algorand-compatible wallet that supports decentralized application (dApp) connections. The most popular options include Pera Wallet (formerly Algorand Wallet), MyAlgo Wallet, and Defly Wallet. Pera Wallet is the official mobile wallet developed by the Algorand Foundation and offers the most user-friendly experience for beginners with its intuitive interface and built-in dApp browser. MyAlgo Wallet is a web-based option that works directly in your browser without requiring downloads, making it convenient for desktop users. Defly Wallet provides advanced features like portfolio tracking and seamless dApp integration for more experienced users.

For this guide, we’ll focus on Pera Wallet due to its beginner-friendly design and widespread adoption in the Algorand ecosystem. The wallet is available for both iOS and Android devices through their respective app stores. All three wallet options are non-custodial, meaning you maintain complete control over your private keys and funds—the wallet provider cannot access or freeze your assets, unlike centralized exchanges.

Step 2: Set Up Your Wallet

Download Pera Wallet from the Apple App Store or Google Play Store and open the application. Select “Create New Account” to generate a new Algorand wallet. The app will display a 25-word recovery phrase—this is the master key to your wallet and the only way to recover your funds if you lose access to your device. Write down these words on physical paper in the exact order shown and store them in a secure location, such as a safe or safety deposit box. Never take screenshots or store your recovery phrase digitally, as this makes it vulnerable to hacking.

After confirming your recovery phrase by entering specific words in the correct order, you’ll be prompted to create a six-digit PIN code for quick access to the app. This PIN only protects access to the app on your device—your recovery phrase is what truly controls your funds. Consider enabling biometric authentication (fingerprint or face recognition) for additional convenience without compromising security. Once setup is complete, you’ll see your wallet’s public address, which looks like a long string of letters and numbers beginning with an uppercase letter (for example: “ABCD1234EFGH5678IJKL9012MNOP3456QRST7890UVWX1234YZAB5678CDEF”).

Step 3: Fund Your Wallet

To use Folks Finance, you need ALGO tokens in your wallet. If you already own ALGO on OneBullEx or another centralized exchange, navigate to the withdrawal section, select Algorand (ALGO), paste your Pera Wallet address, and specify the amount you want to transfer. Algorand transactions typically complete in under five seconds with fees of only 0.001 ALGO (less than one cent), making it one of the fastest and cheapest blockchain networks to use.

If you don’t yet own ALGO, you can purchase it directly through Pera Wallet’s built-in integration with third-party providers, though this typically involves higher fees than using an exchange. Alternatively, create an account on OneBullEx, complete the necessary identity verification, deposit funds via bank transfer or credit card, purchase ALGO on the platform, and withdraw to your Pera Wallet address. Always send a small test transaction first (such as 1 ALGO) to verify you’ve copied the address correctly before transferring larger amounts—blockchain transactions are irreversible, and sending funds to an incorrect address means permanent loss.

How to Use xALGO for Staking on Folks Finance

Step 1: Connect Your Wallet to Folks Finance

Open your web browser and navigate to the Folks Finance platform. In the top-right corner of the homepage, you’ll see a “Connect Wallet” button. Click this button to see a list of supported wallet options. Select “Pera Wallet” from the list, which will trigger a connection request. If you’re using a mobile device, the Pera Wallet app will automatically open; if you’re on desktop, a QR code will appear that you can scan with your mobile Pera Wallet app.

Review the connection request carefully—it should show the Folks Finance domain and request permission to view your public address and account balance. This connection does NOT give Folks Finance access to move your funds; you’ll need to manually approve each transaction. Approve the connection request in your Pera Wallet app. Once connected, you’ll see your wallet address displayed in the top-right corner of the Folks Finance interface, and the platform will automatically detect your ALGO balance. The connection remains active for your current browser session but will need to be re-established if you close your browser or clear your cookies.

Step 2: Mint xALGO from Your ALGO Tokens

On the Folks Finance dashboard, locate and click on the “Liquid Staking” or “xALGO” section in the main navigation menu. You’ll see an interface showing the current exchange rate between ALGO and xALGO, which reflects accumulated staking rewards. As of 2026-06-24, the typical exchange rate shows xALGO trading at a slight premium to ALGO due to embedded staking rewards, though the exact rate fluctuates based on reward accumulation.

Enter the amount of ALGO you want to convert into xALGO in the input field. The platform will automatically calculate how many xALGO tokens you’ll receive based on the current exchange rate. For example, if you deposit 100 ALGO and the exchange rate is 1 ALGO = 0.98 xALGO (reflecting accumulated rewards), you’ll receive approximately 98 xALGO. This might seem counterintuitive, but remember that each xALGO represents a growing claim on the underlying staked ALGO pool—your 98 xALGO will be redeemable for more than 98 ALGO in the future as rewards compound.

Review the transaction details carefully, including any network fees (typically 0.001-0.002 ALGO), and click “Mint xALGO” or “Stake.” Your Pera Wallet will prompt you to approve the transaction. Review the transaction in your wallet app, confirm that the amount and recipient address match what you expect, and approve the transaction. The minting process completes within seconds, and you’ll see your new xALGO balance appear in your wallet and on the Folks Finance dashboard.

Step 3: Monitor Your xALGO Staking Rewards

Unlike traditional staking where rewards are distributed periodically, xALGO rewards accumulate automatically through the token’s increasing value relative to ALGO. You don’t need to claim or compound rewards manually—the exchange rate between xALGO and ALGO gradually increases as the underlying staked ALGO earns network rewards. Think of it like a savings bond that appreciates in value over time rather than paying periodic interest checks.

To monitor your rewards, check the current xALGO to ALGO exchange rate on the Folks Finance dashboard and compare it to the rate when you minted your xALGO. For example, if you minted xALGO at a rate of 1 ALGO = 0.98 xALGO, and the current rate is 1 ALGO = 0.96 xALGO, your xALGO has appreciated by approximately 2% relative to ALGO. You can calculate your total rewards by multiplying your xALGO balance by the current exchange rate to see how many ALGO you could redeem, then subtracting your original ALGO deposit.

The Folks Finance dashboard typically displays an estimated annual percentage yield (APY) for xALGO staking, which as of 2026-06-24 generally ranges between 4-7% depending on Algorand network participation rates and governance rewards. Remember that these are estimates, not guarantees—actual returns fluctuate based on network conditions. Your xALGO continues earning rewards as long as you hold it, whether it’s sitting in your wallet, deposited on Folks Finance as collateral, or even if you trade it to another user (the new owner continues earning from that point forward).

How to Use xALGO for Borrowing on Folks Finance

Step 1: Deposit xALGO as Collateral

Navigate to the “Borrow” or “Markets” section of the Folks Finance platform. You’ll see a list of available assets you can borrow, along with their current interest rates and collateral requirements. Before you can borrow, you need to deposit xALGO as collateral—this acts as security for your loan, similar to how a house serves as collateral for a mortgage. If you fail to repay the loan or if the value of your collateral drops too low, the platform can automatically liquidate (sell) your xALGO to repay lenders.

Click on “Deposit” or “Supply” next to xALGO in the asset list. Enter the amount of xALGO you want to deposit as collateral. The platform will show your “borrowing power” or “available to borrow” amount, which is typically 50-75% of your collateral’s value depending on the asset’s risk parameters. For example, if you deposit $1,000 worth of xALGO and the loan-to-value (LTV) ratio is 60%, you can borrow up to $600 worth of other assets.

Approve the deposit transaction in your Pera Wallet. Once confirmed, your xALGO will appear in your Folks Finance account under “Supplied Assets” or “Collateral.” Importantly, your deposited xALGO continues earning staking rewards even while serving as collateral—this is one of the key advantages of liquid staking tokens. You’re essentially earning rewards on your collateral while simultaneously using it to borrow other assets, a strategy called “capital efficiency” that’s impossible with traditional locked staking.

Step 2: Borrow Assets Against Your xALGO Collateral

With your xALGO deposited as collateral, you can now borrow other assets available on Folks Finance. Common borrowing options include ALGO, USDC (a stablecoin pegged to the US dollar), USDT (another stablecoin), and various other Algorand Standard Assets. Each asset has its own interest rate, which fluctuates based on supply and demand—when many users want to borrow an asset, rates increase; when few users are borrowing, rates decrease.

Select the asset you want to borrow and enter the amount. Pay close attention to the “health factor” or “borrow limit used” indicator, which shows how close you are to liquidation risk. A health factor of 1.0 or “100% borrow limit used” means you’re at maximum risk—any slight decrease in your collateral’s value or increase in your debt’s value could trigger automatic liquidation. Conservative borrowers typically stay below 50-60% of their maximum borrowing capacity to provide a safety buffer against market volatility.

For example, if you deposited $1,000 worth of xALGO with a 60% LTV ratio, you could theoretically borrow up to $600. However, borrowing the full $600 would be extremely risky. A safer approach would be borrowing $300-$400, leaving substantial room for price fluctuations. Review the interest rate you’ll pay on the loan—this is typically expressed as an annual percentage rate (APR) and compounds continuously. Click “Borrow” and approve the transaction in your Pera Wallet. The borrowed assets will appear in your wallet within seconds.

Step 3: Repay Your Loan and Manage Collateral

To repay your loan, navigate to the “Borrow” section and locate your active loan. Click “Repay” next to the borrowed asset and enter the amount you want to repay. You can make partial repayments to reduce your debt and improve your health factor, or repay the full amount to close the loan entirely. Note that you’ll need to repay both the principal (original borrowed amount) plus any accumulated interest.

Approve the repayment transaction in your Pera Wallet. The platform will automatically deduct the repayment amount from your wallet and reduce your outstanding debt. Once you’ve fully repaid a loan, you can withdraw your xALGO collateral by clicking “Withdraw” in the collateral section and specifying how much you want to remove. If you have multiple active loans, you can only withdraw collateral up to the point where your health factor remains above the liquidation threshold.

It’s crucial to monitor your loans regularly, especially during periods of high market volatility. Set up price alerts for ALGO and your borrowed assets to notify you of significant movements. If your health factor drops below 1.2-1.3, consider either repaying part of your loan or depositing additional collateral to avoid liquidation. Liquidations typically occur automatically when your health factor reaches 1.0, and they come with liquidation penalties (usually 5-10% of the liquidated amount), making them costly events to avoid.

What Are the Benefits of Using xALGO for Staking?

Comparison Table: xALGO vs Traditional Algorand Staking

Key Benefits of xALGO Liquid Staking

The primary advantage of xALGO is capital efficiency—your tokens work for you in multiple ways simultaneously. While earning staking rewards through xALGO’s appreciating value, you can also use those same tokens as collateral to borrow other assets, which you might deploy in additional yield-generating strategies. This is similar to owning a rental property that generates monthly income while also using that property as collateral for a business loan—the same asset serves dual purposes.

Automatic reward compounding is another significant benefit. With traditional staking, you need to manually claim rewards and re-stake them to benefit from compound growth. With xALGO, rewards automatically compound into the token’s value without any action required on your part. Over time, this convenience translates into higher effective returns due to more efficient compounding. For example, if traditional staking offers 5% APY but requires monthly manual compounding, and xALGO offers the same base rate with continuous automatic compounding, xALGO will deliver slightly higher effective returns over a year.

Liquidity and flexibility represent perhaps the most valuable benefit for active DeFi users. Traditional staked ALGO cannot be moved, traded, or used until you unstake it, which may involve waiting periods. xALGO can be sold immediately if you need to exit your position, transferred to other wallets or platforms, or used in various DeFi applications beyond just Folks Finance. This flexibility becomes especially valuable during market volatility when you might want to quickly adjust your positions—with xALGO, you’re never locked in.

Risks and Considerations When Using xALGO

Smart Contract and Protocol Risks

Folks Finance operates through smart contracts—automated programs that execute financial transactions according to programmed rules. While these contracts undergo security audits by professional firms, they remain vulnerable to undiscovered bugs or exploits. In 2024, various DeFi protocols across different blockchains lost millions of dollars to smart contract vulnerabilities, demonstrating that even audited code can contain flaws. If a critical bug is discovered in Folks Finance’s smart contracts, your deposited xALGO could potentially be at risk.

The protocol itself also faces operational risks. Folks Finance relies on accurate price feeds (oracles) to determine asset values for collateral and liquidation calculations. If these price feeds malfunction or are manipulated, it could trigger unwarranted liquidations or allow under-collateralized borrowing. Additionally, if the protocol’s governance makes poor decisions regarding risk parameters (like setting LTV ratios too high), it could threaten the entire system’s stability. Always deposit only amounts you can afford to lose, and diversify across multiple protocols rather than concentrating all your assets in one platform.

Liquidation Risk When Borrowing

When you use xALGO as collateral for borrowing, you face liquidation risk if your collateral’s value decreases or your debt’s value increases. Liquidations happen automatically and rapidly—you typically don’t receive warnings or opportunities to add more collateral once the liquidation threshold is breached. During the May 2025 crypto market correction, many DeFi users across various platforms experienced unexpected liquidations when asset prices dropped 20-30% within hours.

Liquidations come with financial penalties, typically 5-10% of the liquidated amount, which goes to liquidators (users or bots that execute the liquidation process) as an incentive. For example, if you have $1,000 worth of xALGO collateral backing a $600 loan, and your collateral value drops to $750, triggering liquidation, you might lose $75-$150 in liquidation penalties plus your collateral. To manage this risk, maintain conservative LTV ratios (borrow significantly less than your maximum), set up price alerts, and consider using stop-loss strategies to automatically repay loans if prices move against you.

Exchange Rate and Depeg Risk

xALGO’s value relative to ALGO should theoretically always increase as staking rewards accumulate. However, in practice, market dynamics can cause temporary discrepancies. If many users simultaneously try to convert xALGO back to ALGO, or if concerns arise about Folks Finance’s stability, xALGO could trade at a discount to its theoretical redemption value on secondary markets. This is called “depegging,” and while it’s typically temporary, it can create losses if you need to sell during a depeg event.

The xALGO to ALGO exchange rate also depends on the overall health and participation in Algorand’s consensus mechanism. If Algorand network participation decreases, staking rewards could decline, reducing xALGO’s growth rate. Additionally, changes to Algorand’s governance or reward structure could impact xALGO’s value proposition. While Algorand has maintained stable operations since its 2019 launch, blockchain networks face ongoing technical and governance challenges that could affect staking returns.

Regulatory and Tax Considerations

Cryptocurrency regulations vary significantly by jurisdiction and continue evolving rapidly. In many countries, converting ALGO to xALGO might be considered a taxable event, even though you’re essentially just changing the form of your holdings. Similarly, borrowing against your xALGO collateral might have tax implications depending on your local laws. Staking rewards earned through xALGO’s appreciation are likely taxable as income in most jurisdictions, though the exact treatment remains unclear in many regions.

As of 2026-06-24, regulatory scrutiny of DeFi platforms has intensified globally. Some jurisdictions have begun requiring DeFi protocols to implement know-your-customer (KYC) procedures or obtain financial licenses. While Folks Finance currently operates as a permissionless protocol, future regulatory requirements could impact its accessibility or functionality. Consult with a tax professional familiar with cryptocurrency to understand your specific obligations, and keep detailed records of all transactions, including timestamps, amounts, and exchange rates.

Frequently Asked Questions About Using xALGO on Folks Finance

What is the minimum amount of ALGO required to mint xALGO?

Folks Finance doesn’t impose a strict minimum for minting xALGO, but practical considerations make very small amounts inefficient. Each transaction on Algorand costs approximately 0.001-0.002 ALGO in network fees, and smart contract interactions may cost slightly more. If you’re minting just 1-2 ALGO worth of xALGO, transaction fees could consume a significant percentage of your investment. A practical minimum would be 10-20 ALGO to ensure fees remain a negligible portion of your total. Additionally, if you plan to use xALGO as collateral for borrowing, remember that you’ll need enough value to make borrowing worthwhile after accounting for interest costs and the recommended safety buffer to avoid liquidation.

Is it safe to use Folks Finance and hold xALGO?

Folks Finance has undergone security audits and has operated since 2021 without major security incidents, but no DeFi platform can be considered completely risk-free. The protocol implements standard security practices including time-locks on governance changes, multi-signature controls for administrative functions, and conservative risk parameters. However, smart contract vulnerabilities remain possible, and the platform faces risks from oracle manipulation, governance attacks, and broader Algorand ecosystem issues. To minimize risk, only deposit funds you can afford to lose, enable all available security features on your wallet (like transaction signing notifications), and diversify across multiple platforms rather than concentrating all assets in Folks Finance. The xALGO token itself is relatively safe to hold in your wallet, but using it as collateral for borrowing introduces additional liquidation risks.

Can I unstake xALGO anytime without waiting periods?

Yes, one of xALGO’s primary advantages is instant liquidity. You can convert xALGO back to ALGO at any time through Folks Finance’s redemption function with no unbonding period or waiting time—the transaction completes within seconds. Simply navigate to the liquid staking section, select “Unstake” or “Redeem,” enter your xALGO amount, and approve the transaction. You’ll receive ALGO based on the current exchange rate, which includes all accumulated staking rewards. The only limitation occurs if you’ve deposited xALGO as collateral for active loans on Folks Finance—in that case, you must first repay your loans or ensure your health factor remains safe after withdrawal before you can redeem your xALGO.

How does xALGO staking compare to governance participation on Algorand?

Algorand offers a separate governance program where ALGO holders can vote on protocol changes and earn additional rewards beyond base staking. Traditional governance participation requires locking your ALGO for the entire governance period (typically three months) and maintaining your full committed balance throughout—if you spend or transfer any committed ALGO, you forfeit all governance rewards for that period. xALGO staking provides more flexibility since you can convert back to ALGO anytime, but you typically earn only base staking rewards without the governance bonus. Some users employ a hybrid strategy: keep a portion in traditional governance for maximum rewards and convert another portion to xALGO for DeFi flexibility. The optimal approach depends on your need for liquidity and willingness to lock funds for governance periods.

What happens to my xALGO if Folks Finance shuts down?

xALGO is a standard Algorand asset (ASA) that exists independently on the Algorand blockchain, not just within Folks Finance. If Folks Finance were to shut down, your xALGO tokens would remain in your wallet and retain their value as claims on the underlying staked ALGO pool. However, you might face challenges redeeming xALGO for ALGO if Folks Finance’s redemption contracts become unavailable. In such a scenario, the Algorand community or another protocol would likely create alternative redemption mechanisms, though this process could take time and might not guarantee immediate access to your full value. This represents another reason to maintain diversification and not commit your entire portfolio to any single protocol or token.

Are there any fees for minting or redeeming xALGO on Folks Finance?

Folks Finance typically doesn’t charge platform fees for minting or redeeming xALGO, but you’ll pay standard Algorand network transaction fees of approximately 0.001-0.002 ALGO per transaction. Some protocols charge a small percentage fee (like 0.1-0.5%) for minting or redemption to support protocol operations, but as of 2026-06-24, Folks Finance has maintained a no-fee structure for basic liquid staking operations to encourage adoption. However, if you’re borrowing against xALGO collateral, you’ll pay interest on your loans, and if you’re liquidated, you’ll incur liquidation penalties. Always check the current fee structure on the Folks Finance platform before transacting, as protocols occasionally adjust their fee models through governance votes.

Risk Disclaimer: Cryptocurrency prices are highly volatile, and DeFi protocols carry smart contract risks, liquidation risks, and potential loss of funds. xALGO staking and borrowing involve complex financial mechanisms that may not be suitable for all users. This article is for educational purposes only and does not constitute financial or investment advice. Always conduct your own research, understand the risks involved, and never invest more than you can afford to lose before participating in any DeFi protocol or cryptocurrency investment.