Algorand, as we know, is a new blockchain innovation that is doing or is capable of doing far greater than the traditional blockchain. Today, and for over a decade now, blockchain has been what 'Internet' was two decades ago. It's disrupting many sectors because in various sectors it is seen as a powerful, flexible, and versatile tool that can change almost anything.
What happens if we apply it to finance? Algorand, if applied, is definitely going to revolutionize the global finance sector and the financial capacities and capabilities of any nation.
Let me outline how Algorand is solving the problems with De-Fi and helping to make it better. In order for us to see a really thorough breakdown of these two tools, I shall discuss the following:
- What Algorand is basically about
- What De-Fi is, and it's advantages
- Algorand and De-Fi: Essence of Algorand in De-Fi and Challenges of De-Fi
- How Algorand is helping De-Fi
What Algorand Is All About
Algorand is the solution to many current digital challenges including the blockchain trilemma. The blockchain trilemma refers to the three basic concepts of blockchain technology: security, scalability, and decentralization. It states you can achieve the attributes at the expense of others, or it is not possible to maximise all three properties at the same time.
Algorand is coming to revolutionize the blockchain sphere, solve its problems, expand its reach, widen its adoption range, and create better and more applicable innovations that can change the world by making it a better place. The Algorand protocol is open-sourced, permissionless, pure proof-of-stake (PPoS). It solves the blockchain trilemma; it is secure, scalable, and decentralised.
What Is De-Fi (Decentralised Finace) And It's Advantages
De-Fi, in simple terms, is a pure blockchain-based financial environment that allows the management of various financial instruments, and commodities in a decentralised manner. With De-Fi, various financial tools or matters can be well managed: combined, altered, and incorporated according to a user's decision.
De-Fi brings decentralisation into the financial market. Normally, the financial market is centralised, that is, it is controlled or managed by certain central parties or central organisations. These central entities also act as intermediaries or trustees for traders, transactions, and payments. These institutions have access to our data and use the data for their services. So, we normally hope to get an advantage or better yields when our money passes through them. The hazard or jeopardy here is that they (human-controlled central financial institutions) have a lot of control over what belongs to us, and are prone to errors and sentiments (being emotional and biased).
That is why Decentralization is important! Decentralization is the Solution. As earlier said, for a few reasons, block-chain is being hindered from making the whole financial system really decentralised.
Decentralised Finance has many benefits which include:
· Users will have full control over their assets: Users or traders will have full command over their assets and resources, since there's no central controller, except AI and block-chain.
· Open-source Protocol: With De-Fi in the finance sector, users will have the ability to create new applications easily. This is because the De-Fi protocol is open-source and allows the creation of new innovations in the finance sector.
· Better Yields/Increased Trading Profits: Since there will be no middlemen or central bodies, hidden charges or service fees are eradicated. Transactions will be achieved faster. Hence, increased profits.
· Transparency and Accountability: De-Fi is block-chain based and therefore transparent. Transparency brings about accountability. Users will decide what happens to their funds and data.
· DE-FI brings Cryptocurrency Adoption into Finance: There are numerous cryptocurrencies to choose from. It offers a wide range of digital currencies to choose from seamlessly while transacting.
Essence Of Algorand In De-Fi And Challenges
You may ask, 'De-Fi itself is already achieving many feats with the basic blockchain technology, why exactly do we need Algorand?'
First, we need to remember that Algorand is an IMPROVED VERSION of blockchain and an open, permissionless pure proof-of-stake protocol. Therefore, it will help De-Fi perform better than before. Algorand is expected to revolutionise the overall De-Fi sphere. If De-Fi is doing a lot in finance with the common blockchain, then it will do better with Algorand's protocol. I hope you now get it. Let's look at some of the challenges being faced by De-Fi that Algorand can solve.
Challenges of DE-FI
Instability of Cryptocurrencies’ Values: This is a somewhat great challenge, even though, digitisation of money is very important for the decentralisation of finance. Finance is all about money. De-Fi requires the use of digital money to function. The challenge is the value of digital money usually fluctuates. This issue needs to be well dealt with to stabilize the Decentralised Financial Market.
Relatively New: Security is very important. Blockchain has certain security challenges (as discussed in our introduction to the block-chain trilemma). De-Fi is based on block-chain and would, therefore, be faced with the same challenge unless it is addressed.
Yes, De-Fi is new. Talk about the challenge that will be faced while ensuring De-Fi's wide-range acceptance in financial markets of the world. No matter what, at its starting stage, De-Fi will be faced with issues such as administrative constraints, security hazards, etc
How Algorand Is Helping DE-FI
As De-Fi is based on blockchain, Algorand will revolutionise De-Fi and make it more powerful through;
1. Increased Adoption of De-Fi:
With Algorand, De-Fi will certainly be more widely adopted. Algorand solves the problem of Scalability and Security. If these two can be addressed, such that De-Fi becomes more secure and more scalable, it will become more widely accepted and adopted.
2. True De-centralisation of Finance:
Algorand offers true de-centralisation. Any platform that is based on Algorand's protocol will be truly and fully decentralised. Hence, Finance will be truly decentralised if De-Fi is incorporated on Algorand. Algorand's pure PoS protocol and consensus mechanism are what makes it able to offer true de-centralisation.
3. Addressing the Unpredictable nature of Digital Money:
By incorporating Algorand with DE-FI and using the stablecoin (Tether) on Algorand, De-Fi can achieve security, fluidity, adaptability, and full decentralisation. This helps to stabilise the De-Fi economy.
4. Proper Resources Management:
There are certain features packed in Algorand's structure that really improves De-Fi. Some of them are Algorand Standard Asset (ASA) innovation at Layer 1 and ASC-1 smart-contracts which makes it possible for the digitisation and issuance of funds on the Algorand's blockchain. This possibility will enhance confirmation of blocks in less than just 4 secs; exchange fees will be negligibly small.
5. Faster, and Sentiment-free Agreements:
Also, the smart-contracts help to increase transaction speed because it eradicated centralisation or human-based agreements. Smart-contracts are automated agreements that execute based on certain pre-written contracts and are not affected by sentiments.
6. Algorand’s Atomic Transfers Enhances Great Speed:
Another unique feature of Algorand's protocol is its atomic transfers. This feature helps to achieve split-second transfers with negligible costs and so on.
7. The Algorand Foundation:
The Algorand Foundation is responsible for the governance of the protocol. The Algorand consensus mechanism is Permissionless, Pure Proof of Stake. It ensures full participation, protection, and speed within a truly decentralised network. With blocks finalised in seconds, Algorand’s transaction throughput is on par with large payment and financial networks. And Algorand is the first blockchain to provide immediate transaction finality. No forking. No uncertainty. The era of a decentralised, borderless economy is here.
We just looked at how Algorand is helping De-Fi. Algorand is the solution to many current digital challenges, including that of the blockchain trilemma. De-Fi, in simple terms, is a pure blockchain based financial environment that allows the management of various financial instruments, and commodities in a decentralised manner.
We have seen how Algorand helps to address these problems, revolutionise De-Fi and help to make De-Fi more acceptable and adoptable in the financial sector.