Algorand Foundation And Crypto Mass Adoption using DeFi

"Nigeria has highest number of unbanked population worldwide" - The Nation Newspaper

Preamble
Since the advent of the first widely recognized cryptocurrency (Bitcoin) in 2019 by Satoshi Nakamoto, the blockchain industry has experienced different phases. The rise of exchanges and it's frequent hacks in 2011 - 2014, the ico phase of 2014 -2017, the bullish run that peaked at early 2018, the IEOs of 2019 and now the DeFi phase that is the trend now.

DeFi
The full meaning is "Decentralized Finance" which incorporates the entire banking ecoystem (lending, borrowing, staking etc) built on blockchain; including digital assets, protocols, marketplace, Dapps, exchanges, smart contracts and so on. According to Business Insider, there are over 2 billion unbanked people globally, this creates a huge gap that needs to be closed.

"DeFi brings magnitudes greater accountability and transparency to investors making for a healthier financial system. These products will broaden access to sound financial investments no matter what geography you reside in." - Nick Cannon (Bloqboard DeFi).

Benefits of DeFi
Transparency and Accountability
DeFi is built on a public blockchain where every transaction is seen, traced, recorded and monitored for many years to come. This makes it more open, faster, secured and less prone to corrupt practices compared to mainstream traditional institutions.

Decentralized
As long as you have crypto assets, you can immediately borrow cash that is delivered straight to your local bank account.” It is trustless, eliminates the need for middle-men (Bank, brokers etc). There is also flexibility in collateral, borrowing repayment plan and lending interests plus no need for credit score like in traditional institutions. There are even flash loans that can be taken securedly and paid instantly, almost without collateral but monitored by the smart contract.

Myriads Of Cryptocurrencies To Choose From
The DeFi structure on blockchain offers a wide range of cryptocurrencies to choose from seamlessly. Initially, DeFi pioneer structures like MarketDaO only used ETH. However, more DeFi platforms like Nexo, Celsius etc offer an array of products up to 20 and more is being added.

Higher ROI
Because middlemen are cut-off, the volatile nature of cryptocurrencies comes with its own advantages too as it presents higher yield on DeFi platforms (Especially those with their native token) who offer up to 70% of their fees to lenders. Some platforms offer up to 4.8% in 7days, this is almost impossible in traditional financial sector.

Challenges Of DeFi
Volatility
The Volatile nature of cryptocurrencies (Like Bitcoin and Ethereum) poses some concerns especially for the mainstream banking population that is embracing DeFi newly. The recent rise and eventual drop in Ethereum price reflected in the drop of tokens locked in DeFi to the tune of $200m as reported by Coingape, this is indeed huge.

To reduce this volatility to the bearest minimum, stable coins pegged to fiat currencies like US Dollar, Chinese Yen, British Pounds, Nigerian Naira etc are introduced. Some of such stable coins are Tether, USDC, BUSD etc. However, they are hybrid decentrlized (or semi decentralized) especially in issuance model, that is why there is need for 100% decentralized stablecoins on 100% decentralized blockchains.

Security
DAO $50m hack in 2016 and the recent BZX DeFi double hack of $1m earlier this month has proven that there is still a lot of work to be done as regards the security architecture of DeFi companies. Security needs to be priorotize, there is need for collaboration, Multiple Oracles, Multi Sig Wallets, On chain Governance, Multiple smart contract audits etc.

Relatively New
As with every new tech, DeFi is pretty new on blockchain and like NEXO founder confirmed, there is room for further reserach and development in the field if it is primed to be the next level of finance globally. The Modus operandi is clear as DeFi is structured to make everyone bankable at the click of a button. However, at this initial phase, there is bound to be challenges (security threats, regulatory compliances, general acceptance etc) which will help to fastrack the industry to make it robust.

"Algorand core beliefs is in the establishment of an open, public and permissionless blockchain, the Algorand Foundation has a vision for an inclusive ecosystem that provides an opportunity for everyone to harness the potential of an equitable and truly borderless economy"

The Need For DeFi
To stem corruption and Inflation
Recent events (of Hyper inflation) in Zimbabwe and most recently Venezuela has reitrated the fact that the need for DeFi in the world is inevitable. Few Top Government officials carting away the resources of the populace, Central banks printing monies with reckless abandon, the citizenery standard of living plummeting to all time low as confidence in the government dwindles, loans becoming extinct, unemployment on the rise etc. These and more clearly defines the pattern that confirms that central authorities need to be decentralized.

To Enhance Remittances and Cut Excessive Fees
Remittances are funds transferred from migrants to their home countries. For many developing nations, remittances from citizens working abroad provide a financial source of much-needed funds.

As more blockchain companies and fintech develop DeFi products for their brand, one area (worth billions of dollars) that has been ignored is remittances. Imagine a blockchain company that incorporates remittances into it's DeFi ecosystem (unlike going through banks, sign papers, exchange rates, wait days for delivery).

An article by Nairametrics- A financial Data analysis website, Nigeria received $17.57 billion in direct diaspora remittances between January and November 2019. Data obtained from the Central Bank of Nigeria (CBN) revealed.

The latest data published by the apex regulator stated that the remittances rose by 56.4% when it increased from $11.23 billion within the same period in 2018 to $17.57 billion in 2019, with remittance fees ramping up to a massive 8.69%. In addition, most Nigerian banks have been known to charge excessive fees (account maintenance fee, ATM maintenance fee, monthly alert fee, transfer fee etc) which has been a subject of public outrage a number of times.

Meanwhile, it has been widely established that the officially recorded remittances into the country are much lower than the actual remittances that take place through unofficial channels. This means a chunk of Nigeria’s remittances flows through the unofficial channels.

Other important points emphasising DeFi:
High interest on borrowing and low interest rate on lending (APR)

The bureaucracy involved in collateral backed loans borrowing, Kyc/Aml, Paperworks, delays etc.

Enter Algorand Foundation
In a bid to create a borderless, transparent, decentralized and permissionless economy that will entrench DeFi globally, Algorand Foundation was created.

Algorand is the world's first open source, permissionless, pure proof-of-stake blockchain protocol for the next generation of financial products. This blockchain, the Algorand protocol, is the brainchild of Turing Award-winning cryptographer Silvio Micali.

Algorand Foundation is a technology company dedicated to removing friction from financial exchange, Algorand foundation is powering the DeFi evolution by enabling the creation and exchange of value, building new financial tools and services, bringing assets on-chain and providing responsible privacy model.

By combining these models, Algorand has become the foundation for blockchain and internet 3.0.

How Algorand Is Changing DeFi
Curbing the volatile nature of cryptocurrencies
By utilizing the most liquid stablecoin (Tether) on the Algorand blockchain; the combination of speed, security, liquidity, scalability, finality and total decentralization is established.

Assets Management
Secondly, the Algorand 2.0 made room for Algorand Standard Asset (ASA) technology [Layer 1] and ASC1 smart contracts which makes it possible for the tokenization and issuance of any type of asset on the Algorand blockchain which will enable block confirmation in under four seconds and transaction fees that are a fraction of a percent, unlocking the opportunity for micropayments as well as fluid DeFi on blockchain.

More valuable Benefits of Algorand on DeFi:
Disintermediate cross border transactions that will take care of settlements and remittances.

Democratized access to investments

Pure Proof Of Stake Consensus Protocol

Interoperability and Scalability

Asset tokenization (cryptocurrencies, stable coins, regulatory certifications, loyalty points, real estate etc)

Atomic transfers with Negligible fees etc.

Conclusion
DeFi is the future of digital assets management, financial transactions on blockchain, remittances and settlements, transparency and accountability as well as the new phase of doing business globally; even though it is faced with some challenges like security/volatility right now, with continuous reserach and developmement plus the incorporation of cutting edge technology of Algorand Foundation, the world can move to crypto mass adoption in the shortest possible time especially in countries like Nigeria which has the highest unbanked population in the world and Zimbabwe which had been ravaged by hyperinflation for a long time.

Gideon Udoh.

A blockchain tech/Cryptocurrency Analyst

Writing from Nigeria.