Throughout history, traditional financial services provided by financial institutions such as banks have played a prominent role in the financial world. These services include the facilitation of monetary transactions such as loans and deposits, provision of insurance, and safekeeping of assets.
The institutions that provide these traditional financial services are inherently centralized, controlled by one central exchange with no other competing parties. This central exchange issue currencies, formulate policies and implement guidelines that facilitate transactions and processing trades. The exchange also controls the supply of money to the economy. For most of the institutions, the central exchanges are the central banks of the host countries. These central banks set exchange prices for currencies and the set prices are the only prices available for transactions.
By using traditional financial institutions, users place their absolute trust in the people behind the institutions to professionally and legally manage their funds and execute transactions on their behalf. In return, these institutions offer their customers more service options to choose from, the convenience of use, and a physical means of transacting.
However, these institutions have shown significant flaws in the financial services they provide over the years. To start with, the monetary system used to execute these services enable the perpetration of discrepancies by the central exchanges, leading to the devaluation of currencies, the susceptibility of users' funds to inflation, and negative interest rates. Also, these institutions charge high fees, offer less flexibility, and are not readily available.
DECENTRALIZED FINANCE (DEFI)
Over the years, there has been a rapid shift in the mode of executing financial services from traditional channels to digital channels. The development of the DeFi system for financial transactions is a major breakthrough for this shift.
Decentralized financial services are offered by financial applications that operate mainly through a centralized blockchain. These applications effectively cut out intermediaries and middlemen which many of the traditional institutions make use of. This is made possible through the use of smart contracts which ensure that the transactions are executed solely at the behest of the individual users.
Decentralized financial platforms ensure that a high proportion of the populace has access to financial services. Also, the platforms promote open banking by including technologies that ensure that points of failure do not exist in the network. The DeFi system also offers users more autonomy, trade, and transparency. Through DeFi, users' assets and funds are theirs only to control and transaction data are publicly available. These enable users to transact more efficiently and help keep service providers honest.
Notwithstanding these benefits, the DeFi system lacks regulation. Also, most of the DeFi applications are slow and permissioned. This prevents them from being able to handle a large number of daily transactions that are executed in the financial world. Furthermore, the currencies (cryptocurrencies) used by DeFi platforms are extremely volatile. This opens users' funds to huge devaluation when prices drop. These flaws restrict the global adoption of the DeFi system.
HOW ALGORAND IS BRIDGING THE GAP BETWEEN TRADITIONAL FINANCE AND DECENTRALIZED FINANCE: THE ALGORAND-CRED PARTNERSHIP
The Algorand blockchain, built by Silvio Micali and his team in 2017, is bridging the gap between traditional finance and DeFi by combining the advantageous parts of both systems to offer a platform that enables frictionless financial services. Being the first scalable and permissionless blockchain, Algorand can ensure scalability and security, the barriers that have restricted the adoption of DeFi for years.
To implement the combination effectively, Algorand partnered with Cred, a licensed California-based lender who is a leader in crypto-based lending and borrowing services. The partnership was consolidated by the announcement of several strategic initiatives to advance decentralized financial services for the Algorand community.
By utilizing Cred's unique ability to generate yield through DeFi and CeFi channels, Algorand provides its users with the ability to earn fixed rates of interest at a highly competitive rate especially when they stake Cred's LBA token. No account minimum is needed and interest is paid out to users in the cryptocurrency of their choice. Also, investment funds, corporate bodies, and individuals interested in generating a yield on assets of $50,000 or more are provided with the chance to discuss a customized earning program with a Cred Private Client Officer.
According to Dan Schatt, CEO of Cred, the platform was delighted to partner with Algorand, a leader in the development of stateless smart contracts and scalable proof-of-stake consensus. The partnership supports Algotoken holders with a more transparent, equitable set of financial services that leverage Algorand's best of breed DeFi capabilities and combines them with powerful fiat services to offer significant yield on assets. Also, plans are underway by Cred to support USDC and USDT on Algorand.
More importantly, the recent strategic investment in Cred by Borderless Capital grants Cred the ability to amplify its offerings on Algorand and support new product development designed to provide customers with significant yield opportunities. This will enable the smooth execution of transactions and assure the safekeeping of assets with low transaction rates on the Algorand blockchain.
Conclusively, crypto enthusiasts and DeFi applications developers should adopt the use of the Algorand blockchain for transaction execution and asset safeguarding to prevent the hassles associated with the traditional finance and DeFi systems.