Algorand, as we know, is a new blockchain innovation that is doing or is capable not doing far greater than the traditional blockchain. Today, and since over a decade now, blockchain has been what ‘Internet’ was two decades ago. It’s disrupting many sectors, because humans in various sectors keep seeing it as a powerful, flexible, 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 closely unleash how Algorand is solving the problems with DeFi. Decentralized Finance, and how Algorand is helping it become better. In order for us to see a really thorough breakdown of these two tools, I shall discuss on 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. We call it trilemma because it involves three issues in one (issues that are interrelated and equally very important). The trilemma involves the block-chain features of Decentralization, Scalability and Security. The traditional blockchain cannot provide all three at the time and at the highest level.
So,Algorand is coming to revolutionize the blockchain sphere, solve it’s problems; expand it’s reach; widen its adoption range; and create better and more applicable innovations that can change the world, by making it a better place. Algorand protocol is today’s world’s 1st open-source, homogeneous proof-of-stake (PoS) blockchain innovation. Algorand’s protocol offers the features of Scalability, Decentralization and Security at once and at maximum level.
What is DE-FI (Decentralized FInance) and its Advantages?
What is DE-FI?
De-Fi, in simple terms, is a pure blockchain based financial environment that allows the management of various financial instruments, and commodities in a Decentralized 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 Decentralization into the financial market. Normally, financial market is centralized, that is, it’s being controlled or managed by certain central parties or central organizations. These central entities also act as intermediaries or trustees for traders, transactions and payments. These institutions have access to our data, and use these 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).
Moreover, we don’t even really know how and what they are using our data for. There’s no much transparency in this system as to how our data and money are being used by them for gains.
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 decentralized, so that decentralized money is being accessed via centralized exchanges or systems.
Advantages of DE-FI
Decentralized 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 can now be able to create new applications easily. This is because De-Fi protocol is open-source and allows 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: Hordes of 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, pure proof-of-stake protocol. Therefore it will help De-Fi perform better than before. Algorand is expected to revolutionize 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, digitization of money is very important for decentralization of finance. Finance is all about money. De-Fi requires the use of digital money to function. The challenge is that the value of digital money usually fluctuates. This issue needs to be well dealt with so as to stabilize the Decentralized Financial Market.
- Security Issue: Security is very important. Blockchain has certain security challenges (as mentioned in our introduction, when talking about block-chain trilemma). De-Fi is based on block-chain and would, therefore, be faced with the same challenge unless it is addressed.
- Relatively New: 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 earlier stated, Algorand, which is an improvement upon blockchain, and also a solution to the problems of the traditional blockchain, will definitely help solve many challenges being faced by De-Fi. Algorand will, in fact, revolutionize De-Fi and make it more powerful.
Since De-Fi is based on block-chain, it means that Algorand which an improved blockchain, will revolutionize De-Fi.
It’s definitely going to address the challenges of De-Fi and make De-Fi more acceptable and to be adopted more widely.
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-centralization of Finance: Algorand offers true de-centralization. Any platform that is based on Algorand’s protocol will be truly and fully decentralized. Hence, Finance will be truly decentralized if De-Fi is incorporated on Algorand. Algorand’s pure PoS protocol and consensus mechanism is what makes it able to offer true de-centralization.
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 decentralization. This helps to stabilize 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 digitization 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 transactions speed because it eradicated centralization 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 it’s atomic transfers. This feature helps to achieve split-second transfers with negligible costs and so on.
7. The Algorand Foundation: For the sake of De-Fi, that is, in order to ensure the easy achievement of transparency, full decentralization, and a trustless, permissionless financial economy that will revolutionize De-Fi completely, Algorand established the Algorand Foundation. The foundation is focused on eradicating central entities from the financial sector. They give every necessary protection, work on creation of tools and services that will improve the De-Fi environment.
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 Decentralized manner.
We have seen how Algorand helps to address these problems, revolutionize De-Fi and help to make De-Fi more acceptable and adoptable in the financial sector.