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Algofi and its BANK Token: A Lending Protocol Running on the Algorand Blockchain

By 2sats | 2sats | 27 Nov 2021

*obligatory not financial advice*



What is Algofi?

Algofi is the first lending protocol that will launch on Algorand. Algofi will allow its users to take over collateralized loans with various coins and tokens like Aave or Compound do and it will allow them to mint a stablecoin called Algostable like with Maker and its Dai token. It is currently running on the testnet and users can try it out with provided fake ALGO and ASA tokens for free if they connect their wallet.

Algorand is a very popular smart contract blockchain thanks to its low fees. Other blockchains can have gas fees of more than $10, which makes it basically impossible to use DeFi for small amounts of money. Since Algorand has gas fees that are a fraction of a cent it can be used by the little guy. Algofi could offer a great investment opportunity since it has first mover advantage on Algorand. Hopefully the Algofi application and the BANK token will launch on mainnet in December 2021.




Lending and Borrowing

You can supply various assets that will be provided for loans and earn a variable interest rate. Once you have some funds deposited you can also borrow coins that have up to 80% the value of your collateral. So if you provide 100 ALGO and 1 ALGO would be worth $1, then you can borrow up to $80 USDC.

This is great if you need liquidity but don't want to sell your ALGO because you think its value will grow further. It can also be used for trading, if you think that the Yieldly token will lose value and ALGO will grow, then you can provide ALGO to borrow YLDL and then sell the YLDL to buy it back for a lower price later. However, borrowing also brings a risk because if the value of the collateral falls and gets to low it will be liquidated automatically.

The interest rate is variable and will depend on how much of an asset is provided vs how much of it is being borrowed. Both lenders and borrowers will earn the governance token of Algofi called BANK.





Algofi also provides its own decentralized stablecoin. There is a max supply of 10 Trillion AlgoStable and you can only get them by leaving a collateral, this ensures that all circulating tokens are all fully backed.

The borrowers here also have to pay an interest, but unlike with the other assets, the interest rate will be set directly by the governance token holders. The collected interest of AlgoStable will be used to buy back BANK tokens, this will not only reward the holders of the governance token but it will also make sure that there will be enough in circulation for borrowers to actually pay the interest back, otherwise borrowers would have to pay back more than what is available due to the interest.

Borrowers of AlgoStable are also earning BANK.


The BANK Token

BANK is the governance token of Algofi. The holders can vote on possible changes on the platform like the interest rate for AlgoStable or which assets should be supported. The value of the token will depend on how much money is locked in the smart contracts of Algofi, because there will be more demand for the voting rights if they effect more money. Since Algofi will be the first lending protocol on Algorand, there will likely be more than enough liquidity.

51% of the supply will be put aside for user incentives. Lenders and borrowers are earning BANK as rewards and there could be a burn mechanism there the interest rate for AlgoStable is used to burn BANK. The entire tokenomics and what will happen with the other 49% is not known right now. As the launch on the mainnet comes closer, we will hopefully learn more about the BANK token. In any case Algofi is a very promising project and its BANK token could have a lot of potential.




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