Decentralized Finances (DeFi) is a promising and developing area of cryptocurrencies. It has the perfect usecase for public blockchains, while it can boldly compete with traditional banking services. Although not every blockchain is suitable for Defi, because it needs to meet strict criteria about security and some other qualities of blockchain projects.
Algorand is a Pure Proof of Stake project with all its advantages
Algorand is a decentralized public blockchain platform for smart contracts using the PPoS (Pure Proof of Stake) algorithm to conclude consensus within the network. The algorithm has low computational complexity and fast and cheap transactions in comparison with Proof of Work blockchains. The blocks finality is in a maximum of 5 seconds and the block proposer as well as the verifiers are selected randomly and secretly in each block due to the using Verifiable Random Functions. Algorand uses its native cryptocurrency ALGO.
Behind Algorand blockchain, there is Algorand Foundation led by Silvio Micali, co-author of Zero-Knowledge Proof technology and holder of a Turing Award for his work in cryptography.
Why is Algorand a great project for DeFi?
Scalability
Projects using Proof-of-Work such as Ethereum 1.0 are very limited with their low level of permeability to serve millions of users using DeFi projects. We saw this failure at the event called “The black Thursday”, where on 12th March 2020 the price of Ethereum dropped significantly, which resulted in massive liquidations on Maker DAO .
Algorand is capable to reach 1000 TPS (transaction per second), so the scalability is not an issue in Algorand blockchain. Besides that, Algorand brought recently the upgrade of their Smart Contract Architecture, which allows using Layer-2 for smart contracts. That makes Algorand blockchain even more scalable.
Low transaction fees and stability
Their connected problem in the black Thursday was the GAS price, which surged a 900% increase. Due to that, users weren’t able to add the collateral to their position on MakerDAO and their loans became undercollateralized at the moment of Ethereum price drop. According to this, the liquidations of their positions happened. Just because the maxGasPrice parameter gwei tended to rise from an average of 10 gwei to 300 gwei at one point.
That wouldn’t happen in Algorand, where the price of the transaction is set to 0,001 ALGO at this moment.
Security
The block finality in Algorand is under 5 seconds. So, within 5 seconds, the transactions in Algorand blockchain are final and irreversible. That makes Algorand very secure and great for DeFi purposes, where security is a must.
Algorand blockchain never forks, because due to using Verifiable Random Functions, at maximum 1 node is set to propagate a new block to the blockchain.
The other reason, why Algorand is more secure than some other blockchains is using a Turing incomplete programming language for smart contracts TEAL (Transaction Execution Approval Language). Algorand believes, that Turing completeness is not necessary for the majority of the use cases and has significant security gaps, which turned out to be real, for example, during the DAO hack on Ethereum blockchain. Solidity, the Ethereum smart contract programming language, is Turing complete.
TEAL language is also providing simplicity, where it is not difficult to write and debug smart contracts and as well as improved execution time.
Stablecoin support
Algorand 2.0 upgrade already brought Tether (USDT) on Algorand blockchain. While Tether already runs on various blockchains such as Ethereum, EOS, Tron, and protocols Omni and Liquid Network, it is the stablecoin with the largest market cap and as well as liquidity. Tether with its prestige is a dominant stablecoin in crypto-field.
Besides Tether, there is possible to run some other stablecoins on Algorand blockchain. And not just the centralized IOUs such as USDT or USDC, but also the crypto-collateralized ones such as DAI or SAI.
The stablecoins issued on Algorand by their ASA (Algorand Standard Asset) standard, they use its major advantages which are the great level of security, excessive scalability, fast transaction finality, and as well low fees of the transactions.
Conclusion
The success of Algorand will depend on the level of adoption. This is connected to the marketing and new partnerships of the blockchain. So even technologically perfect solutions are not predetermined to success if they have no practical usage.
With the adoption, the level can help the community and the ecosystem of Algorand. Ethereum has the significant advantages of first-mover of the smart contract platforms. But projects like Algorand can catch up by providing the best technological improvements and features.
Ethereum has already many decentralized applications (DApps) and DeFi projects running on it such as MakerDAO, Compound, or dYdX. Projects like Algorand must provide their DeFi solutions highlighting their advantages such as a great level of security, perfect scalability, and low transaction fees. But they must bring those solutions before Ethereum will completely move to Proof-of-Stake with their Ethereum 2.0 improvements. After that will happen, it might be too late to start with new DeFi projects, because the advantages will be not that significant.
With the ingenious improvements such as Algorand Standard Assets build right onto Layer-1, Algorand is very promising player on the smart-chain field to become a perfect blockchain for DeFi integration.
Photos: Pixabay.com
