Algorand - Cardano DeFi bridge Research
Algorand and Cardano are among the top cryptocurrencies. Both blockchains are known for the scientific approach. IOHK (the company behind Cardano development) has 167 research papers on the web-site. The founder of Cardano and CEO of IOHK Charles Hoskinson many times called Silvio Micali the most clever cryptographer in the industry. Both Cardano and Algorand are considered to be third generation blockchains and they are things which Algorand and Cardano communities can learn from each other.
Disregarding the market situation, both Cardano and Algorand have big ambitions and active development process. Maybe the Decentralized Finance (DeFi) hype stopped, but both blockchains see DeFi not as a way to make money, but to shape the financial system and bring financial identity to the entities and individuals who lack it. Both Cardano and Algorand have approach to reach the real business, to engage in big infrastructural projects and bring cryptocurrency adoption to the next level. Such incentives go much beyond the ordinary DeFi area. There is also a concept of RealFi? What is RealFi? - Charles Hoskinson explains in this video.
On the nature of bridges
Like the ordinary bridge is important part of the infrastructure, a blockchain bridges is the tool that lets your digital assets (cryptocurrencies, tokens) to move from one blockchain to another. Like the ordinary bridge helps to cross the river, to move from one side of the road to another, blockchain bridge helps your assets to cross the path from one blockchain to another.
These days there are so many cryptocurrencies, so many blockchain, so one of the main challanges is a lack of interoperability.
Exchanges - the first and the easiest bridges
Exchanges are the most common ways for people to buy and sell cryptocurrencies. Also exchanges are the first and the easiest bridges between different cryptocurrencies. For the vast majority of cryptocurrency users, the easiest way to sell one digital asset and buy another one - is to go one of the big, reputable, centralized exchange where both of these digital assets are listed and conduct such operation. The usability is the biggest advantage in this case. But there are also disadvantages. The most of such exchanges are centralised and keeping funds on centralised exchanges brings additional risks. For example - check the recent FTX story. It was very easy to swap cryptocurrencies on the FTX app, but at the end after the bankruptcy so many people lost their funds and savings. By the way, Cardano was not listed on the FTX, so in our particular example we couldn’t use FTX as the bridge, but would have to search for another option. Let’s check the particular example how we can use exchange as a bridge between Algorand and Cardano.
Particular example of Binance acting as a bridge
Binance is a top exchange and both Cardano and Algorand are listed there, the trading volume for both cryptocurrencies is big. There is no direct Cardano/Algorand (ADA/ALGO) pair, but you’ll have to use one of the existing pairs (i.e. ALGO/USDT, ALGO/BUSD, ALGO/BNB, ALGO/BTC, ALGO/ETH) and to sell Algorand and then use ADA/USDT, ADA/BUSD, ADA/BNB, ADA/BTC, ADA/ETH to buy Cardano or vise versa. As trading volume on Binance is very big, the spread and the volatility during such trading operations would be minimal (but of course, this depends from the amount of funds you need to exchange and from the market conditions).
Then to withdraw ADA (Cardano) to Cardano blockchain you will have to pay 0.8 ADA fee (which is at the moment of writing these lines only $0.24). To withdraw ALGO (Algorand) to Algorand blockchain the fee is even much smaller - 0.008 ALGO which is $0.0017 - so less than 1 cent). While for other cryptocurrencies the fee on different exchanges might be several dollars, on most of the exchanges the fees for Algorand are among the smallest and the minimal withdrawal amount is also one of the smallest, which makes Algorand a good “bridge” currency which makes it easier and cheaper to move funds from one exchange to another, especially in small amounts.
The whole operation of moving assets from Algorand blockchain to Cardano or vise versa will take around from 30 minutes to 1 hour (considering that depositing and withdrawing takes time as exchange has requirements for block confirmation. To deposit/withdraw Algorand would be much faster in this case). So up to 1 hour time to makese these transaction with simple and good usability, i.e. you can do it now on your smartphone while having a bathroom.
Bridges and Decentralization
In our example with using Binance as a bridge there is one main problem - this way of funds transfer is not decentralized. In this case, the user has to put trust in the centralized exchange and some would prefer not to do it. Not only for the reason that centralized businesses have centralized points of failure, but some might be not willing to have KYC (Know-Your-Customer), so not to make verification of the exchange by providing personal documents.
And also Decentralization is not about replacing banks with some other intermediate institution. That’s why the big research and work on bridges happen in many blockchain.
Also in our example we took Cardano and Algorand cryptocurrencies, it would be easy to make such exchange not only on Binance, but on some other exchanges where both ADA and ALGO are listed (i.e. Kucoin). But what if there is a need to swap particular token, which exists on both blockchains but is not listed on the exchange? To have a decentralized solution is necessary for the growth of whole DeFi ecosystem.
Brief overview of Cardano DeFi ecosystem
1 . Liqwid
Open source, algorithmic and non-custodial interest rate protocol built for lenders, borrowers and developers, where users can securely earn interest on deposits and borrow assets with ease while earning yield on ADA from four yield streams.
Liqwid is one of the first winners of Cardano Project Catalyst which received treasury funding. At the moment of writing the app didn’t launch yet.
2 . SundaeSwap
A Decentralized Trading Protocol on Cardano. SundaeSwap is a native, scalable decentralized exchange and automated liquidity provision protocol.
3 . MuesliSwap
One of Cardano's leading DeFi ecosystem
4 . Minswap
Multi-pool decentralized exchange on Cardano where people can swap with minimal cost, minimal time and maximal convenience.
5 . WingRiders
The DEX on Cardano with native and fast AMM decentralized exchange platform
6 . Spectrum Finance
Open source cross-chain DEX, which works on Cardano and Ergo blockchains
7 . Axo
DEX created by experienced people from Quantitative Finance & Programming field. The app is not live yet.
8 . DripDropz
DripDropz - platform which provides token distribution services to the Cardano community, and develops some other tools, i.e. - voting
9 . CNFT
CNFT is a marketplace for Cardano Non-Fungible Tokens
10 . JPG Store
The largest Cardano NFT marketplace
11 . Indigo Protocol
Algorithmic, autonomous synthetics protocol for on-chain price exposure to real-world assets.
12 . ADAX
ADAX is an automated liquidity protocol that facilitates trades within the Cardano ecosystem. ADAX has both CEX and DEX
13 . Astarter
DeFi Infrastructure Hub on Cardano. Native Launchpad and DEX with Next-level liquidity and fast transactions
14 . Ardana
Ardana is a decentralized stablecoin hub which will bring the necessary DeFi primitives needed to bootstrap & maintain any economy to Cardano.
15 . Dexada
DEXADA is a DEX built upon infrastructure from the Everscale network and support from Cardano.
16 . Aada
A lending and borrowing protocol built on the Cardano blockchain
17 . Tangent
TANGENT is the Web3 Art & Finance app built exclusively on the Cardano Blockchain.
18 . MetaDEX
The DEX supposed to launch Q1/Q2 2022 but it’s not ready yet
19 . Mayz
MAYZ is a decentralized index protocol to allow easy investment into the early growth of Defi on Cardano.
20 . Camelcoin
Camelcoin aims to make the revolution of fairtrade, the biggest worldwide decentralised e-commerce cooperative.
21 . Cardance Swap
DEX where it’s possible to swap, earn, stack yields, lend, borrow, leverage all on one decentralized, community driven platform
22 . Flac Finance
A RealFi banking platform on Cardano.
23 . Cardax
Private Non-custodial Multi-chain DEX
24 . Optim Finance
Innovative Yield Products built on Cardano.
25 . Paribus
A cross-chain borrowing and lending protocol for NFTs, liquidity positions, and synthetic assets, building for the Cardano blockchain.
26 . Coinlink
Coinlink is a multichain Defi platform that connects all Defi services on Ethereum, Cardano, Polygon and Avalanche and makes using them as simple as checking into your mobile banking account.
27 . anetaBTC
anetaBTC is a decentralized, secure protocol that allows users to unlock the value of their Bitcoin on Ergo and Cardano.
28 . SUREHIVE
Surehive is a non-custodial Decentralised Finance (DeFi) protocol suite, crypto-token marketplace and ecosystem deployed on the Cardano network.
29 . Vy Finance
VyFinance is an original interpretation of a DEX, integrating a liquidity aggregator (auto harvester) as our top layer, this is where users can come in and without managing their own funds, the auto harvester can do that instead.
30 . Matrixswap
Matrixswap is a decentralized virtual-AMM-based perpetual swaps trading protocol deployed on the Cardano blockchain.
Brief overview of Algorand DeFi ecosystem
1 . Tinyman
Tinyman is a decentralized trading protocol which utilizes the fast and secure framework of the Algorand blockchain, creating an open and safe marketplace for traders, liquidity providers, and developers.
2 . Algofi
Decentralized lending market + stablecoin on the Algorand blockchain
3 . AlgoSwap
https://algopay.finance/algoswap/
The AlgoSwap token-swapping snippet generator is the gateway to FutureFi.
4 . Yieldly
Yieldly is the first and largest DeFi protocol on Algorand. Yieldly’s multi-audited smart contracts deliver liquidity mining, no-loss prize games, multi-asset staking, and cross-chain swapping — all in one place
5 . Folks Finance
Folks Finance is the leading algorithmic capital markets protocol for lending and borrowing built and operated on top of the Algorand blockchain
6 . Pact
The decentralised AMM with a difference, giving 100% of liquidity pool fees back when you provide liquidity on Pact.
7 . Opulous
Opulous is a music industry first, launching the next generation of NFTs and DeFi loans, changing how musicians access funding and connect with fans.
8 . Venue One
Decentralized prediction protocol
9 . Humble Defi
Humble Defi is Defi suite with Humble Swap, an AMM style exchange that allows you to swap, pool and earn on your ASA's.
10 . xBacked
xBacked is a decentralized stablecoin built on Algorand - transparently backed by crypto assets.
11 . Algodex
Algodex is a decentralized marketplace that is built on the Algorand blockchain that uses limit orders via an order book.
12 . @Pay
DeFi eCommerce & Payment solution for Shoppers, Merchants & Web3 businesses.
13 . Algomint
Algomint empowers the next generation of DeFi by bridging popular assets like BTC, ETH, USD and a range of other key tokens to Algorand, a FutureFi blockchain protocol with ultra-high speed and super low cost
14 . XP Network
XP.network is an ecosystem centered around the biggest NFT Multi-Chain bridge
Despite the market situation, both Algorand and Cardano ecosystem has a growth in DeFi area, more and more projects arise.
Governance and Bridges
Governance is one more reason for the Algorand - Cardano bridge to exists. One might be actively engaged in both communities and willing to participate in governance both in Algorand and Cardano. In addition to the self-esteem of the participation it would be possible to maximized the income as both in Cardano and Algorand governance participants receive rewards.
In Cardano Project Catalyst there are several Funds per year and during each fund there is a particular time frame to register as voter and particular date of the snapshot, which check the wallet balance and allocates voting power. Then after voting, at the end of the Fund, the rewards are distributed to voters. The best way to start taking part in Cardano governance it to register on Ideascale. Other voting happens, for example voting on members of Catalyst Circle (self-governing organization of Project Catalyst), which happens on the DripDropz site. In the future there will be voting for dReps (Delegated Representatives) and maybe on many other important questions.
In Algorand governance is conducted in periods. For example right now there is Governance period #5 which takes place September 30-December 31, 2022. The governor should register and commit Algos for a three month period during the sign up phase and then he or she are entitled to vote in the period’s voting sessions.So the governance participant has to keep committed amount of Algos at the wallet during this whole period in order to receive rewards.
This brief description and examples show that there might be possibility to maximize both the governance engagement and rewards by taking part in governance of both blockchain. The bridge between Algorand and Cardano can bring both communities closer together and there might be something which both communities can learn from each other.
Existing Bridge Examples
Allbridge
Allbridge is fast, Affordable and Secure way of moving liquidity between EVM, non-EVM, and L2 blockchains. In addition to cross-chain bridge, Allbridge has 2 more products: Allbridge BaaS - White-label bridging solution and Allbridge Core - Cross-chain stablecoin swap.
Allbridge supports multiple cryptocurrencies, but Cardano and Algorand - not yet. I spoke with Allbridge CEO and he told me that in the future they plan to integrate both blockchains.
XP Network Bridge
XP Network is multi-chain NFT bridge. Algorand is already integrated and Cardano is indicated as “Coming soon”
Adaever
Adaever is Cardano - Everscale bridge. There is a video guide on how this bridge works
Algomint
Algomint is the bridge from the Algorand ecosystem. Algomint is the next generation blockchain infrastructure that solves the interoperability challeng and brings popular assets to Algorand where you can enjoy high speed and low fees in its flourishing DeFi scene.
Right now there is a possibility to bridge only Bitcoin and Ethereum and there is no indication if Cardano is considered for the future.
AtomicDex
AtomicDEX is a multi-coin wallet, bridge, and DEX rolled into one app.
Atomic swaps are designed such that both traders either receive the funds they desire, or nothing happens at all and both traders retain the funds they started with.
AtomicDEX was created within the Komodo ecosystem (Komodo in like Cardano also member of UTXO alliance) and the team behind AtomicDEX has big interest in Cardano. Hopefully Cardano will be integrated to AtomicDEX in the future
Milkomeda
Milkomeda is a novel protocol which empowers several leading blockchains (Algorand, Solana, Cardano) with EVM support and a path for long-term scaling via a rollup composability layer.
Milkomeda is a protocol designed to improve blockchain interoperability by delivering EVM capabilities to non-EVM blockchains
The team behind Millkomeda is dc Spark, company thich was born in the Cardano ecosystem thanks to Project Catalyst so we can expect that Cardano development is on the main priorities for Milkomeda.
There is alread Algorand existing bridge https://algorand-bridge.milkomeda.com/mainnet
And Cardano bridge https://cardano-bridge.milkomeda.com/bridge
Conclusion
Taking to account the information on multiple bridge hacks, mostly in the Ethereum DeFi ecosystem or in other blockchains similar to Ethereum, the security should be one of the main priorities. Because if there is a risk of security failure, the essence of existence of decentralized bridge will vanish, as people will used the centralized exchange solutions.
The best option for Algorand - Cardano DeFi bridge seems to be the development of Milkomeda, as they are already working with Cardano and Algorand and implemented bridges for both blockchains to Ethereum. Probably right now there is not enough demand to exchange assets between Cardano and Algorand directly, but the community can indicate when this demand increases and such solution can be created.
In the ideal way, the bridge should exists in integration with DEX (like AtomicDEX) and wallet (maybe Flint wallet, which is developed by the same company dc Spark, as Milkomeda).
The simplicity, broad availability (such as possibility to transact on the smartphone) and usability of of Decentralized finance should be important point in the software development and important element in the wide cryptocurrency adoption.
