Algorand – Obliterating the obstacles of the DeFi Industry

DeFi has pretty much ruled the crypto world in 2020. While the hype may be going down, for now, it would be foolish to deny the sheer impact it has had so far. However, DeFi applications have faced a series of obstacles and failed to reach their true business potential. These limitations are all infrastructure related.

Ethereum flattering to deceive

Ethereum is the default platform used by a vast majority of DeFi platforms mainly because of its strong developer community and host of rich features. Unfortunately, the age-old problems of Ethereum, aka scalability and congestion, has reared its ugly head once again. While the Ethereum 2.0 upgrade will supposedly solve all these issues, it has been delayed time and time again.

Ethereum scalability concerns

Ethereum currently does only 15-20 transactions per second, which significantly affects its scalability. Even with permissioned variants, Ethereum has only managed to improve its TPS slightly. This is a significant problem for DeFi applications since it requires to manage a tremendous amount of transactions every day. DeFi Growth has also led to increased stablecoin volume, which has raised the network gas fees. Congestion is also an issue that is directly tied to its popularity. As more DeFi applications continue to base their projects on the Ethereum blockchain, this will only surmount the pressure on it and congest the chain up.

Seismic technological shift

Ethereum’s underlying proof-of-work (POW) protocol isn’t best suited to scale up transactions and applications. To be fair, they are going to be adopting the proof-of-stake protocol in the ETH 2.0 update, that brings in two major issues along with it:

• Such a drastic technological shift needs to occur as smoothly as possible. Anything else can cause the entire system to crash.

• Plus, the level of complexity involved is pretty huge. To fully upgrade and implement the staking and sharding technologies will take at least a year. 

So, what does that mean?

While Ethereum remains a go-to blockchain for DeFi, it still doesn’t have the technological needs required for these apps to reach business momentum. As such, instead of waiting around for years for Ethereum catch up to speed, the existing projects may simply migrate to another blockchain, which brings us to Algorand.

Algorand: The Alternative

#1 The next stablecoin alternative

The two stablecoin giants, Tether and USDC, have identified Algorand as its base technology in early 2020.

• Tether launched its stablecoin USDT on Algorand In February 2020, becoming the first stablecoin to join hands. 

• Four months later, observing Tether’s success, Circle also partnered with Algorand to launch its USDC on it.

Together, the two stablecoins command over 92% of the total stablecoin market cap. In fact, after Ethereum, Algorand is the second platform Circle has selected for the exchange interoperability for USDC.

Along with being a stablecoin platform, Algorand has also become a platform for Central Bank Digital Currencies, aka CBDC. SFB Technologies was hired by the Marshall Islands to build its first CBDC and selected Algorand as the underlying blockchain platform to issue and manage the digital currency.

#2 Unprecedented scalability

Algorand uses the PPoS (Pure Proof of Stake) protocol to achieve high scalability.

To select block producers and validators, the PPoS protocol adopts a lucky draw process. Each lottery is run independently of each other i.e., in complete isolation with other network nodes. This allows the protocol to run multiple such lotteries simultaneously without weighing down the whole network, making it linearly scalable. 

Ok, but what about it makes it fast?

• Each process in the system takes a microsecond to complete and the mainnet is capable of allowing 1000 TPS.

• Algorand will be handling large transactional volumes that the DeFi space requires daily.

• Algorand has zero transaction fees on the base level.

#3 Algorand and institutions

Algorand has secured over 33 partnerships, including several big names. This is no surprise, as Algorand was built with a focus to offer enterprise-grade integrated functionality for DeFi space in particular. The project has attracted 22 investors, including ICONIUM, Union Square Ventures, VLane Capital, Polybius Capital, Lemniscap, Nirvana Capital, Bixin Capital, and Alumni Ventures Group - to name a few.

You can check out the complete list of partners here.

Conclusion

Developing a (near) perfect product needs innovation, and that requires as much brain as money. Algorand is backed by a wonderful team and headed by Turing award-winning cryptographer Silvio Micali. 

Designed to offer enterprise-grade solutions and developed explicitly for DeFi, Algorand is well-positioned to meet the requirement. As Ethereum struggles to keep pace with the DeFi boom, this makes Algorand the prime alternative.

Algorand has already pocketed the two biggest stablecoins in the world and one CBDC, along with several institutional partnerships. The scary part is that this is just the beginning. It looks like Algorand will be the leading DeFi force that may challenge Ethereum directly soon.