The current financial system is heavily centralized, with a central authority controlling the circulation and supply of money. To utilize the system, users have to effectively hand over control of their financial assets and details to central authorities. A centralized financial system is extremely prone to manipulation by the central authorities controlling them, as they have the power to regulate the system or introduce any arbitrary rule changes. DeFi hopes to turn the current system on its head, give back control to the users, and introduce better transparency in the financial system.
What Is DeFi?
The past couple of years have seen the development and significant adoption of Decentralized Finance (DeFi). This entirely decentralized financial system uses blockchain technology and consists of smart contracts, decentralized applications (dApps), digital assets, and DeFi protocols. DeFi is looking to create an open-source, trustless, decentralized financial system that can function without any third-party or central authority.
Algorand And Its DeFi Ecosystem
Founded by professor Silvio Micali, Algorand is a decentralized cryptocurrency and smart contract platform. It uses a Pure-Proof-of-Stake consensus mechanism. This consensus mechanism authorizes Algorand to affirm blocks in seconds and achieve transactional finality almost instantly. The protocol also offers smart contracts and atomic transfers in Layer-1. Algorand has several advantages over other projects and protocols in the crypto space.
- The Algorand blockchain’s chances of forking are almost zero compared to other projects.
- Token holders can vote on changes and actions on the platform thanks to Algorand’s built-in governance mechanism.
- Algorand offers instant finality, which means once a block is added to the blockchain, no changes can be made to it.
Today, Algorand has a thriving DeFi ecosystem putting the protocol ahead of its peers. Algorand offers a solution to the blockchain trilemma, which is the theory that a blockchain can focus only on two out of stability, security, or decentralization. Algorand’s unique consensus mechanism called Pure-Proof-of-Stake offers a solution to this problem. Algorand is a solid alternative for other DeFi platforms such as Ethereum and EOS, providing the necessary functionality for DeFi applications. It has also partnered with organizations such as the Realio platform, Coinbase, and ISDA.
What Are The Advantages Algorand Has Over Other DeFi Protocols
Algorand has three critical properties that give it a significant advantage over other DeFi protocols.
- Algorand is Forkless – New blocks on Algorand receive finality by default, with the protocol’s PPoS consensus mechanism ensuring that the protocol does not need to fork.
- Universal tokenization – Universal tokenization allows users of Algorand to tokenize their assets in a whole range of different fields.
- Better medium of exchange – Thanks to its faster block times, Algorand is simply a better medium of exchange.
What Is The Viridis Fund?
To further cement its status as the go-to platform for DeFi, Algorand has launched Viridis, a $300 million DeFi fund that will focus on funding and supporting DeFi innovation on the Algorand blockchain. Algorand will utilize the fund to help in quickening the growth of money markets, decentralized exchanges, NFT platforms, options markets, and synthetic asset applications, all of which utilize the Algorand blockchain.
Through the Viridis fund, the Algorand Foundation has allocated 150 ALGO, which is equivalent to $300 Million, which will help create a DeFi ecosystem on Algorand. Along with the Viridis fund, the Algorand foundation has announced two SupaGrants, each grant receiving $5 Million. The first SupaGrant will focus on building bridges from Ethereum and other chains, while the second SupaGrant will focus on proposals to integrate oracle networks with their associated price feeds.
How Will the Fund Be Utilized?
From the total 150 million ALGO allocated in the fund, 50 million have been reallocated from the AlgoGrant fund and will be used to create DeFi applications and DeFi infrastructure. This grant also includes the two SupaGrants, with the remainder of the fund to be utilized to develop applications in Algorand’s DeFi ecosystem. The remaining 100 million ALGO will be used to provide liquidity incentives to the DeFi ecosystem on Algorand. This grant will ensure that all projects on the Algorand blockchain will have easy access to liquidity. It will also provide incentives to liquidity providers to fuel the growth of DeFi on Algorand. Several existing and upcoming projects have already engaged with Algorand to ensure access to the required liquidity when their project launches.
Can The Viridis Fund Help Algorand Create A Bustling DeFi Ecosystem
Algorand already has DeFi projects such as IDEX, Opulous, Yieldly, Hummingbot, and Securitize. However, compared to its competitors, the levels of liquidity on Algorand are quite low. Algorand is hoping to add oracles and bridges that will help it create a foundation for a flourishing DeFi ecosystem. Algorand will hope the grant provides an adequate incentive to developers to build decentralized applications, helping the growth of Algorand’s DeFi network.