Just in case you’ve always wondered what the term DeFi means, or maybe you even know the meaning but you don’t understand the relevance of the term and how it impacts our immediate environment and the crypto world. Then you should hold on tight to your phone, tablet, or whatever device you are reading this on because every mystery and technical smoke behind DeFi will be exposed and how an amazing blockchain protocol, Algorand was designed to create a borderless economy and a permissionless stable network.
The traditional method of finance
Humans, as special species have always tended to create an improved standard of living by carrying out different activities that have to provide satisfaction, comfort, productivity, improved social interaction, improved economy and in one way or the other have positively influenced different disciplines of life such as education, engineering, art, economics, aviation, and medicine among others. However, all life activities are made smooth, efficient, and sufficient through finance of course; thus go the popular saying ‘money makes the world go round’. Life-changing innovations are financed through funds, buying and selling of goods, and commodities are only made smooth through the existence and proper management of money.
On this note, it is important to note that the reality is that central governments issue the common currency that moves the economy and is used by the government and banks for any exchange. The popular currencies (euros, pounds, dollars, etc.) that influence our economy are to be controlled by central authorities. In other words, it is only logical to call the commonest mode of finance known to man is ‘centralized financed’. This refers to the convergence of financial power in a single authority levied with the burden of making decisions that might bless or worsen the financial situation of the people under its governance. In other words, government central banks manage and control the supply of currency in circulation.
Since the power of finance in most modern systems of the economy is centered on central governments, it is then only logical to say that they control the economy and mode of finance i.e. the masses only have limited power to do anything to influence anything since it is exactly the other way round. The government solely decides whether or not to print more money or limit the supply of money overnight. Banks are trusted to store money, if something suddenly happens to these banks, the masses can only do so little. In regards to investment and investment returns, assets are trusted to financial advisers. Then, it is only with the hope of good interaction of market forces that the average owners of assets or investors make profits. However, the sad truth about the modern financial system is that the power that comes along with this trust isn’t always rewarded especially to the masses. The fact that the general mass has very little or no say at all about how their investments are being managed by corporations, or how the governments control the economy. Most likely, investors only receive a fraction of their returns generated from their capital outlay.
Introducing DeFi
The advent of crypto helps to relieve the reliance of sending and receiving payments on financial institutions around us and even added the bonus of anonymity; however, the truth is that these financial institutions provide loans, sells and buys stocks and shares, operates on the international markets, etc. which still makes us central to them and their rules. This is where De-Fi comes in, the complete opposite of the centralized finance known to man, usurp of power from the government, and power stakeholders back to the masses. DeFi means decentralized Finance, removing all barriers to finance and freedom without any central authority. It refers to financial services built on Blockchains and smart contracts, with the system’s ownership and use distributed by various parties.
DeFi is the system that our economy needs in which a decentralized financial system is powered to help provide loans, investment opportunities, local and international exchanges, stable coins, etc. it is the system that allows you to control your assets instead of financial institutions doing that for you in returns for little profits. Think of De-Fi as an open financial ecosystem where you can create decentralized, different small financial tools and services. Since these are applications designed on a common blockchain, they can be mixed, updated, and implemented according to your requirements. ⠀
Advantages of DeFi
- Not managed by a central institutions.
- It can run with little or no human supervision.
- There is 100% transparency.
- There is no location restriction, all that is needed is an internet connection.
- Conventional rules don’t exist.
- There is no need to obtain permission from anyone before one can use or create DeFi apps.
Algorand De-Fi Applications and Use Cases
There are many blockchain platforms with a De-Fi application; the fact that all protocols are open-source helps to create additional new financial products. However, Algorand seems to integrate new innovative ways to ensure that the goal of a scalable and borderless economy is reached effortlessly. With its open-source, collaborative, scalable, and permissionless network, Algorand provides an excellent forum for developing De-Fi applications. It is the first to use Pure Proof-Of – Stake protocol in blockchain history, with features such as Layer-1 (On-chain) & Layer-2 (Off-Chain) smart contract options, Atomic Transfers, and Standardized Asset tokenization. Various crypto networks have entered into alliances with Algorand, the incredible blockchain software; the world-class protocol offers a sustainable forum to ensure a borderless economy has been highly resourceful to global companies trying to achieve the primary objective of De-Fi.
Below are some of Algorand’s use cases developed and under development or subject to improvements in the nearest future.
- SFB Technologies released a CBDC using the Algorand blockchain for the Marshallese Islands – the Marshallese Sovereign (SOV) to be used in tandem with USD on the islands to achieve financial stability and combat inflation, paving the way for other countries’ central banks to do the same.
- Stonize- Algorand’s new technology will also be used by stonize. Its Atomic Transfer and Layer-1 Smart contracts which make clearance and settlement processes faster and more safe for its customers will be utilized by Stonize.
- Tether (USDT) – The first stablecoin to be released on Algorand’s blockchain and to exploit Algorand’s high speed, scalability and transaction finality features, has opened the doors to stablecoins to be released on Algorand ‘s network.
- Attesiv- A cynical advertising validation forum and product supplier in the fields of insurance, IoT, public protection, financial services and news media that is using Algorand’s blockchain to allow digital transformation across the insurance industry, addressing an opportunity above $40B to reduce P&C fraud in the US alone.
- Monerium- On the Algorand network, Monerium, the world’s first approved provider of licensed e-money for Blockchains, is exploring financial transaction use cases including cross-border transactions.
- Planetwatch- The world’s first immutable air quality registry can record air quality sensor data on the Algorand blockchain and eventually reward ecosystem contributions by transmitting the PLANET token, a utility token, to sensor owners.
- Fondazione Ugo Bordoni will use the Algorand blockchain to experiment with the creation of creative technologies and services for residents, companies, and public administrations.
Compared to conventional finance, the DeFi market is tiny but it has steadily picked up its pace since last year. With more ventures and financial dApps, we would expect to achieve a fully decentralized financial environment where the conventional finance sector inter-operates in perfect sync with digital assets and blockchain. Thus, making Algorand with its blockchain capacities to be one of the most exciting projects to have existed in the crypto-world and the world at large as its protocols are channeled towards ensuring a borderless, frictionless, and decentralized economy