The alternative DeFi network is expanding capabilities and adding Algorand-based liquidity pools.
Since non-fungible tokens (NFTs) are another use case for decentralized finance (DeFi) it’s fair to say that DeFi is king in the blockchain space and Ethereum has enjoyed a long tenure as the king of DeFi.
But it’s questionable whether Ethereum’s reign will remain undisputed.
In mid-March, Staking Rewards showed that Ethereum has been taken out of the #2 position in terms of Total Value Locked (TVL), a figure that represents the amount staked on the network by users. Ethereum has since regained the #2 position – but barely, with around $26.5 billion staked, less than $200,000 more than the #3 Terra Protocol and well below Solana with over $33 billion staked.
While it’s safe to assume that this doesn’t mean anything dire for Ethereum, it does show that as the appetite for DeFi farming, NFTs, and other DeFi use cases continues to grow it’s looking quite likely that global and enterprise-level blockchain usage will call for a multi-chain, interoperable approach. That leaves the door open for players that aren’t Ethereum – and some of those players are working diligently to out-do the heir apparent.
One popular, “alternative DeFi network” is Algorand, which according to AlgoExplorer increased users by 35% as of March 10, increasing 6 million accounts to over 25 million in total.
Yieldly, the first DeFi ecosystem built on Algorand, recently announced Algorand’s answer to SushiSwap with Algorand-based liquidity pools for four new Algorand Standard Assets (ASAs).
This is the first time liquidity pools have been natively launched on Algorand. This coincides with the launch of Algorand Foundation’s $300 million fund, created to support DeFi innovation and provide liquidity incentives to the Algorand ecosystem.
We spoke with Sebastian Quinn, Co-Founder & CEO of Yieldly, and David Markley, Head of Ecosystem at Algorand, regarding how they intend to outperform other DeFi networks and even present a challenge to Ethereum’s presumed dominance in the space.
What does Algorand offer that makes it unique vs. other DeFi networks?
“When you look at the world of blockchains that exists today, you can carve them out into two kinds of macro-categories – there are those that use the Ethereum Virtual Machine (EVM) and are EVM compatible. So you've seen sharding, you've seen roll-ups, you've seen all sorts of layer 2 or layer 1 solutions that are really focused on making sure that the EVM is performing at the end of the day. And there are challenges with that approach.
On one pro-side, you can copy and paste your Ethereum applications over. But the challenge is that the EVM was not really optimized or designed to scale to the demand that the world has for blockchain technology.
Conversely, there is a subset of blockchains that have decided that we want to take a different approach to our smart contract language, and Algorand falls into that bucket. That’s part of the reason why Algorand is able to scale. It's the part of the reason why Algorand is so efficient and part of the reason why the contracts are more definable, meaning you can be more certain that your financial transactions are going to execute as intended.
Algorand has charted a new path on how to become scalable, efficient, and cost-effective while also being able to scale to things that are on par with Visa’s payment network, as an example.
So when you are on Algorand or you're on Ethereum, you are hoping to acquire assets. And you do that through decentralized exchanges. There are decentralized exchanges on Algorand and on Ethereum. The new capabilities that Yieldly is bringing is just the next step in rounding out the application suite that exists on Algorand.
Algorand has been around for four years and Ethereum has been around for substantially longer so they have a couple of the other composable building blocks that we are still building. Yieldly continues to add those capabilities. We’re getting closer and closer to having utility parity on the Algorand network…,” Markley said.
Is the intention for Algorand to meet Ethereum’s capabilities but without the same costs and bandwidth restrictions?
“It's an additional capacity. Algorand has the ability to create assets, track assets, swap assets between users, lend and borrow against assets, and take out liquidity. With liquid staking, when you deposit assets, you get a Liquidity Provider (LP) token or a token that maps to the collateral deposited, allowing users to deposit it into other projects, back other founders, and use it as collateral for other transactions. All of those things are possible on Algorand today.
We offer a unique ecosystem with unique assets and unique types of on-chain utility than what's available on Ethereum today,” Markley said.
What is Yieldly offering on Algorand?
“Yieldly is fortunate to be one of the first DeFi products built on Algorand. We've been around for just over 18 months, and our products have been live for about 9 or 10 months now.
We started with the intention of building out fully-integrated liquidity provisioning on Algorand. So everything from allowing people to stake, native tokens to stake LP tokens and then to be able to trade those LP tokens.
Products that we brought out as a result of our journey with Algorand have also touched on NFTs, no-loss lotteries, and cross-chain liquidity through the delivery of one of the ecosystem’s firsts – an Ethereum to Algorand bridge.
When we started, we looked at what was working in other ecosystems. We saw products like PancakeSwap, Uniswap, and SushiSwap working extremely well in their respective markets. And so we sort of look to replicate as much of that usability and bring that over to Algorand and its own Virtual Machine and so it has its own language, which meant that we were the first to deliver our product we were the first to build these smart contracts to allow for the DeFi functionality. We're now among peers in terms of DeFi products on Algorand, and we're fortunate to still be the product that offers the highest rewards for users. So those that stake tend to be earning anywhere from 30 to 300% APR on staking Yieldly on the platform. We have 35,000 monthly active users,” Quinn said.
Has the enormous popularity of NFTs required Algorand to pivot in terms of its roadmap?
“We had the capability baked in from Day Zero. When you think about what blockchains are particularly good at, we tend to narrow in on the creation and exchange of value. And the most common way of representing that value is in fungible and non-fungible tokens. And we had the benefit of watching Ethereum develop. So, from Day Zero in our Algorand Standard Assets framework, we had the ability to create a fungible token supply or a non-fungible token supply.
However, the community has certainly looked at different types of non-fungible tokens – tokens that carry royalties, tokens that have transfer restrictions, tokens that carry different types of properties. And all of those standards have been put forth to the Algorand Foundation, the Algorand Foundation has run their technical review, and then it's ultimately been adopted or implemented by the marketplaces and the other applications that exist like the NFT marketplace that Yieldly is launching. Now it's really about the ecosystem evolving those capabilities, adapting them and coming up with new ways to represent and in transact that value,” Markley said.
Will Ethereum remain the dominant network for DeFi long-term?
“I don't, I don't think so. There hasn't been a lot of vocal kind of dissent against Eth 2 and what they're building, but I think that the numbers largely speak for themselves, right? Ethereum owned a much more dominant position in 20202, but its hold on that position is slipping where all of the alternative DeFi networks are starting to carve it out.
I think it is well understood that the future is multi-chain, that many networks will have unique value propositions. They will have unique assets, unique markets, and unique users who gravitate to that network for whatever reason they decide. And so internally, we tend to think about it more in terms of each network has its own little nation, and each nation has its own economic policy, its own incentive scheme, its own ethos, and its own users that you may or may not identify with. And so over time, I think we will continue to see that play out. And as the Ethereum, DeFi TVL whatever measurement you want to use continues to get bifurcated across all of the other networks and Eth 2 as it goes live, I think there will be less dialogue about Ethereum versus the rest. There are pros and cons to all blockchain networks, and you get to decide what you want to optimize for. Algorand is no different in that regard,” Markley said.
What kind of growth is Yieldly projecting for 2022?
“We want to see our user base at least double… We'd also love to launch another 30 projects with us on the launch pad and LP staking Pool products that we have. And as the product grows and the user base grows, then we can continue to think that that will be the key drivers of the wider success of the token as well,” Quinn said.
What should we expect from Algorand this year?
“In the short-term horizon, we're advancing the Algorand Virtual Machine to have more quality of life features for developers. So you'll be able to increase your Compute on Demand, you'll be able to increase your Storage on Demand, and you'll have more seamless contracts... The second piece is that we are constantly investing in continuing to push the envelope on the scale, throughput, and network performance. Today, we're at about 1500 transactions per second. The release with the other features that are about to go out will take us to 10,000 transactions per second. And we've got a roadmap to get us to 46,000 transactions per second without having to make requirements for hardware…
The last piece is just ongoing usability and quality of life. So it's not just your developer tools. It's not just the scale and the ability to expand but also cross-chain. There's a new capability called Algorand State Proofs where the historical challenge of cross-chain bridging is that you need a centralized counterparty, something like Bitgo.... Or the solution to date has been you create a new network, and now you are at the whims of this new decentralized network. This new technology makes Algorand Quantum secure… While we agree that Quantum Computing is still a gray area that is taking shape, we feel fairly confident that what we are producing with the new cryptographic scheme and securing the network will be the most difficult, cryptographic scheme for any computer, quantum or otherwise to crack,” Markley said.
Summary
Algorand has shown solid growth in 2022 and has a clear strategy for better serving blockchain developers and users. Yieldly is responding to buyer demand on the platform in a way that makes sense and is likely to bring more activity to the protocol.
The future of Algorand really depends on the development of the DeFi space. It is better for them if the community embraces a multi-chain, interoperable reality which is certainly in the cards. However, in a multi-chain world, blockchain networks will still feel pressure to position themselves uniquely in order to maintain a steady flow of new users. It will be interesting to see how Algorand will position itself. Like any blockchain project, they will need to show unique value in order to be a leader in their space.
