What is Decentralized Finance
Decentralized finance (DeFi), generally means a digital asset, protocols, financial smart contracts, and decentralized applications that are built on cryptocurrencies. It can simply be seen as a financial software that is created on a blockchain that can be joined together like money Legos.
In the field of decentralized finance, Algorand is simply a major protocol upgrade that is set up to broaden the range of decentralized applications (Dapps) and also the various processes that can be built on the Algorand platform. All of these recent and modern features are built into Layer-1 directly, and enable enterprise-scale distributed applications to be created without the need to sacrifice security or performance.
Algorand is a technology company that enables friction-less finance. Algorand built and developed the first open, transparent proof of stake blockchain, a permission-less platform that operates without forking, and provides all the necessary scalability, security, and decentralization that are really needed presently in the economy.
Below are some of the latest Algorand innovations
ASA-Algorand Standard Asset in Layer-1
In the economy today, when it comes to the topic of digitization of assets, there are so many issues and challenges facing the progression and they include Access to the global digital markets, instant settlement, transfer-ability at any time, enforced and easy control of assets, administration efficiencies such as reporting and compliance, and so on.
These challenges can easily be handled by the tokenization of assets on Algorand and there would be various benefits like the increased core security, the finality of transactions on a high-performance blockchain, and simplicity in usage. A standardized Layer-1 mechanism is being created by ASA for the representation of any type of asset on the Algorand blockchain. They could include fungible, non-fungible, restricted fungible, and restricted non-fungible assets.
Role-Based Asset Control (RBAC)
The role-based asset control offers flexible and optional control of assets for managers and issuers for business, regulatory requirements, and compliance. It gives rise to quarantine asset accounts for the purpose of investigations, forceful transfer of assets where it is required by legal regulations, the flexibility of asset reserve models for custom business requirements, white list models for transacting privileged asset that enables the use of only specific addresses that have the approval to transact within a certain asset, and documentation of off-chain asset that is inclusive in the definition of the on-chain asset.
The user protections include Protection of asset spam, that prevents unknown assets that probably have tax, reputational, or legal risk from being sent to the user without the user’s approval.
The ASA differentiates are so fast and highly secured because they are built directly into the Algorand Layer-1, ASA is inexpensive because of the Algorand’s minuscule transaction fees, it provides simple and easy issuance of assets for enterprises and developers and it universal interoperability of every asset that is being issued on Algorand. Some of the benefits are: asset tokenization, democratization of access to investments, issuance of assets to third parties, and disintermediate cross border transactions.
There is a legal and trusted framework that exists in the traditional economy. And in the blockchain, there is a trustless solution that is provided by atomic transfers in a Layer-1.
Atomic transfers actually offer a very secure manner of simultaneously transferring a number of assets together with a number of parties. Many transactions are specifically grouped together and it is either none is executed or all of them are executed. This is one of the main requirements of decentralized finance.
It is entirely atomic and there is no room for escrow or reliance upon hash time locked contracts. It is a new way for technically executing complex transfers that are fast and smooth. With the use of Algorand minuscule transaction fees, it is less expensive to execute atomic transfers. And it also supports all the Algorand assets and enables multi-party transfers.
The most exciting use cases of the atomic transfers include: efficient matched funding, expedited and simplified settlement of debt, instances if a multilateral trade, availability of decentralized exchanges when being combined with Algorand standard assets and Algorand smart contracts, and an instant settlement of multi-asset transactions and complex multi-party.
Algorand Smart Contracts at Layer-1
Algorand smart contracts are Layer-1 smart contracts that enforced custom logic and rules automatically, in a manner surrounding how assets like Almost can be transferred. ASC1s are complex economic relationships that are made up of basic transaction primitives that are written in a new language known as Transaction Execution Approval Language (TEAL).
The functionality of the ASC1s enables an innovative and exciting way of addressing existing complex and inefficient financial transactions.
There is a range of existing transactions in the economy today that depend on intermediaries for the provision of execution and trust. This is responsible for unnecessary delays and costs in the customer’s delivery some of these include: limit orders, escrow accounts, payment of loans, centralized obligations, subscriptions, and lot more.
Risk and cost are reduced due to trustless execution on the Algorand blockchain, this is achieved while giving way for instant settlement of these contracts. By eliminating existing development barriers, Algorand Layer-1 is able to bring a solution to a lot of use cases with unprecedented speed, very low cost, and extremely simple.
The initial release brought about a significant portion of the use cases of the current smart contract and executes them in such a way that it makes it possible for them to take advantage of the performance on the Algorand platform. Algorand plans to continually improve on the ACS1 to advance the capabilities of the smart contracts.
Some of the unique functions include, the non-requirement of private key management for all ASC1s governed accounts, low cost of execution, and contracts that are fast, more secured and more scalable.
The most exciting use cases are: fee execution, HELOC, escrow accounts, collateralized debt, interface that has off chain data providers like oracles, decentralized exchanges, cross chain atomic transfers, reimbursement validation and regulated disbursements.