Last week, Algorand announced a significant update to the Algorand Virtual Machine or AVM that runs smart contracts to make them simpler and more powerful and reinforce the building of new decentralized applications or dApps.
Going live in June 2019, Algorand is the Pure Proof-of-Stake (PPoS) Layer-1 protocol that, with its developments, keeps the base infrastructure fast, scalable, low-cost, decentralized, and secure. It is forkless, precisely to overcome the pragmatism of blockchains moving to their Layer-2 or multi-chain versions.
Folks Finance chooses the AVM joining Algorand ecosystem, building a decentralized money market protocol aiming to provide secure, profitable and low-cost, financial services to all types of users.
Algorand and smart contracts
In the decentralized, disintermediated, and automated world of Blockchain and smart contracts, Algorand Virtual Machine plays a key role for dApps and DeFi.
Algorand’s smart contracts are trustless, executed on-chain, and safe from manipulation and error. They are written in a language called Transaction Execution Approval Language (TEAL) as well as in Python using the PyTeal library, a Python language binding.
The AVM interprets TEAL programs with a set of operation codes (opcodes) used to implement the logic of smart contracts and smart signatures.
Infrastructure improvements over time allow developers and dApps like Folks Finance to access more sophisticated and powerful functionalities without encountering delays due to network congestion, fee increases, or network vulnerabilities.
The advantages of Algorand over existing Virtual Machines
Today, in order to develop a dApp for DeFi such as Folks Finance, it is necessary to consider the features of the Blockchain adopted and its Virtual Machine.
To begin with, we analyze the consensus protocol on which the technology is based. Algorand was born as a permissionless Pure Proof-of-Stake (PPoS), sustainable, green, and economical, as it does not involve high computational power as with Bitcoin’s Proof-of-Work mining process.
Not only that, unlike Ethereum (the first Virtual Machine par excellence), Algorand does not envisage any soft fork or hard fork to become PoS as ETH 2.0 is promising to do, which means that the issues of increased fees experienced by the Ethereum ecosystem over the past year cannot exist with Algorand.
Entering the world of Proof-of-Stake protocols, PPoS derivative, on which Algorand is based, allows every online user who holds ALGOs to participate in the consensus protocol, overcoming the PoS access staking’s limitation.
The introduction of the Verifiable Random Function (VRF) in the consensus process is the very breakthrough of Algorand technology, allowing any Algo owner to participate in the process. Every block in Algorand reveals a new random and unpredictable selection seed
that determines which users should participate in the next round of the consensus protocol. The VRF processes inputs and produces a pseudo-random output with cryptographic proof that anyone can use to verify the result.
Indeed, the case of the Proof-of-Stake Authority (PoSA) of Binance Smart Chain (BSC) is different, which, although based on derived PoS, requires that the validators have staked their BNBs.
PPoS is also the main pillar of Algorand’s scalability and speed which allows highly secure Byzantine Generals Problem (BGP) resistance while providing great speed in generating and validating blocks within the network.
In this sense, Algorand supports around 1000 transactions per second (TPS) without any problems. For the future, Algorand founder Silvio Micali has published his predictions:
“Sticking to the finality metric, our 2021 performance will be as follows:
- Finalized Latency: about 2.5 seconds.
- Finalized Throughput: about 46,000 TPS.”
Folks Finance and DeFi on Algorand Virtual Machine
In order to develop the algorithmic money market protocol, Folks Finance has thus chosen Algorand as one of the most promising blockchains for the near future.
Folks Finance allows users to earn interest on their deposits and to borrow assets by guaranteeing the deposit. In practice, by depositing funds, users would be able to start earning continuous compound interest immediately. While by providing funds as collateral, users would be able to borrow any supported asset with interest accrued in real block-time.
Following the Algorand model, the protocol’s governance is also designed to be controlled in its majority by the Folks Finance community and users. The aim is to provide benefits to all parties involved in the protocol in terms of service, earnings, and fairness.
Folks Finance will take advantage of fixed, low-cost, and high-speed transactions among decentralized money markets without needing to scale to other blockchains, contrary to what is happening to Ethereum-based projects.
Aave, one of DeFi’s first protocols, is facing issues concerning high fees and transaction waiting times, which make its usage affordable only for the crypto-rich. Moving towards other networks has not been shown to bring the desired results in terms of TVL compared to the Ethereum native Aave’s markets.
By choosing AVM, Folks Finance creates a financial business model that can ensure the economic viability of the protocol, involving siloed money market liquidity pools, risk-adjusted credit, health factors, and a robust incentive system.