Ideas to Boost Algorand DeFi for GP11 & Beyond

General
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Greetings everyone, I’m unknown to the vast majority of the community here. Some of you may be familiar with my X (Twitter) activity [@Crypto_Assessor], but otherwise it’ll namely be project leaders whom I’ve communicated with directly. As a researcher my experience stems across blockchain, but primarily focusing on EVMs, Cosmos, & of course, Algorand. As such, I have ample experience of what works, and what doesn’t.

GP10 was an eye opener for me in some respects, especially the lack of support for the DeFi protocols building on Algorand. I felt in part it was a protest vote against the Foundation for business decisions which came to light. However, the reality of the voting decisions is that the DeFi in Algorand is weakened significantly as a result. With only a select few receiving votes for economic support, Algorand ‘DeFi’ is currently ‘Centralised’. Self-sustainability seemed to be a driving factor for the community, but perhaps they failed to understand revenue is generated from transaction fees, transactions fees come from volume. As Algorand is so cheap, it means significant volume is required for economic sustainability. To ensure volume, it requires attractive DeFi for users to participate. How do we attract the users to generate the volume required? How do we increase the revenue from transactions? The RWA rails built are excellent, but they won’t help now as most of them will take years to mature. This is why the Foundation has an emission rate until 2030, and why the DeFi Incentive Program was implemented in the first place. Because it will take time for DeFi on Algorand to be self-sustainable, perhaps years.

Idea 1 - Account Abstraction: When the P2P Gossip network is implemented, don’t do away with the Relay Network. By utilising Account Abstraction users should be able to choose between the two in a simple drop down menu. Relay is quicker, with an additional cost, ideal for high net worth individuals and commercial entities. P2P is slower and cheaper, ideal for everyday retail. This would significantly uplift the revenue.

Idea 2 - Build DeFi which attracts users: Messina One have an excellent bridge, and they can follow in the footsteps of very successful EVM bridges such as Stargate Finance who offer DeFi products too. Messina will soon open 2x new end-points with non-EVM ecosystems, placing them in a very unique position to offer cross-chain concentrated liquidity pools across a wide remit of ecosystems which few others can match. Other DeFi protocols within Algorand could facilitate additional yield strategies from the Messina LPs. To leverage this further, cross-chain yields could include Algorand governance tokens, boosting TVL. More details of this idea can be provided upon request.

Some examples:
ETH-ALGO LP - GOBTC Yield Farm on @Pact
AVAX-ALGO LP - A collateral asset for borrowing on @ FolksFinance
BNB-gALGO LP - PGOLD Yield Farm on @ Tinyman
USDC-ETH LP - ALGO Yield Farm on @ Compx with auto-compounding
ETH-mALGO LP - Bear and Bull Vaults in @ Algorai
MATIC-ALGO LP - Yield Farm in @ HumbleSwap
ALGO-USDC LP - META Yield Farm on @ Cometa
ALGO-ETH LP - xUSD Yield Farm on @ xBacked

And the list can go on with a wide diversity of options, all interconnected and mutually supportive. But at the outset would require financial support to make the yields attractive enough to bring DeFi enthusiasts from popular ecosystems in EVM, Solana, Cosmos and others.

To ensure idea 2 works, the wider DeFi protocols of Algorand should come together to offer a combined proposal for the community, a proposal too strong to vote against, but ensuring that all would receive sufficient funding to get this off the ground. By working together, cooperating, and integrating services, it boost the strength of Algorand DeFi.

DeFi requires diversity, which brings competition, driving innovation. In its current state Algorand’s DeFi is too centralised. Immediate remedial measures should be considered.

For any Algorand project Founders who are interested in exploring idea 2, please feel free to respond in the comments, or reach out to me directly at falead@thebirbnest.com.

For the community, feel free to share your thoughts.

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Hey - welcome to the community!

I’m not sure if you’re planning on spending more time in the Algorand world, but it’s nice to see some folks from the EVM space test the waters over here.

I agree with your view regarding the GP10 vote. As I was voting and seeing the totals I was a bit disheartened by the way it was going. It seemed that some good legitimate projects were being excluded. However that is the expression of the community, and for better or worse you have to take it for what is is and get whatever insight possible from it.

Anyway, onto the ideas
1 - Interesting idea, according to John there will be a ‘hybrid’ model in place prior to full P2P, and relays will likely be available as a paid service as you mentioned: P2p participation nodes vs. relay nodes - #13 by JohnWoods

2 - We have a couple of DeFi protocols set to go cross-chain, though maybe you are aware of these, since you mentioned Folks and Tiny in your examples.

I’m not sure of the strategy to attract cross-chain users, as I admittedly haven’t been following the roadmap. They are both set to release tokens $TINY and $FOLKS, which would probably play heavily into that strategy.

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Hi @Isaul, thank you for your response.

I tend to operate more in the background, but if I can offer value in the foreground of the community then I will endeavor to be more active.

Folks Finance will certainly be going multi-chain, but I don’t believe its in the format as I’ve described above. I’d likely need to re-read their documentation again, but from what I can remember they are planning to pool liquidity across their sub-nets to offer competitive yields for their lending and borrowing. So not quite the same thing as what I’m proposing. As far as I’m aware Tinyman aren’t planning to go multi-chain, at least not at this time. But considering Opulous and now Folks Finance have done so, it wouldn’t surprise me if they’re considering it.

I think when Messina One unveil their upcoming new end-points, it will amplify the potential of my 2nd idea further. If Messina One start offering products, in addition to their services, i believe it will boost defi, volume, and TVL for the overall ecosystem. It’d be great if the DeFi protocols come together to offer a combined proposal for the community’s consideration, especially those who failed to earn sufficient voting in the previous governance period.

Ideally we want to see protocols coming into Algorand, not for Algorand protocols feeling they need to expand outside the ecosystem to gain the volume they need for profitability.

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Some great points! At Messina we’re now trying to take a more active position and work with the community on these kind of proposals, rather than in isolation, and also experiment more with the bridging of tokens.

In the light of DeFi Rewards and the voting on proposals, Messina was at the unfortunate end of the outcome - however, it’s encouraging that we didn’t lose a lot of TVL and even increased on the number of holders.

The challenge I believe we’re facing has to do with outreach and lack of awareness by chain agnostic DeFi users about possibilities on Algorand. With the way proposals have been going, both those voted No - and those voted Yes, everybody is simply boosting pools, farms, or other forms of yield.

At Messina what we’re now trying to explore is using DeFi Rewards to incentivise championing yield opportunities on Algorand, rather than only boosting those opportunities.

Still working on the most practical, fair, and efficient way of doing this though.

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You make excellent points @KevinV_UC. You’re absolutely right. A lack of general awareness from users of other ecosystems is an Achilles heel of Algorand right now. The Foundation promotes the TradeFi and RWA successes, but it appears there’re few attempts at promoting it’s own DeFi ecosystem. Hopefully this is something the new CMO will consider.

Should the ecosystem come together, find common ground to integrate services to uplift the DeFi, and leverage those with large audiences to bring that awareness, everyone wins.

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