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Algorand Ecosystem: Promising but needs more effort

In this article, let's deep dive into the Algorand ecosystem. We will analyze the DeFi landscape on Algorand, and conclude if there are any investment opportunities.
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quangphan
8 min read
Published Sep 28 2021
Updated Apr 08 2024
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Over the past few months, a wide variety of blockchain platforms have arisen. This is not only due to the fact that Ethereum has been unusable for retail investors with extremely high gas fees, but also because of multiple incentive programs being released by other Layer 1s.

incentive programs by layer 1 blockchains
Incentive programs by Layer 1 Blockchains

Algorand was among one of the earliest projects to announce such programs and, at the same time, introduced one of the biggest incentives with $300M. Provided with a substantial amount of money used for the growth of its DeFi ecosystem, Algorand became a noteworthy platform in the eyes of investors.

Supposed that the case, is DeFi on Algorand really potential? Are there investment opportunities inside this ecosystem? Let’s find out about that in this article.

Algorand Overview

What is Algorand?

Algorand is a blockchain-based cryptocurrency platform that aims to be secure, scalable, and decentralized. Algorand was founded by Silvio Micali - an MIT professor - in 2017. The Algorand platform supports smart contract functionality, Algorand Virtual Machine (AVM), Algorand Standard Assets (ASA), and the PPoS (Pure Proof of Stake) consensus algorithm.

Some unique features of Algorand are:

Fees: Using Algorand is incredibly cheap. The minimum fee for a transaction on Algorand is only 0.001 ALGO, which equals $0.00074 at the time of writing.
Openness & Decentralization: Algorand is completely open and permissionless. As long as one owns ALGO, he/she can participate in the consensus process.
Forking: Forking is when a blockchain diverges into two separate paths. Since Algorand is pure proof-of-stake and uses a voting mechanism to validate blocks, forking is impossible. The blockchain can only slow down or temporarily stall.

Algorand coin key metrics

Token name: Algorand.
Ticker: ALGO.
Token type: Utility, Governance.
Circulating Supply: 6,627,024,114 ALGO.
Consensus: Pure Proof of Stake (PPoS).
Total Supply: 7,062,376,677 ALGO.
Max Supply: 10,000,000,000 ALGO.
Market Cap: $4,680,834,655.
Fully Diluted Valuation: $7,063,252,788.

Algorand Blockchain statistics

TPS (Transactions per second): 18.96.
Token Velocity: 0.008.
NVT (Network to Value): 93.
On-chain Volume: 592,307.
Unique Addresses:  23,574,235.

Algorand History & Roadmap

As Algorand was introduced in 2017, it has gone through a number of major changes along the way, namely:

Public Testnet Release (April 2019): Algorand opened its services in testnet for public uses. At the same time, Algorand provided several SDKs (Software Development Kits), including Go, JavaScript, and java.
Algorand Mainnet Launch (June 2019): After raising over $60M in an on-chain auction, Algorand officially launched.
Algorand 2.0 Release (November 2019): Algorand upgraded its network with 3 key changes, including Algorand Standard Asset (ASA), Atomic Assets, Algorand Smart Contract (ADC1).
Conditional Accelerated Vesting (December 2019): Algorand node runners passed a proposal to change their ALGO vesting schedule.
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Algorand v2.0.2 Release (December 2019): Algorand released v2.0.2 to increase the node “upgrade-required window) from 10,000 blocks to 140,000 blocks, along with some minor UX improvements and bug fixes.

Algorand Ecosystem Overview

As a matter of fact, the Algorand DeFi ecosystem is not as developed as that of others, namely Solana or Avalanche. You can take a look at this picture:

algorand defi ecosystem
Algorand DeFi ecosystem. Source: Coin98 Analytics

Overall

At first glance, Algorand has gathered some basic DeFi pieces for its ecosystem, such as AMM DEXs, Lending, Stablecoin, NFT,...

However, they are currently at the early stages of development, meaning that they don’t have any outstanding performance. These products have to grow more maturely in order for the whole ecosystem to thrive.

Now we shall look at each and every DeFi stack of the Algorand ecosystem to gain a comprehensive acknowledgement of its landscape. Afterwards, based on the previous analysis, we will find out whether there are investment opportunities or not.

Stablecoin

Stablecoin is always one of the most important niches for any DeFi ecosystem as it is the key factor for the explosive growth of the platform. Avalanche and Solana are two study cases: Their DeFi ecosystem started growing drastically as soon as the supply of USDT and USDC (2 top Stablecoins) increased on the platform.

usdt and usdc grew on solana
USDT and USDC grew on Solana along with the Solana Summer. Source: Solanians

At the moment, Algorand is supported mainly by 2 Stablecoins: USDT and USDC. Their current supply is:

USDT: 149 M. You can track the statistic here.
USDC: 299.3 M. You can track the statistic here.

Before, USDC used to be the primary Stablecoin of Algorand. However, recently the supply of USDC on Algorand has been slowly decreasing, while the opposite happens with USDT. In the near future, USDT can totally surpass USDC on Algorand.

usdt and usdc on algorand
USDT and USDC on Algorand

In sum, there are about 348 M stablecoins on Algorand. Even though this number is pretty decent, it is not significant either. To compare with other ecosystems, Solana has approximately 3.3 B stablecoins, Avalanche has more than 1 B,...

As you can see, the amount of Stablecoin supply on Algorand is enough to lay the foundation for its DeFi growth, but not enough to help its ecosystem thrive tremendously.

This problem is due to the fact that there have been no Stablecoin-issuer protocols like MakerDAO or Oin Finance on Algorand. As a result, Algorand has not been able to achieve high capital efficiency.

With so enormous a DeFi incentive program, it is highly likely that such kind of product may appear on the ecosystem soon enough. We can expect the money flow to flow in and out of Algorand more easily and efficiently if that case happens.

Understanding that Stablecoin-issuer products are what Algorand needs, we can seek investment opportunities in those types of projects. However, bear in mind carefully that product-market fit is only one of many elements that we should look into. How the projects themselves perform in a variety of aspects should be the primary focus for developing our investment thesis.

DEX

At the moment, there are only a few DEXs on Algorand, including:

Tinyman DEX: The native AMM DEX on Algorand. Has launched Mainnet with $16.3 M in TVL. Tinyman was exploited in January 2022 (but they continued to operate), which can be read here.
IDEX: A cross-chain DEX that will be deployed on Algorand in the future.
Algodex: An Orderbook DEX on Algorand, currently on Testnet.

As it can be seen from the list above, there have not been many DEXs to exist on Algorand. However, the foremost importance is that Algorand has introduced its native AMM - Tinyman. By receiving direct support from Algorand Foundation, Tinyman can be an ace of the ecosystem if it can develop in the right direction.

Similar to Algorand, every DeFi ecosystem has a primary AMM DEX that will be the liquidity centre: Solana with Raydium, Near with Ref Finance, Avalanche with Trader Joe, Terra with TerraSwap,...

So, where are investment opportunities in this sector?

As you may know, liquidity is the bloodline of any DeFi ecosystem, and AMM DEXs are the ones to provide it. Therefore, for a new and immature ecosystem like Algorand, AMM DEXs will be the first sector to explode should Algorand thrive. This means that the highest possible profits lie in this niche.

As AMM DEXs on Algorand are newly introduced and developed, the best play here is to seek airdrops and retroactive opportunities. You can test out and leave feedback to projects that have not introduced their tokens, like Tinyman or Algodex for example, for a chance of receiving an airdrop.

Infrastructure

Algorand has developed some basic infrastructure pieces like Algorand Explorer, Algoscan, Bank on Algorand…

For Oracle services, Algorand has cooperated with Razor Network to bring off-chain data to on-chain, pushing the further development of DeFi and decentralized data.

What about Bridge? Bridge is also another compulsory infrastructure lego as it connects the main network to others, leading to the seamless inflow of liquidity. On Algorand, 3 Bridges have existed:

Swingby: A cross-chain bridge for BTC and ETH, but has not launched on Algorand.
Algomint: Currently in Testney. One shortcoming of the project is that it requires KYC to use the application, which has left a bad impression on its customers since crypto is known to follow the “decentralized” ideology.
Yieldly Finance: A DeFi suite supporting cross-chain swapping, currently owning $6.9 M in TVL.

In summary, there are a decent number of infrastructure protocols on Algorand. However, the network needs more support from big names like ChainLink (Oracle), Multichain (Bridge)... to put its name on the map and gain more credibility in the eyes of investors.

Lending

There are 2 native products in the Lending sector on Algorand:

Folks Finance: The official product has not been released yet.
AlgoFi: The first and biggest lending project on Algorand, currently having $75.2 M in TVL - marking an 81% TVL Dominance of the ecosystem.

At the moment, AlgoFi is the backbone of Algorand by having the most TVL. Lending is the second most important DeFi Lego of a DeFi ecosystem as it similarly provides liquidity as AMM DEXs do. AlgoFi being well-developed is a positive sign for the growth of Algorand.

NFT

Surprisingly, the NFT niche on Algorand has the most number of projects:

NFT Marketplaces: AB2 Gallery, Rand Gallery, ALGOxNFT, AlgoDrop, AlgoGems, Dartroom, Metapunks, Octorand, Zestbloom (Testnet).
Web3 & Gaming: SmileCoin.
NFT: AlgoWorld.
Explorer: NFT Explorer is an explorer made especially for NFT on Algorand.

Even though Algorand’s NFT landscape is pretty comprehensive with various products, it has not been able to gain considerable volume. The daily NFT sale volume on Algorand currently fluctuates around 50,000 to 180,000 ALGO, with a maximum number of 200,000 ALGO (~$150,000).

algorand nft daily sales
Algorand NFT Daily Sales

One reason for this situation is that most NFTs on Algorand exist in the form of Collectibles (images/videos). For the NFT landscape on Algorand to gain more traction, it needs to deploy more Interactive NFTs/ Play-to-earn NFTs.

Algorand Ecosystem Prediction

It can be clearly seen that the DeFi ecosystem of Algorand is still primitive and in its early stages. Some fundamental layers like AMM DEX and Lending have been developed, but that is insufficient for DeFi to boom.

More projects need to be deployed on the platform, and more applications need to be present: Yield Farming, Stable/Fixed Farming, Yield Aggregator, Yield Optimizer,...

At the moment, the best way to “skin in the game” on Algorand is to seek airdrops and retroactive opportunities.

Conclusion

To conclude, here are some main points:

Algorand is Pure Proof of Stake Blockchain that focuses on 3 main features: Secure, Scalable, and Decentralized.
With a $300 M incentive program, Algorand is steadily developing its DeFi ecosystem. However, most of its DeFi pieces are currently basic and at early development stages.
The best way to invest in the Algorand ecosystem at the moment is to participate in products’ beta/testnet to “hunt” airdrops.

You’ve been through an article about the Algorand ecosystem. I hope it has helped you in gaining more valuable insights into this blockchain ecosystem and understanding its potential.