Algofi: Bank on Algorand - 5 reasons To Use It

Algofi Algorand

Algofi: Bank on Algorand

Last Reviewed: July 2023


What is Algofi?

Algofi went live on the Algorand mainnet December 17th 2021. It was the first lending platform launched on the Algorand blockchain. Runtime Verification have audited the website for for security purposes. In addition to facilitating borrowing and lending, it also provides an algorithmic stable coin on Algorand, which is known as STBL.

In this article we're exploring the 5 top reasons for Algorand users to utilize Algofi to your own benefit. Let's jump right in!

1. Algofi Let's You Participate in Governance

One of the major benefits of participating in the Algorand Governance Program through Algofi is that it allows you to use your ALGOs in the Algorand DeFi ecosystem, while also earning the governance rewards. This is beneficial for both you as well as the blockchain as a whole. Utilization is needed for the ecosystem to grow. Actually, it's so important that the Algorand Foundation in late 2022 changed the governance reward to give a higher return for those invested in DeFi versus those only participating in the normal governance program.

2. Seamless Swapping

AlgoFi offers the ability to swap between your ALGO and other Algorand Standard Assets (ASAs). It uses something called liquidity pools in order to achieve this. It's a quick, cheap and easy way to get ahold of your favorite Algorand tokens, such as DFLY, OPUL, or USDC.

More About Liquidity Pools and Swaps in This Post

3. Algofi Gives You Leverage

One of the main reasons to use Algofi for lending on Algorand is leverage. Yes, you can only borrow 90% of what you've lent to Algofi, however you still own the Algorand you provide to Algofi, and it can be withdrawn at any moment as long as you have paid back your existing loans. This ties well into our 1st point of participating in the Algorand Governance Program while also utilizing the Algorand DeFi system.

For example, you could provide 10,000 ALGO to Algofi and earn governance APR on that amount from the Governance Program. Then you could proceed to borrow STBL and convert it into additional ALGO using the seamless swapping function, which you can then invest in other parts of the ecosystem. Viola! Now you're leveraging the ALGO you own.

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Algofi lending by using a calculator
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4. Lend Algorand on Algofi For a Return

Did you recently purchase a big bag of ALGO, but the next governance program isn't opening up for another 1-2 months? Fret not! You can at least earn a couple percentage return by lending your ALGO on Algofi. It's easy, safe, and at least lets you collect a few ALGOs instead of having them do nothing in your wallet. By doing this you're also contributing positively to the general health of the Algorand ecosystem as whole. 

5. Higher Return Through Complex Staking

Algofi offers another way to achieve similar results to our 3rd point about leveraging your ALGO. You could participate in complex stating schemes which could yield higher returns. Note that this is for advanced users. 

  1. Participate in the Algorand Governance Program through the Algofi Vault for maximum returns on initial investment.

  2. Proceed to borrow 90% of that value in USDC through Algofi. 

  3. After that you go ahead and convert the USDC to Yieldly, which you use to stake in high-yield staking pools on their platform (pools offer around 15% APY).

  4. As soon as the pool is finished you can swap the staking reward to ALGO or Yieldly, and use it to repay the loan on Algofi.
To reiterate - this strategy could amount to a higher APY then just having you're ALGO in the regular Governance Program, but it does come with substantial risk. You'd have to factor in many many different potential effects on any return (i.e. fluctuating prices of YLDY or the value of the token earned from staking, tax implications, fluctuating staking pool APY, and more). 

Risk of Liquidation - Warning!

Users who fail to maintain their collateral are liquidated, these processes must run smoothly for the protocol to remain solvent. This means that if you're loaned amount starts to approach 100% of your collateral instead of 90%, then you are at risk of liquidation. Consequently Algofi seizes a part of the collateral. This can happen if ALGO drops in price versus USD, and your collateral is no longer worth as much as it was previously (in terms of USD). It's crucial that you understand this concept before borrowing anything using the platform. Algofi explains this in more detail and provides examples in their FAQ

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Article Author: Martin
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