 |
Algofi: Bank on Algorand
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only borrow 90% of what you've lent to Algofi, however you still own the Algorand you provide to Algofi, and it can be withdrawn at any moment as long as you have paid back your existing loans.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.
 |
| Image by Freepik |
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.
- Participate in the Algorand Governance Program through the Algofi Vault for maximum returns on initial investment.
- Proceed to borrow 90% of that value in USDC through Algofi.
- 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).
- 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.
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.
Consider subscribing to the AlgoDaddy Newsletter below if you found this article useful.
Curious How The Rich Invest In Algorand?
