Algorand has announced several new advanced smart contract features on its permissionless, pure proof-of-stake (PPoS) blockchain on the heels of its Transparency Report and inaugural BLS Library release.
The news encompasses stateless smart contracts, atomic transfers, and standardized assets embedded into Algorand’s on-chain (layer 1) functionality.
“We’re excited to add tremendous new capabilities to our high-performance blockchain, such as smart contracts, atomic transfers, and standardized asset mechanism,” detailed Steve Kokinos, CEO of Algorand, in the official press release. “These enable corporate and individual users worldwide to send and receive fungible and non-fungible assets in multi-party transactions. They can also set controls to meet business, compliance, and regulatory requirements.”
The move represents a broader bid by the project to puncture the highly lucrative open financial market (i.e., DeFi) that has recently seen hundreds of millions locked in credit platforms and garnered millions in VC funding.
By extending the functionality of its smart contracts and imbuing them with its native ASA standardized framework for digital assets, Algorand is making notable moves to absorb market share from Ethereum — incentivizing developers to migrate to the network in the process.
Competition Fueling Innovation
Ethereum’s blossoming DeFi narrative has come to dominate the smart contract platform’s technology efforts recently. Supplemented by hundreds of projects pioneering platforms ranging from decentralized derivatives markets to micro-insurance products, the developments have captured the attention of financial institutions and VC funds as an alternative, open financial system.
But Ethereum’s broader network still faces some daunting challenges, including the mercurial transition to Ethereum 2.0 and competition from emerging public blockchains like Cosmos and Algorand.
For example, Kava, a DeFi project on Cosmos, recently launched a multi-collateral lending platform competitor to Ethereum’s immensely popular MakerDAO. Incidentally, MakerDAO just upgraded to a multi-collateral Dai structure that incorporates the BAT token next to Ether.
But the “next-generation” blockchains like Cosmos and Algorand are banking on the inherent advantages that they crafted over Ethereum from launch. Namely, scalability and the inclusion of interoperability frameworks (e.g., the IBC in Cosmos) and asset standardization molds (e.g., Algorand’s ASA) that cater to the requirements of businesses, regulators, and financial institutions.
The increasing competition between the networks to absorb the most market share of new institutional interests is sparking widespread advances in the underlying technology of blockchains, too, especially smart contracts.
For example, one of Algorand’s newly released features, atomic transfers, enable concurrent delivery of multiple assets to numerous parties. The “atomic” moniker flows from the prohibitive condition of the contract where all the batches of transactions are executed together or not at all. The arbitrary contract execution of say, stablecoin-based trade pair orders, is a marked advantage of atomic transfers — one that is actually increasingly wielded by arbitragers on Ethereum DEXs.
Even areas outside of financial emphasis are pushing smart contract developments, like TokenScript, which makes tokens more portable and extensible between applications. More complex transaction execution and smart contract use cases is also a consequence of Algorand’s stateless smart contracts, which can enforce custom rules on how ASA assets are transferred.
The technology can also help to remove the reliance on collateralized obligations, like CDOs, which present systemic risk (i.e., 2008 Financial Crisis) in complex financial networks.
But other significant hurdles for the broader industry remain — namely, standardization.
A Liquid Economy for Standardized Digital Assets
The truism that “liquidity begets liquidity” largely hinges on the notion of attracting liquidity in the first place. For public blockchains catering to DeFi demands, particularly of institutions accustomed to highly liquid, regulated markets, that task presents challenges.
And one of the most salient challenges is standardization.
“There are issues when it comes to digital assets,” details the Algorand press release. “These challenges include lack of access to global markets; 24/7 transferability; instantaneous settlement; and compliance and reporting.”
Algorand’s PPoS enables the type of instant transaction finality and high-performance trading that institutions seek, and combined with atomic transfers, enters into uncharted territory. But at the same time, those advantages are severely diminished without a framework for standardization.
Algorand’s ASA enables the standardized creation and issuance of any digital asset ranging from fungible assets like stablecoins to non-fungible tokens (real estate) and even restricted non-fungible tokens like regulatory certifications.
Using the platform’s role-based asset control (RBAC), businesses can extend the functionality of these standardized assets for case-specific needs like forced transfer of assets under compliance pressure or whitelist models for privileged transaction controls.
While highly appealing to financial entities, this is not to say that Algorand’s announcement will be accompanied by a flood of institutional money and development.
Competitors like Cosmos, the highly-anticipated Polkadot, and the hopeful future of Ethereum 2.0 paint a contentious scene for inviting big money to the world of digital assets. It may not be a zero-sum game, but the network effects of public blockchains are powerful — pointing to only a slew of open financial networks likely rising to the top.
Some high-profile investors are betting big on Algorand’s staying power, however. And the recent rollout of more advanced smart contracts features for a blossoming DeFi ecosystem is a promising step forward for the blockchain of the “borderless economy.”