DeFi projects continue to look for proof-of-risk blockchains that can manage large numbers of transactions at lower costs. Balancer, one of the largest decentralized exchanges built on Ethereum, is coming to Algorand. Another example of a large DeFi project expanding beyond Ethereum to one of the Ethereum blockchain competitors.
According to a press release, Balancer “will be the first automated market maker (AMM) made available by the Algorand community.” In doing so, bigger rival AMMs outperform Uniswap and SushiSwap.
Like Ethereum, Algorand runs smart contracts and decentralized applications, which are computer code that automates transactions and eliminates the need for third parties, meaning it is a network that can host a wide variety of services. This includes brokerage-free lending, borrowing, and trading tools collectively known as decentralized finance (DeFi).
Balancer is an important cogwheel in Ethereum’s DeFi ecosystem. According to DeFi Pulse, it is the fourth largest decentralized exchange in terms of locked total value, which refers to the crypto value in dollars that people store on the network.
Decentralized exchanges or DEXs are places where people trade cryptocurrencies and join DeFi without entrusting their funds to a third party. As an automated market maker (AMM), Balancer uses liquidity pools so there is no need for buyers to be matched directly with sellers. Smart contracts take the hard part.
However, as long as it is on the Ethereum blockchain, Balancer’s protocol can only trade for ERC20 tokens, a specific type of asset built on top of Ethereum. Expanding to Algorand allows it to reach a brand new set of assets built on top of the blockchain known as Algorand Standard Assets.
“By leveraging Balancer’s services on Algorand, exchanges will have the ability to create trading pairs with any Algorand Standard Asset (ASA),” DEX said in a press release. “As the number of assets issued on Algorand’s high-performance blockchain accelerates, this means a great opportunity for mass adoption.”
Balance is not the only project that has switched to Algorand. Circle’s USDC stablecoin announced last year that it was expanding towards the Algorand, adding an easier way for crypto traders to get started with this blockchain.
Of course, this move does not mean that Balancer has given up on Ethereum. But competitors like Algorand, Cardano and Solana are taking advantage of the Ethereum weakness, putting more pressure on the network: especially in terms of congestion and high fees.
This bottleneck is partly due to Ethereum’s initial advantages as the original network adopting smart contracts and enabling applications. But it is also because Ethereum has not yet switched from a proof-of-work to a more scalable proof-of-stock consensus algorithm.
The transition to Ethereum 2.0 continues. Phase 0 started late last year, and Ethereum developers recently suggested that the Proof of Stake blockchain could be ready earlier than expected.