Algorand’s Latest Upgrade Defines its DeFi Dream

Very few projects have been able to release updates as per the planned timeline, given the immense complexity involved with blockchain technology. But since its inception, Algorand keeps upgrading its capabilities like clockwork. With every upgrade, Algorand is revealing its determination to dominate the DeFi space. 

On August 19, 2020, Algorand founder Silvio Micali announced the launch of stateful smart contract technology that is geared towards developing powerful DeFi solutions and other DApps. 

What’s this smart contract upgrade all about?

In its quest to achieve speed, scalability, and security, Algorand has taken the route of adding its key features to layer-1 i.e., the consensus layer, presenting the Algorand Smart Contract (ASC-1), Algorand Standard Assets (ASA), and Atomic Swap. 

Algorand smart contracts utilize both layer-1 and layer-2 functionality. But by design Algorand’s layer-1 smart contract has two components – stateless smart contract and stateful smart contract. ASC-1 is the stateless version Algorand introduced earlier. Let’s check this out before understanding what the stateful version is all about.

Algorand Smart Contract

Stateless Smart Contract

This is where instructions or conditions to execute a transaction are supplied within the transaction itself. Besides being highly customizable, stateless smart contracts are efficient because instruction is just 1KB long with basic tasks like comparing or verifying digital signatures. A transaction gets approved when all such conditions are met; if a single condition is not met, it gets rejected. Complex independent payments, Atomic swap, collateralized loans, or escrow systems are some use cases for this type.

Stateful Smart Contract

Instead of attaching with a transaction, these conditions/instructions are supplied from outside in a stateful smart contract. A transaction is approved through checking a sequence of interactive conditions saved somewhere else.

Therefore, by nature stateful is not as efficient as stateless but offers high flexibility. Algorand’s objective was simple – extract as much efficiency as possible from its stateless implementation without compromising on speed, scalability, and low fee Algorand boasts about.

Trying Different Approaches

So the question is where to store the state information. There were two clear options – 

Third Method – The Algorand Approach

The Algorand team decided to store an application’s state information on its creator’s account and its users’ accounts. While the former saves the application’s global state, its local state is stored in the latter collectively. Algorand adopted this method because its architecture allows users to generate and consult accounts very efficiently and still manage to keep costs low.


Extending the PyTEAL Functionality

Algorand smart contract is written in a special language called TEAL granting Algorand developers the power to develop complex solutions. To offer the ease and flexibility of a known language, Algorand brought PyTEAL – where developers can develop solutions in Python code and Algorand will compile that in TEAL.

After stateless, developers writing stateful smart contracts will now get the PyTEAL support.

DeFi Use Case Advantages

The upgrade coupled with Algorand’s other layer-1 features offers unique opportunities to DeFi space.


Ethereum’s stateful smart contract is a prime reason behind attracting so many different projects. Algorand, without having this feature already bagged multiple top-ranking projects including top-two stablecoins – Tether and USDC, Marshall Islands’ CBDC, IDEX,’s macroeconomic infrastructure, and Republic investing. This brings in an advanced version bound to attract more DeFi projects. 

Ethereum is bogging down with so many projects and the Ethereum 2.0 launch continues to get delayed. This creates a unique opportunity for Algorand to divert DeFi projects with its superior speed, scalability, and enterprise-grade features and realizing its DeFi dream.

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