One can argue that the advent of DeFi marks one of the greatest moments in finance history. Why? Because no one knew before there was an alternative to traditional banking systems and centralized corporations that comes with global accessibility, more transparency, and an ability to create efficient market structures.
Decentralized finance is here to stay and reshape the traditional financial system as we know it. Innovation will no longer be stifled. And financial inclusion will become the number one priority.
Well, that is the goal. Are we there yet in terms of adoption? We have made great progress, but we still have yet to see DeFi penetrate our daily life. This blog will explore the bottlenecks stopping mainstream adoption and provide what could be one of many possible solutions to overcome them in the near future.
Bottlenecks limiting Mass DeFi Adoption
For the vast majority, crypto is considered to be “nice-to-have” but not “need-to-have”. But isn’t decentralized finance promote financial inclusion and create capital-efficient business models far superior to traditional systems?
The true vision of DeFi hasn’t changed. But how that vision is implemented has to change; because the current solutions are not welcoming for non-crypto natives and involve complex procedures. If we have to narrow it down, we believe the following are the most crucial bottlenecks to overcome:
Poor User Experience
Let’s be honest here. When non-native Web3 users first used a decentralized application or dApp, they had no idea what was happening. This involved having to go through a whole set of documentation to navigate through different features.
For example, using a software wallet like Metamask is confusing and frustrates users on why there are no simple fiat on-ramps. So the poor user experience is not allowing the common mass to explore the possibilities with DeFi, despite these dApps being valued in millions.
Expensive for Daily Usage
So much of DeFi is concentrated in the Ethereum network. And as we know, it is expensive to transact on the Ethereum blockchain. The EIP-1559 upgrade was supposed to make gas fees cheaper. But all it did was help us predict and set a range of transaction fees we would be comfortable with. The gas fees have to be more affordable. And it’s the only way to retain users.
Lack of Robust Mobile Applications
Not having a mobile version of a decentralized app means reducing user convenience and accessibility. And that, in turn, affects user adoption. It’s that plain and simple. Although we are seeing a great jump in exchange applications like Coinbase and Binance past year, we have yet to see apps for DeFi platforms.
Alluo: Democratizing DeFi with Zero Friction
Overcoming the bottlenecks above, Alluo is introducing a comprehensive solution for onboarding a wider audience into DeFi and helping them navigate the space with ease. Alluo is a cross-chain yield optimization protocol and liquidity driver for various crypto assets, including stablecoins like Tether, DAI, and USDC.
In simple words, Alluo helps DeFi investors maximize their earnings via a hands-off management style. In addition, Alluo supports protocols to drive new and cost-effective liquidity, similar to Curve Finance.
Alluo aims to become the first-ever decentralized neo-bank, where users can save, spend, borrow, and invest on an easy-to-use mobile app. Thanks to the non-custodial wallet integrated through Polygon, Alluo truly provides bank-like features without ever needing a bank account. How does Alluo do it? Let’s find out.
Features of Alluo Finance
We know many protocols like Alluo trying to create high-yield generating staking pools and low-interest rate loans. So, what makes Alluo different? Here are five features validating the uniqueness of Alluo in the current DeFi landscape:
It has become commonplace in DeFi, where you see protocols attract new investors by marketing insane APYs. But we all know no protocol can sustain such reward mechanisms. So it is better to opt for a low or no-risk protocol with stable yields where you can clearly tell how the rewards are generated. Alluo is one such protocol that can give you at least 7% annual returns. That too, you don’t have to meet any minimum capital requirements.
One of the biggest reasons people stay away from DeFi earning opportunities is protocol complexity. Some, if not all, protocols need you to actively manage your portfolio and investment gains. This is a headache for most investors because they don’t have the time or expertise to stay updated on different DeFi ecosystems and determine which liquidity pool offers the highest returns.
Thanks to Alluo, you don’t have to go through that process. You can deposit whatever capital you’re comfortable with and collect timely rewards. Alluo also has easy local on-ramp solutions to help you make fast deposits at the lowest possible fee.
Custody Remains with Users
Having centralized systems pose great custodial risks for all participants involved. That’s why Alluo has incorporated a non-custodial solution for users to manage their assets. It’s also more secure to store crypto using a Web3 wallet like Metamask, as opposed to a platform owning and managing private keys for you.
Neo-banks took off in a competitive market of legacy banking solutions because they provided a better user experience. And they did that by enhancing the user interface and making it simple that a 5-yr old can figure. Alluo is driving on the same path to develop familiar UX of best-in-class Neo-banks, with the only difference being they are decentralized.
Key Stakeholders of Alluo
On the surface, Alluo appears to be an application for users trying to navigate DeFi and lock steady returns. But there’s more to it. Two more stakeholders are involved, namely, Alluo token holders and other DeFi protocols, who actively strategize yield farming and drive liquidity, respectively. Here’s a breakdown of all the stakeholders:
Mobile App Users
The primary stakeholder by whom the entire protocol is powered is mobile app users. These folk don’t have to worry about actively participating in governance or liquidity management to get their share of consistent returns. They can make deposits seamlessly on the mobile app and watch their money grow.
Most of the protocols claiming to drive liquidity have some or the other form of incentive mechanism. But, in most cases, they are built off hype, not sustainable economic models. To avoid this, Alluo follows a similar approach as Curve Finance to drive liquidity for other protocols and capture high total locked value. DeFi protocols can purchase Alluo tokens and exchange them for voted Alluo, giving protocols the right to boost their liquidity pool rewards.
Consistent returns in DeFi are never heard of. But Alluo manages to do so by allowing DeFi enthusiasts to come up with yield farming strategies with proper risk management. So they are key to Alluo’s long-term sustainability.
Token Model For Alluo
The tokenomics of Alluo is different from most DeFi protocols. There is not one but two unique tokens fueling the Alluo platform, similar to Curve Finance. We have a standard token for governance purposes, and then we have another token called voteLocked tokens for influencing the reward mechanism. If you are not familiar with Curve wars, here is a quick recap:
On Curve Finance, there is a token called veCRV, where “ve” stands for voted escrow. The demand for these tokens is more than the primary CRV token because holders of veCRV can boost rewards and drive more liquidity. That’s why we see protocols buying huge quantities of CRV and exchanging it with veCRV to have more liquidity.
Alluo works in almost the same manner. The only difference is that the votes are not escrowed, but they are locked. That’s why they are called vlAlluo tokens. Holders of these tokens receive the difference between realized and advertised APY. For example, Alluo generated ~16% APY on stablecoins and gave 7% to its mobile app users. So the remaining 8% goes towards vlAlluo token holders. The rewards can even be multiplied when leverage comes into effect.
The upside for such a model is that Alluo creates buying pressure on decentralized exchanges with the money generated from stablecoins. At the same time, it satisfies token holders and improves their long-term conviction in holding Alluo tokens.
How Alluo Plans to Achieve Sustainable Liquidity with High Capital Efficiency
We believe the next wave of DeFi projects, DeFi 2.0, will be based on the ability to take crypto mainstream. And that happens when projects focus on optimizing total value locked (TVL) and create new forms of cash flows. To do so, DeFi protocols must stay capital-efficient and achieve sustainable liquidity. Alluo is aiming to achieve both by doing the following:
Alluo recognizes a big gap between the current and optimal state of protocol liquidity. The two main issues highlighted by Alluo’s team were incentive-driven liquidity and rebasing systems. When a liquidity pool takes away the significant rewards (those insane APYs) it once promised, the LPs will withdraw their share and find another pool. This is not sustainable.
The same applies to protocols (like Olympus) that issue new bonds for users to buy tokens at a discounted price. At first glance, it looks compelling to invest in. But when you dig deep, you will understand that network inflation keeps increasing, making it unreliable in the long term.
Alluo has a fix for such liquidity issues. The protocol will be using Alluo-Eth balancer LP in an 80-20 ratio for converting and locking any token in one transaction. This reduces gas fees and allows more people to contribute.
Alluo is also aligned with the LPs. It allows them to receive high rewards with low risks of a black swan event. Alluo is resistant to black swan events because the protocol has a cooling-off period, meaning liquidity cannot vanish overnight.
Having a 3-day cool-off period also allows Alluo to prevent governance attacks. If someone is buying Alluo tokens in bulk to drive liquidity for their own interests, Alluo can immediately slash those addresses and protect the deposits of mobile app users.
That’s how liquidity is sustained and protected within Alluo. Now, let’s get to how Alluo improves capital efficiency and investor gains.
We see it all the time that DeFi investors borrow money from one protocol to deposit in another. And repeat the same process to increase their yields with low to no interest rates. A similar strategy is deployed on Alluo as well. You can borrow 75% of your deposits at a 0.5-1.5% interest rate. You can then use the borrowed capital for levered yield strategies that can give you up to 25% APY on stablecoins. A worked-out example was laid by Alluo here.
In a nutshell, Alluo provides opportunities for both risk-averse investors and those who continue to take on asymmetric DeFi bets. With more blockchains coming under its belt, Alluo can further increase its locked value and capital efficiency. And that is something we should be looking forward to!
Progress Made So Far
Execution at its finest. That’s what we saw from team Alluo. The team has made incredible progress this past year, from successfully launching the Alluo token to releasing the mobile app on AppStore and PlayStore.
After the token launch, Alluo has done an airdrop for IDO participants, ALLUO stakers, and CVX and BAL token holders. They have distributed a million dollars to these four groups.
On the platform side of things, Alluo rolled out new farms for US and Euro assets. Bitcoin and Ethereum are two cryptocurrencies available on Alluo for staking purposes. They also partnered with Ramp Network for on-ramp solutions, making buying crypto easy and safe.
Roadmap Moving Forward
The work ahead for Alluo primarily focuses on making the mobile app as compelling as possible so that anyone, irrespective of their crypto know-how, can install and explore DeFi seamlessly.
To do that, Alluo has many things lined up in its roadmap. For the rest of 2022, the main goals are integrating VISA and increasing asset exposure outside of stablecoins. The team also plans to work on improving capital efficiency by introducing self-paying credit card loans with future interest.
Why GravityX Capital Invested
Our investment thesis is simple. We believe eliminating DeFi complexity will spur the next wave of public interest in the crypto space. And to eliminate this complexity, we need simple and intuitive mobile applications. One that doesn’t need you to spend hours researching and finding new DeFi strategies to make consistent returns.
Alluo can be that app for DeFi 2.0. By enhancing user experience, Aulluo can attract mainstream audiences and show them the true potential of DeFi. For protocols, Alluo can be a catalyst. It can help route liquidity and boost rewards in increments. In the future, as Alluo evolves into a multi-chain protocol, it can truly make DeFi accessible to everyone.