Decentralized finance (DeFi) incorporates a number of applications in blockchain or cryptos and is aimed at doing away with the middlemen in financial transactions. DeFi is unique in that it extends the use of blockchain to complex use cases going above and beyond value transfer. It is creating the financial primitives of the future by leveraging composable frameworks and open source software.
Common DeFi projects include DEXs, lending, derivatives, payments, insurance, savings, and more. We will go into the main types in this section.
DEXs let users maintain control of resources and transact peer to peer as they don’t involve a central authority, just like the name would suggest. Users can also swap their assets without transferring underlying collateral custody. These exchanges are designed to provide interlinked, compatible trading of numerous trading pairs. They have become quite usable recently, coming with liquidity incentives for supplying capital. As they don’t have custody of assets, they come with a minimal risk of price manipulation.
DEXs do not charge listing fees and provide token projects with enviable liquidity access. The extent of decentralization varies from exchange to exchange. In some cases, centralized servers will not hold private keys, but they might host features like order books. Examples of such platforms are Mesa, Oasis, AirSwap, Liquality, Bancor, Uniswap, and 1Inch.
Through DeFi, anyone can give or receive a loan without a third party needing to greenlight it. Most lending products use ETH and other popular cryptos to secure loans. If an account balance drops below a certain amount, liquidations happen automatically. This is made possible by smart contracts. The platform and asset one uses determine the relative interest earned from making various cryptocurrencies available. Examples of DeFi lending projects include AAVE, Blockfee, Compound, Nexo, and Coinlist.
Derivative contracts include swaps, options, futures, and forwards. DeFi helps investors benefit from automated, transparent, and open derivative contract settlements. Through smart contracts, it’s possible to issue tokenized derivatives revealing asset performance on both sides, even with leverage in some cases. Augur and Erasure are two derivative DeFi projects.
Decentralized finance makes independent, direct payments possible, allows all parties involved to interact with conventional financial mechanisms. An example is Counterparty, a protocol that enables anyone to make and trade their tokens using the Bitcoin blockchain. Users tend to transact with native digital currency with these DeFi applications. They can also hold their currency in a dedicated wallet.
DeFi makes tools available to track and manage assets more optimally. This type of project lets users track balances across different services, products, and tokens seamlessly and intuitively. Examples include Balancer, InstaDapp, Zerion, and Zapper.
When it comes to interacting with decentralized products, no gateway is more critical than wallets. We are seeing dramatic improvement in access and usability across the board even though wallets tend to vary in asset and product support. Two of the best-known wallets are Argent and Coinbase.
DeFi lets users take out insurance policies on funds, smart contracts, and cryptocurrencies through combined reserves and funds. While this project type is still underrepresented, experts believe it will start playing a very important role in the ecosystem’s underlying maturity. A number of novel alternatives to insurance exists to help customers purchase coverage and protect their funds. Opyn and Nexus Mutual can protect against unplanned smart contract code uses.
A lot of DeFi apps are able to offer interest by utilizing Compound and other borrowing pool protocols. These accounts can earn their holders much more than typical bank savings accounts. The interest rate connected to demand and supply is decisive to their profit. This rate is not fixed. Notable savings apps include PoolTogether, Dharma, Dai, and Argent. Yield farming is one area of activity that has become really popular in connection with savings projects. This concept denotes moving one’s idle cryptocurrency assets to augment returns in various liquidity protocols. Savings projects are a unique way to generate returns by saving.
Stablecoins were created to make coin prices less volatile. They can be pegged to exchange-traded commodities or currency. These assets are suitable as a means of storing value, units of account, or media of exchange because of their price stability. They’re seeing increasing attention for this reason. The first stablecoin in history was Tether, which is pegged to the US dollar in a 1:1 ratio. Others include DAI, Frax, Gemini Dollar, and Money on Chain.
The crypto and blockchain space has always been about making money and financial transactions. Everything associated with these has tended to be an early use case. Experts compare DeFi’s impact on the world of finance to that of open-source software on software products. Below is our list of the 20 most promising DeFi Projects.
This non-custodial, open-source protocol makes it possible to borrow assets and earn interest on deposits. It utilizes flash loans, which help use assets in a better way by bringing ample liquidity to DeFi rather than simply locking assets. You can take advantage of undercollateralized loans as long as you return the liquidity to the pool in a one-block transaction. Among the use cases are refinancing, liquidity, and arbitrage. The makers hope that someday, the tool will help users create financial products without requiring capital, thus allowing more people to create and build by lowering the entry barrier. AAVE also has aTokens, interest bearing tokens that accumulate interest directly in the user’s wallet and in real time.
Based on the ETH blockchain, Compound is an open-source protocol for effective, algorithmic money markets. You can borrow tokens or earn interest without the need to manage an order book.
The creators of Compound Finance describe this lending protocol as an open money marketplace. No permission is required. You can deposit cryptos and borrow assets against them or earn interest. Compound’s smart contracts automate platform capital management and storage. You can earn interest using Metamask or another Web 3.0 wallet. Anyone with a reliable internet connection and a crypto wallet can interact with Compound freely. Borrowers and suppliers aren’t required to negotiate the terms as they would be on a conventional exchange. The protocol handles the interest rates and collateral and the parties interact with it directly. No funds are held by counterparties because liquidity pools hold the assets. These pools are a type of smart contract.
Unlike AAVE, Compound focuses on the total locked asset amount. It doesn’t reuse locked assets.
Synthetix lets you create tokens on the blockchain, which represent real world asset value. This project’s sUSD product tracks US dollar fluctuations and their sXAU tracks gold prices. You don’t need to hold the asset to trade it, which makes the project very appealing to investors and traders who want to trade precious metals and other commodities. Buying and storing precious metals frequently comes with high costs. With Synthetix, this cost is reduced.
Uniswap is aimed at facilitating ERC20 and ETH trading. The ETH-based protocol is a fully on-chain solution. You need to install MetaMask to use it. The platform avails of decentralized architecture aimed at doing away with digital asset exchange intermediaries. This architecture is vastly different from that traditional exchanges feature. Conventional exchanges usually use an order book to connect asset buyers and sellers. Unlike them, this protocol uses liquidity reserves to support asset exchange. A liquidity provider network supplies exchange contract reserves.
Chainlink solves a common problem with oracles in a unique fashion. Typically, developers rely on the fact that smart contracts based on ETH will execute as written because a vast multitude of nodes secures their logic. However, transactions become vulnerable to attacks if these contracts depend on the price of USD or another external source of data. This vulnerability is twofold: at the oracle layer and the data origin layer. Chainlink ensures security of smart contracts because both oracle nodes and data sources are decentralized. Their oracles currently secure lending protocol value of more than 3 billion dollars being live on ETH main net. This value is used for synthetic asset platforms, lending protocols, and asset tokenization projects.
Maker enables holders of the MKR token to govern the platform using it. The token’s price is free to change because it’s not pegged to any concrete price.
DAI is Maker’s sister token, but it’s quite different from it. It is a stablecoin with a fixed price, which is around a dollar. Holders of DAI never have to worry about its value dropping. In this sense, DAI and MRK complement one another.
The SushiSwap platform is a so-called AMM (Automated Market Maker). This decentralized coin exchange lets customers use automated liquidity pools to exchange different ERC20 tokens for one another.
Yearn’s creators describe it as a robo-adviser for yield driven by the community. This project has the ambition to become the gateway to a myriad of products generating yield in Ethereum’s ecosystem. Yearn is a user-friendly interface to all of DeFi. Novices best stay away from this platform because it’s quite complex.
Terra is a stablecoin with easy cross-border exchange, low fees, and instant settlements. It’s a very popular DeFi project with millions of users around the world. You can earn a stable yield with this coin by means of Anchor Protocol, which protects the stablecoin deposits. This protocol is propelled by major proof-of-stake chain block rewards. The project supports smart contracts and lets developers run on numerous Cosmos IBC-linked chains as well as reveal dApp userbases to the platform’s payment services without needing permission. They can create smart contracts in AssemblyScript, Rust, or Go and use layer 1 oracles, stablecoins, and on-chain exchanges as primitives. So far, Terra is only available on ETH and Solana, but they’re working on making their coins available to all developers regardless of the blockchain they work on.
You can use THORChain for any asset and on any blockchain because it uses a cross-chain. A decentralized validator network secures constant liquidity pools by means of cross-chain bridges. These bridges connect all cryptocurrencies on the market through the liquidity protocol. This unique validator network represents a Proof-of-Stake model, which builds the basis of the whole DeFi project. The platform’s native token is called RUNE, which needs to be locked up by validators in order to validate the blocks. RUNE stakes are cut as punishment for bad behavior. Traders can take part in the platform by creating new liquidity pools, increasing that available to the existing ones, or exchanging assets. Users add liquidity by staking assets in one or more pools. Then, they get a commission on each transaction in the given pool. In a non-custodial fashion, users get an opportunity to transform unproductive assets into productive ones. The capital staked is never pegged or wrapped. The decentralized system underwrites it.
This is an abbreviation for Universal Market Access. It’s not a new project, having been launched three years ago. Two infrastructure sets build the tech. The first creates a financial risk transfer non-recourse system, supported by financial contract models utilizing economic incentives to guarantee payout. The second set is a mechanism to verify data in a decentralized way, providing blockchain oracles with additional economic guarantees. The sets of infrastructure are intended to make open financial innovation possible. Novices and experienced users are welcome to deploy decentralized financial contracts using this technology.
Ren was initially a dark cross-chain decentralized pool where nobody knew what a trader’s order was. Developers abandoned this setup because it emerged that this single dark pool consumed excessive network bandwidth, storage, and computing power. They began expanding the platform to make it possible for anyone to create a dark pool on their own terms. The first such pool, RenEx, was launched two years ago. Not only did it solve issues with dark pool interoperability and privacy, but also such for leveraging platforms, lending platforms, DEXs, and collateral platforms.
0x functions as the networked liquidity layer and fundamental exchange infrastructure for DeFi, gaming, and other crypto verticals. It does this as an open-source smart contract pipeline. Its developers aim for it to become a hallmark standard for connecting complementary protocols and trading crypto tokens to give people all over the world access to existing and new, cutting-edge financial markets. Trading bots, lending protocols, and other DeFi projects can take advantage of a networked liquidity pool, making it possible for users to trade different tokens at competitive rates. Anyone can access this project’s liquidity and DEX infrastructure, making the addition to exchange functionality to any application easy and simple. Specifically, DeFi companies leveraging CFL (contract fillable liquidity) are seeing great successes from their integration with 0x.
Curve is an ETH-based liquidity pool aimed at highly effective and optimized stablecoin trading. This platform is specifically designed for BTC tokens and stablecoins on Ethereum. Curve DAO’s market-generating algorithm can provide relatively high market depth. Both liquidity providers and traders benefit from this because basic returns are relatively high.
Making a DEX more liquid sustains yield farming in the DeFi sector. In exchange for increasing liquidity, users get a cut of the fees the more liquid trading pair generates. With Alpha, it’s possible to gain up to 2.5x leverage of one’s yield farming position. Traders can also make money based on risk tolerance and personal preferences. In this manner, their total liquidity mining earnings increase. The risk increases as well, which is typical of using leverage.
A decentralized cryptocurrency exchange (DEX) aggregator, 1inch. The exchange has launched the 1INCH token, governance and utility token. The developers say they have implemented an “instant governance” model that will allow all members of the community to vote.
This liquidity protocol is on-chain, allowing for decentralized and automated token exchange not only on ETH, but also across blockchains. Users of Bancor can exchange tokens, tweak and deploy market-maker liquidity pools automatically, and offer liquidity. They don’t need permission to carry out these operations. The process cannot be controlled or blocked by any central party. The interface is very simple. You can add or withdraw liquidity in a matter of seconds. Bancor v2 makes it possible to deploy liquidity pools with dynamic parameters to permit low slippage exchanges, mitigation of impairment loss, and single-token LP exposure.
Band collects and links APIs and real-world data to smart contracts. This on-chain protocol makes it possible to build games, prediction markets, DeFi, and other smart contract apps on-chain, thereby avoiding the risks centralized oracles carry.
Kava offers cryptocurrency asset users financial services like loans and products like stablecoins. Among those eligible are people using BTC, ATOM, XRP, BNB, and more. This multi-asset DeFi project’s app was the first decentralized money market with cross-chain features in the world.
Decentralized finance will keep increasing user value and supporting the cryptocurrency market in becoming more accessible, more democratic, and more stable. All kinds of consumers can use it, including traders, investors, entrepreneurs, and institutions. DeFi has many more use cases than those described in this article, providing users with the technology they need to succeed. If you’d like to refer to further and equally good sources for checking current DeFi coins, you can check out KuCoin and CoinGecko.