If 2021 was the year of Non-Fungible Tokens (NFTs), this one surely is the year of Decentralized Finance (DeFi), with many DeFi coins becoming very popular.
“DeFi” is an umbrella term for financial services on many public blockchains, but primarily Ethereum. It has all the benefits and advantages banks provide—borrowing, lending, insurance, asset trading, and other services. DeFi will play the role of a knight in shining armor in revolutionizing finances and redefining payment methods in the digital financial revolution.
- The DeFi coins came into existence in 2014, but the term “DeFi” was coined only in 2018.
- Most DeFi coins are built on the Ethereum blockchain.
- Aave, Uniswap, Terra, Cosmos, and Compound are some of the most popular DeFi coins in 2022.
- Many Defi coins were launched as recently as 2020, which indicates the nascent stage in which the market is.
Top DeFi Coins to Keep an Eye on in 2022
A plethora of DeFi digital coins and tokens are currently taking over the crypto market, in terms of popularity as well as in market capitalization. Let us now look at why they are at the top of the market right now.
Aave is a DeFi platform where users can lend and borrow a wide range of crypto assets. The platform facilitates peer-to-peer lending via smart contracts.
Though built on the Ethereum blockchain, Aave uses a smart contract system to manage assets by a distributed network of computers that run its software. It aims to make basic financial services like lending and borrowing more accessible.
Currently, the platform offers 26 cryptocurrencies for depositing and earning interest and 25 for borrowing. ETH, LINK, and LEND are just a few deposit and borrowing options available.
Uniswap is an automated decentralized cryptocurrency exchange built on the Ethereum blockchain. Its native cryptocurrency token is known as UNI. Since Uniswap harbors an innovative exchange platform, which allows traders to swap tokens on a peer-to-peer basis, it truly exemplifies the definition of DeFi.
Uniswap eliminates the need for a centralized party when buying and selling crypto assets. This is in contrast to the industry norm, which is dominated by large centralized crypto exchanges. In the case of Uniswap, the exchange doesn’t utilize traditional order books to match market participants.
Instead, an automated market maker, or AMM, model resides on the platform. Uniswap’s AMM sets token prices based on various variables, including volume, demand, and market capitalization. This makes it possible to trade cryptocurrencies in a decentralized and hassle-free manner.
Dubbed as next-gen money, Terra is a decentralized finance project that specializes in algorithmic stablecoins. The idea is to offer users a complete digital financial system based on stablecoins.
Unlike most stablecoins on the market, Terra is not limited to major fiat currencies like the US Dollar or the Euro. Instead, it covers a wide range of other national currencies, including the South Korean Won, Japanese Yen, and Chinese Yuan.
Terra even supports the SDR (Special Drawing Rights), the currency backed by the International Monetary Fund.
Cosmos is a project specializing in interoperability. Interoperability allows blockchains to share and access data, and inter-operate or communicate with one another.
The project aims to create an ecosystem that links different siloed blockchains. This means that the Cosmos protocol enables competing blockchains to communicate with one another. Cosmos ensures its network’s interoperability through the Inter Blockchain Communication (IBC) protocol.
Cosmos has become one of the most sought-after Defi coins of 2022 due to its concept that allows access and extracts data from another blockchain.
Compound (COMP) is an Ethereum token that serves as a governance token for the Compound Protocol. The Protocol, on the other hand, is a collection of decentralized interest rate markets that make it possible for users to lend and borrow Ethereum tokens. Convert ETH to INR here!
It allows users to deposit cryptocurrencies into lending pools that can be accessed by borrowers. Lenders can earn interest on the assets they deposit in this way. When a deposit is made to the lenders, Compound rewards them with a new crypto known as cToken.
Are DeFi Coins a Good Investment?
The future of DeFi is no doubt very promising, and if you are looking to invest, the DeFi space is a niche market that’s growing at an exponential rate. Many Defi coins were launched as recently as 2020, which shows just how new this marketplace is. While new is sometimes exciting, caution is always advisable. If you want to invest in DeFi coins or buy ETH, download the CoinSwitch app for the best rate!
But like all crypto assets, these coins are extremely volatile and frequently speculative. So, before investing, make sure you do your homework and develop a sound understanding of the market. Regardless of who says what about any crypto asset, remember to Do Your Own Research (DYOR).
DeFi has a lot of potential and several advantages, including eliminating intermediaries or brokers. So much so, it’s sometimes viewed as a better financial tool in countries with underdeveloped financial systems, because anyone can set up DeFi and use dApps for seamless money management.
Despite all of its benefits, DeFi has yet to gain widespread acceptance. Perhaps this is due to the fact that the vast majority of people do not have traditional access to such platforms or the fact that the traditional financial system is still hesitant to embrace new technology. Whatever the reason may be, the take-home is this: It’s an exciting and promising investment option but being careful with your money is never a bad idea.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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