Cryptocurrencies are an effective alternative for the traditional money; DeFi is just adding to that layer and combining this new age money with a new and effective financial infrastructure.
DeFi is a fully decentralised financial service ecosystem that aims to become a decentralised alternative for the traditional financial sphere.
And, It’s no secret that it has clearly made a mark for itself in 2020. We have seen a rise of 1300% in locked value on DApps, bringing the total locked value in decentralised applications to $9 billion.
A significant chunk of DeFi is built on Ethereum and various services like the lending business, insurance, and payment solutions is now decentralised. When you buy Ethereum, you are not only investing in Ethereum but are also indirectly becoming a part of these ecosystems.
DeFi has enabled anybody with just an internet connection and a smartphone to benefit from these decentralised financial services.
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5 Best DeFi Cryptocurrencies To Explore
So, let me break some interesting DeFi projects and cryptocurrencies that you may want to explore:
First on the list for me comes Aave, it is a decentralised lending protocol that enables individuals to lend and borrow cryptocurrencies.
Labelled as the first uncollateralised loan option in the DeFi space, Flash loans is Aave’s flagship project. Here, lenders deposit their cryptocurrency in liquidity pools for borrowers to use the same cryptocurrencies as collaterals to take out flash loans.
And the protocol incentivises the lenders by offering them a percentage of the interest earned by lending their cryptocurrencies. Another appealing aspect of Aave is that it allows borrowers on its platform to alternate between fixed and variable interest rates.
Aave is a rock-solid example of a more open and accessible financial system.
Synthetix is a derivatives trading protocol that enables trading of synthetic assets.
let’s simplify it a little:
Derivatives trading is when the asset that you are trading in derives its value from an underlying asset. And Synthetic assets are nothing but synth tokens that exposes individuals to multiple markets like fiat, cryptocurrency, commodities etc.
However, each synth token is an ERC -20 token and serves multiple use cases like trading, loans, e-commerce etc.
Here, Individuals stake SNX tokens as collateral to generate synths and earn rewards from the fees caused by activity on the system. SNX is directly valued based on how the network it has collateralised functions.
3. Yearn. finance
Unless you are living under a rock, you know what YFI is.
Yes! It is the same token whose individual value surpassed that of Bitcoin’s value in Sept 2020.
yearn. finance is a yield aggregation platform that helps individuals maximise their DeFi investments. It actively collaborates with other DeFi protocols like COMP to simplify DeFi for everyday individuals.
Here, individuals deposit their stable coins which are then converted into ytokens by the protocol and used to pool liquidity more or like what Mutual Funds do.
It is a very effective means for individuals to optimise returns on the capital they lend and thus an exciting token to explore.
Launched in the year 2018, Uniswap is a decentralised exchange for individuals to trade DeFi tokens. However, the protocol has gained popularity in 2020 with everybody going gaga over DeFi and yield farming.
One thing that pulls individuals to the protocol is its decentralised nature that leaves no scope for third party manipulations.
The idea of a decentralised exchange may not be too outlandish, but it is something that people were keen on. And thus Uniswap got the attention that it got because they offered people what they wanted.
That is also why, Coinbase; one of the top centralised exchanges has overtaken this protocol, which indicates the protocol’s potential.
Chainlink is an intriguing project that synchronises smart contracts with real-world input through a decentralised oracle network.
Smart Contracts are built on blockchains and thus can’t access data outside its network. But for smart contracts to successfully execute tasks; it needs to know what happens in real-world – the data, payments, events etc.
And oracles are nothing but external devices that connect with the Ethereum network to provide necessary data to smart contracts.
And with growing smart contracts usage, this problem will continue to exist, and Chainlink has a lot of potential in solving it.
Currently, LINK ranks 8th in market capitalisation and has grown steadily over the past month. But clearly, it looks like they are doing something right as leading teams like AAVE, yearn. finance, Google etc are using Chainlink.
Which DeFi Protocol is your favourite?
These are just some of the protocols that I am curious about so please don’t take this as financial advice.
I agree that great protocols can influence the price of cryptocurrencies attached to it, but other factors like scarcity also play a role.
Now that we have bantered so much about DeFi and the cool things happening on the network; what are some of the interesting protocols you are closely following?
KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.