DeFi has certainly made huge waves in the crypto industry. After emerging in the summer of 2020, there are now serious projects that are aiming to decentralise the world of finance. Let’s take a look at some projects that could be worth paying attention to and look at the creative solutions that they are aiming to bring through.
What is DeFi?
Before we take a look at the top projects, let’s get into a brief overview of what DeFi actually is. DeFi stands for “decentralised finance”. The aim is to recreate traditional financial instruments in a fully decentralised manner. This removes the need for third parties such as banks and governments to get involved. However, it also means that these products carry far more risk, as can be seen with some users having their funds stolen or being rugpulled. There are a number of advanced blockchain applications such as stablecoins and decentralised exchanges which are already providing individuals access to fully decentralised forms of finance. Let’s take a look at some DeFi projects that are within the top 100 in terms of market cap. These are some of the coins with interesting projects, but there are many more and we recommend doing your own research to find the DeFi projects that appeal to you.
Uniswap serves as an automated market maker and since the summer of 2020 it has become one of the most used decentralised exchanges. One problem that many decentralised exchanges faced was a lack of liquidity. A large share of the DeFi market is capitalised by Uniswap and the platform allows users to exchange ERC-20 tokens with ease. There is no third party involved in these transactions, which can reduce the cost of the process. Although, there are still Ethereum gas fees present. Uniswap allows users to integrate their wallets and having full control of your keys is a big positive for many crypto enthusiasts. Uniswap has a governance token known as UNI which was launched in September 2020.
2. Band Protocol
Aside from exchanges, oracles are also a key aspect of the DeFi space. Band Protocol is a project that is attempting to create a blockchain agnostic decentralised protocol that connects real-world data and API to smart contracts. Providing smart contracts with access to reliable and real-time data would make them more efficient and useful. The project is designed to be compatible with most blockchain and smart contract frameworks which allows for easy expansion. The governance token is known as BAND.
One of the earliest DeFi projects is “MakerDao” which originally entered the crypto market back in 2017. Back then it was one of the first blockchain based protocols to have an automated cryptocurrency lending platform. MKR is the governance token that users can utilise to manage the DAI stablecoin. The stablecoin is a community managed cryptocurrency that is soft-pegged to the US dollar. The user participation in the governance of DAI makes it a unique feature, and the ability to manage one of the largest stablecoins in crypto is appealing for crypto holders. The governance token MKR
Lending and borrowing are important aspects of DeFi and Compound is one of the leading projects in this area. The protocol allows users to ‘stake’ cryptos on compound pools which means they can earn interest. Borrowers can take a secured loan by depositing collateral. All of this is done without a third party. ‘Ctokens’ are given to users which can then be redeemed for the corresponding cryptocurrency such as Ethereum. Compound had been running for three years on the Ethereum platform, and in 2020 it launched a token called COMP which gives owners voting rights to proposed changes in the functionality of the protocol.
UMA (Universal Market Access) is an innovative protocol that allows users to create synthetic assets based on the Ethereum blockchain. UMA aims to take concepts from traditional finance derivatives and apply them to DeFi. However, unlike the traditional variants, UMA smart contracts are designed to be secured with economic incentives, which allows them to be self-enforcing. The UMA open source protocol allows any two counterparties to create their own financial contracts. This opens up many possibilities such as decentralised crypto futures, yield curves, and more. The platform is still early in its development and the governance token is known as UMA.
The cryptocurrency markets have been trading at lower ranges than their recent all-time highs in April and May 2021, but development and fundamentals seem to remain strong and this is particularly the case for DeFi. Although, the market could still see a greater downturn to come in spite of fundamentals. The sector is maturing and looking ahead to serious solutions to bridge the gap between traditional finance and decentralised finance. We are excited to see the developments of many DeFi projects and their wider role in crypto ecosystems. We’ve listed a few DeFi projects, but there are plenty of others that are also worth exploring. The DeFi space continues to grow and there are new projects emerging on a monthly basis.
The article contains market commentary information, it should not be regarded as investment research or investment advice. Past performance is not a reliable indicator for the future.
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