We are in the midst of a decentralized finance (DeFi) revolution, where trillions of dollars’ worth of annual transactions take place in channels that are not under the jurisdiction of any one organization, in part because many of these transactions traverse international borders.
The rise of decentralized finance (DeFi) platforms, which provide many of the same services as traditional financial institutions but on-chain, has been responsible for some of the major advances in the cryptocurrency sector this year.
One of the largest trends in the blockchain sector is DeFi since many people think it will replace conventional finance. To take full advantage of this new financial landscape, we’ve compiled the Top 12 DeFi platforms in this article.
DeFi: How to Get Started
There are numerous methods to begin using DeFi:
- Depositing your cryptocurrency assets on DeFi platforms like Aave and compound, which offer an annual percentage yield, is one way to earn “interest” on them.
- Liquidity mining: By contributing funds to a liquidity pool on a DEX, users can earn yield. Users may also receive rewards in the DEX’s proprietary token, which has the potential to appreciate in value, rather like holding “stock” in the business.
- Trading on DEXs: Unlike centralized exchanges, decentralized exchanges enable direct trading between users. As a result, DEXes frequently offer the opportunity to trade smaller coins that are unavailable on centralized exchanges.
It has been amazing to see DeFi initiatives flourish so quickly. It’s one of the most fascinating areas to monitor, with new decentralized financial services being launched every week.
Here Are the Hottest DeFi Platforms
Approximately 10% of daily cryptocurrency trading activity worldwide occurs on FTX. The firm has employed Naomi Osaka and Tom Brady to market to the general public .
However, the company’s founder Sam Bankman-Fried, who just turned 30 years old, told the Observer that he wasn’t confident the business would succeed. Internally, I was one of the most optimistic on FTX and I said there was an 80% chance it would not get traction.
Bankman-Fried has become a thought leader in the crypto/DeFi field in addition to the company’s success. He appeared before the House Financial Services Committee in December and established himself as a credible supporter of federal regulation, preferably conducted under a single, unified regulatory framework. He told the Observer that it was nice to be able to speak with legislators directly and that the debate was fruitful and bipartisan.
FTX is committed to promoting cryptocurrency globally. As the first exchange to get a cryptocurrency license in Dubai, it recently announced a cooperation with Nairobi-based AZA Finance to increase the presence of cryptocurrencies in Africa.
The majority of Americans who invest in cryptocurrencies do so through Coinbase, even though it is obvious that Coinbase itself is not a DeFi corporation.
The plan to introduce cryptocurrencies into the public was brilliantly carried out by Brian Armstrong and his colleagues. On the site, $3 billion is transacted every day, and there are about 90 million users globally.
Despite having a less-than-pleasant first year as a publicly traded business in a market where most fintech stocks have struggled, Coinbase still has a market valuation of nearly $45 billion, which as of late March is almost four times higher than Robinhood.
In crucial ways, MakerDAO represents one of the most comprehensive DeFi visions that has ever been put into practice. MakerDAO is an Ethereum-based decentralized network for lending and borrowing.
Holders of the MKR governance token, who have the power to vote for or against proposals to alter the protocol, support the DAO (Decentralized Autonomous Organization).
The ERC-20 tokens; MKR and DAI are the two core assets of Maker. The MKR token serves as the platform’s base of collateral and is used to pay transaction fees on the Maker platform.
To maintain its dollar peg and function as a governance token, MKR cannot be mined; instead, it is burnt in response to changes in DAI pricing.
To obtain DAI as a debt against the locked-up assets, users can form a Collateralized Debt Position (CDP) by locking up ether (ETH) or other Ethereum assets as collateral. The platform uses the MKR token to pay interest, and after the CPD is closed out, the DAI and MKR paid are burned.
Uniswap is an exchange where cryptocurrency is traded, similar to Coinbase and FTX, but unlike those Super Bowl advertising behemoths, Uniswap is actually decentralized.
Instead of working through a broker-dealer, traders deal directly with one another. This is accomplished using an algorithm that eliminates middlemen and intermediaries by matching trades based on supply and demand in a liquidity pool.
Some consider Uniswap to be the ultimate Ethereum-based decentralized exchange. Uniswap uses liquidity pools for token swaps rather than the order books you would find on Binance. Additionally, Uniswap does not yet offer limit orders.
On Uniswap, you can swap any ERC-20 token, or you can add liquidity to the protocol and get paid for it. Users have the option of creating their own pools or adding liquidity to existing ones.
Users can borrow or lend against collateral thanks to Compound Finance, an open-source money markets system built on Ethereum. Anyone can start earning income on their digital asset holdings by joining Compound’s liquidity pool.
The supply and demand on the platform determine how the interest rates change. Among other digital currencies, Compound supports DAI, ETH, and USDC.
As the name suggests, interest starts to accumulate right away and continues to compound for the entire time that the protocol is given liquidity. When assets are sent to the Compound protocol, balances are represented by cTokens, which can be used as collateral or to generate interest.
Users of Compound are able to borrow up to 75% of their initial collateral when taking out over-collateralized loans. Debts with inadequate collateral can be easily liquidated, but collateral debts can be freely added or deleted.
With a mainnet launch in February 2019, Synthetix, which was formerly known as the stablecoin project Havven, was the outcome of a shift in strategy and rebranding. Synthetix is a decentralized platform built on Ethereum that enables the production of synthetic assets, or Synths.
Synths keep track of the value of physical goods on-chain and let cryptocurrency owners use their funds to trade non-crypto items on a decentralized platform based on cryptocurrencies.
With ambitions to significantly expand the platform’s current derivatives offerings, Synthetix currently offers users the ability to trade more than 30 Synths that represent different equities, commodities, and indexes.
Along with a number of other digital assets, the native ERC-20 SNX token can be used as collateral to create freely tradable Synths.
In order to encourage users to build synthesizers and give the SNX token value, Synthetix also offers a non-custodial DEX from which SNX holders and Synth minters can profit from transaction fees.
Ava Labs’ Avalanche platform is regarded as one of the most promising alternatives to the Ethereum blockchain. “Blazingly quick, inexpensive, and eco-friendly” is how it markets itself.
Avalanche claims that their platform can reach “transactional finality” faster than Ethereum and Bitcoin, which takes six minutes and 60 minutes, respectively.
AVAX, the coin connected to Avalanche, was introduced in 2020 and immediately rose to the top 10 most valuable cryptocoins. Be on the lookout for growth into the gaming and metaverse industries, both of which might use faster processing.
Aave, formerly known as ETHLend, is a decentralized peer-to-peer marketplace for lending and borrowing digital assets that runs on Ethereum. The platform for peer-to-peer lending lets lenders and borrowers reach an agreement on the loan terms, which are then carried out using smart contracts.
On Aave, the protocol mints aTokens equal to the value of the assets delivered when a lender provides liquidity. Lenders on Aave start earning interest right away, and it compounded in real-time. As a result, a lender’s aTokens grow and can be traded, deposited, and moved elsewhere.
Aave accepts a wide range of assets as collateral, each of which has a variable interest rate and liquidation penalty. The protocol’s liquidity reserve allows users to withdraw money whenever they want.
By “wrapping” their Bitcoin and utilising it in the Ethereum ecosystem, WBTC enables customers to put their Bitcoin to use. 100% of the WBTC ERC-20 token’s support comes from bitcoin. It just makes sense that BTC’s abundant sluggish liquidity would find its way to Ethereum.
Users that deposit BTC will also receive WBTC in an equivalent quantity. The WBTC can be utilized in many DeFi protocols, while the BTC is kept as collateral.
Although it is controlled by a DAO of well-known DeFi projects like Compound and Maker, WBTC is not fully decentralized.
To swap WBTC, users must fulfill KYC and AML. After doing so, individuals are able to trade WBTC on a variety of exchanges, including Dharma, Kyber, and Ren.
ConsenSys has accomplished many things throughout its existence, but the NFT market’s explosive growth in 2021 may have been the company’s greatest triumph.
MetaMask quickly evolved into the go-to ethereum wallet for NFTs and other transactions. The number of monthly users of ConsenSys’ MetaMask increased from 500,000 in July 2020 to ten million in July 2021. Today, there are far more than 20 million.
Infura and Truffle are development platforms that are produced by ConsenSys. However, MetaMask unquestionably propels the industry. ConsenSys secured $400 million in a venture round in the middle of March, more than doubling the price of its November 2021 Series C and valuing the business at over $7 billion.
It has long been argued that Bitcoin is too slow to handle the volume of transactions that are currently being made, never alone those that will be made in the future. It can take up to ten minutes for a single Bitcoin transaction to appear on the global ledger.
In order to address this issue, Lightning Labs developed a number of technical advancements that not only speed up Bitcoin transactions but also make them simpler and more secure. The cryptocurrency world has known for years that Lightning Labs is needed; Bitcoin evangelist Jack Dorsey was an early investment.
In order to speed up transactions, Lightning is a “Layer 2” protocol that enables transactions to be settled outside of the blockchain. The Lightning Network has been adopted by other cryptocurrencies and is currently used by an estimated 100,000 individuals.
Additionally, Lightning has developed methods to lower transaction fees and enhance Bitcoin liquidity for users.
Some people have benefited from stablecoins’ rapid rise, while others have experienced difficulties. In recent years, the idea of a digital currency linked to a physical currency (like the US dollar) has proven to be very helpful, especially for people who want to exchange one cryptocurrency for another without turning it into fiat money. The most valuable stablecoin is Tether (although USD Coin threatens to overtake it).
Tether has clashed with regulators on a number of occasions, and the evidence suggests that it hasn’t always stayed true to its word that all of its stablecoins will be backed 1:1 by US dollars.
Additionally, it has been stated by US officials, notably Treasury Secretary Janet Yellen, that stablecoin regulation will soon be implemented. The rule, however, is more likely to stimulate investment in Tether and other stablecoins tethered to the US dollar than it is to pose a danger to Tether.
However, many stablecoins’ uses might become obsolete if the US government decided to adopt a central bank digital currency.
You can see that there are many solutions available to pick from to assist pave the route from the use of conventional financial instruments to decentralized financial independence.
The rise in DeFi users is beneficial for bitcoin since it will accelerate the spread of the technology worldwide by making these platforms accessible to anyone with an internet connection.
You should now have a better understanding of the top 12 DeFi platforms and feel more prepared if you want to begin dabbling in DeFi.