With DeFi, you can do most of the things that banks support — earn interest, borrow, lend, buy insurance, trade derivatives, trade assets, and more.
DeFi is the ecosystem of financial applications being built with blockchain technology
Photo Credit: Coinmarketcap
2021 was an immense year for the wider crypto market, including sectors like Web3, non-fungible tokens (NFTs), and more. But the year was also a significant one decentralised finance — an umbrella term for financial services on public blockchains, that removes the control banks and institutions have on money, financial products. DeFi is based on blockchain technology, which allows fund transfers between digital wallets to take place almost instantly.
This five-part series will help you get a deeper understanding of the broadening crypto space and its many elements.
For 2022, I am bullish on 5 crypto sectors:
In previous editions, we have covered the top Web3 Cryptos, the top Gaming and Metaverse Cryptos, and the top 5 Public Blockchains.
Today, let's talk about the top Decentralised Finance (DeFi) cryptos for 2022.
My list of top DeFi cryptos are:
Let's start with a comparison of the basic metrics of these blockchains as of January 14, 2022:
| Name | Symbol | Market Cap ($ billion) | TVL ($ billion) | MCap/TVL |
|---|---|---|---|---|
| Aave | AAVE | 2.5 | 12.4 | 0.2 |
| Balancer | BAL | 0.1 | 3.1 | 0.03 |
| PancakeSwap | CAKE | 2.7 | 4.8 | 0.55 |
| Compound | COMP | 1 | 7.4 | 0.13 |
| Curve DAO Token | CRV | 1.8 | 22 | 0.08 |
| Maker | MKR | 1.8 | 16 | 0.12 |
| SushiSwap | SUSHI | 0.7 | 5 | 0.15 |
| Uniswap | UNI | 9 | 8 | 1.12 |
Note:
Sources: CoinMarketCap, Future Money Wallet, DefiLlama (rounded off)
Aave (AAVE) is two things — a decentralised finance protocol as well as a crypto token. As a protocol, it enables the lending and borrowing of crypto. Lenders deposit digital assets into liquidity pools. Borrowers put up crypto collateral and take "flash loans" using the liquidity pools. As a token, it gives holders discounted fees and also serves as a governance token by giving holders a vote in the protocol's development.
Balancer (BAL) is a non-custodial automated portfolio manager and trading platform. In a conventional index fund, the investor pays fees to a portfolio manager for rebalancing the portfolio. In Balancer, the investor collects fees from traders who rebalance their portfolio by following arbitrage opportunities.
PancakeSwap (CAKE) is an automated market maker and yield farm on the Binance Smart Chain (BSC). Although PancakeSwap is a fork of SushiSwap, it enables cheaper and faster transactions because it runs on BSC. PancakeSwap also provides yield farming, lotteries, and initial farm offerings.
Compound (COMP) enables users to deposit crypto into pools and earn interest. Borrowers take secured loans from Compound pools by depositing collateral. If this collateral falls below a threshold, the loan is automatically liquidated.
Curve (CRV) is a decentralised exchange liquidity pool on Ethereum. It is specially designed for: extremely efficient, low slippage stablecoin trading, and low risk, fee income for liquidity providers. Slippage is the difference between the expected price of a trade and the price at which the trade is executed. The fees and other parameters are decided by the Curve Decentralised Autonomous Organisation (DAO). The fee on all the pools is 0.04 percent. Half of the fee goes to the liquidity providers and the other half to the members of the DAO.
MakerDAO is a decentralised organisation while Maker Protocol is a software platform, that allows users to issue and manage the DAI stablecoin. Maker (MKR) is the governance token of the MakerDAO and Maker Protocol. MakerDAO is a decentralised organisation while the Maker Protocol is a peer-to-contract lending platform. Maker Protocol enables over-collateralised loans by locking ETH in a smart contract and minting Dai, a USD-pegged stablecoin. Dai can be traded and used for payments. Maker (MKR) is the governance token of the MakerDAO and Maker Protocol.
SushiSwap (SUSHI) is a decentralised protocol for providing automated liquidity on Ethereum. It is a decentralised exchange and a decentralised lending market. It also enables yield instruments and staking derivatives. In late 2020, Yearn.finance and SushiSwap announced a merger under which they would share development resources, but maintain separate tokens and governance systems.
Uniswap (UNI) is a decentralised protocol for automated liquidity provision on Ethereum. One major problem with illiquid assets on regular exchanges is "high spreads". Uniswap solves this problem by enabling everyone to become a market maker. Uniswap suffers from high slippage for large orders because the price paid increases with the increase in the quantity.
Next edition: The top Medium of Exchange cryptos
Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. You can follow him on LinkedIn.
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