The popularization and development of DeFi projects will make the use of financial services more modern, democratic, and convenient. The structure of the industry contains a lot of important components: information management, insurance, lending, tokenization of assets, and the emergence of stable digital coins that are not subject to high volatility.
What are DeFi Projects and What are They Like?
DeFi is an abbreviation of "Decentralized Finance". The concept of decentralized finance is based on a progressive idea aimed at consolidating two vectors at once. The first one is the creation of a new financial industry that will replace the traditional areas: banking, insurance, credit, and many others. Secondly, everyone will have the right to independently control their money without regulators and intermediaries.
Technically, DeFi is needed for maximum democratization of the asset management structure, as well as the creation of new financial trading, investing, lending, depositing, and many other services. Thanks to the blockchain, they will become completely seamless. The vast majority of DeFi applications are based on Ethereum. Although, as technology develops, competitive alternatives appear, for example, Binance Smart Chain.
If we talk about the Ethereum platform, the main advantage of this blockchain is that it was originally created for the launch of an ecosystem based on which developers will launch their decentralized applications. It was dApps that became the key DeFi mechanism. As a result, the founders of startups were able to implement their ideas without attracting sponsors or institutional investors.
Capitalization of DeFi
Many companies from the field of DeFi occupy high places in the ranking by market capitalization of Coinmarketcap. Ethereum ranks second, following Bitcoin, which tops the list. The market capitalization of the decentralized finance industry is estimated at $56.99 billion as of the end of May 2022. Cryptocurrencies are very volatile, so at any moment there may be an impulse jump in this indicator.
It is also worth considering that DeFi is a fairly young niche in the crypto market. The first DeFi projects began to appear in 2019. Over the next few years, there was a real boom. It is for this reason that hype around DeFi is often compared with the popularity of ICO times of 2017. TOP 10 projects by market capitalization according to Coinmarketcap:
The capitalization of the leaders of this rating is around the $8.5 billion mark, however, it should be borne in mind that Coinmarketcap does not include such platforms as Ethereum, Binance, Solana, and Polkadot among the DeFi. This is since their scope of application is much wider than just decentralized finance.
Web 3.0, DeFi and Blockchain
Since Web 3.0 networks will work through decentralized protocols, the fundamental blocks of blockchain technology and cryptocurrencies, we can expect strong convergence and symbiotic relationships between these three technologies and other areas. They will be functionally compatible, easily integrated, automated using smart contracts and will be used to provide anything from microtransactions in Africa, censorship-resistant P2P data storage, as Filecoin suggests, to a complete change in the usual procedures for managing companies and doing business. The current set of DeFi protocols is just the tip of the iceberg.
TOP 10 DeFi Projects
Ethereum continues to be the undisputed flagship of DeFi. Vitalik Buterin's platform is actively used by startup founders to develop new decentralized applications and protocols. The ether continues to evolve. Progress is successful, the ETH cryptocurrency is strengthening in second place both in terms of value and market capitalization. Only Bitcoin is ahead.
Solana
The authors of many independent ratings believe that Solana plays an even more significant role in the DeFi industry than Binance. In many ways, this point of view is based on a unique consensus-building algorithm. The network uses history confirmation to verify transactions — this is an optimized version of Proof-of-Stake. The new algorithm made it possible to create a viable analog of mining and betting.
In the Solana ecosystem, transaction confirmation is carried out by using timestamps in previous payments. Such an unusual algorithm for achieving consensus will significantly increase the speed of transaction processing. As for the SOL coin, it is a first-layer platform. No other platforms are required to carry out transactions.
Solana has a great future in the field of DeFi, as the platform can solve current scalability problems. The innovative network architecture allows you to use the principle of horizontal scaling, which has a positive effect on network bandwidth. As of May 23, 2022, one SOL coin is valued at $53. Solana ranks 9th in the Coinmarketcap rating.
Avalanche
Avalanche is a platform for launching smart contracts and creating DeFi applications. It can be used to deploy corporate blockchain networks. The AVAX service token is used as part of network management. Its owners can take part in voting on decision-making regarding the subsequent development of the ecosystem. The company's market capitalization is estimated at approximately $8.5 billion.
Polkadot
Another interesting startup that has enormous weight in the DeFi industry. The Polkadot platform allows independent blockchains to exchange information, including transactions. This goal is achieved through a relay chain. This feature significantly increases throughput when compared with the flagship of the market in the face of Ethereum.
DOT is an internal network token required for workflow management. The Polkadot platform allows you to develop decentralized platforms and applications. Heterogeneous blockchain multicore is a promising direction, so buying DOT coins can be a successful investment. The platform has open-source code. Despite the crisis in the crypto industry, Polkadot retains its position and ranks 11th in the Coinmarketcap rating.
Wrapped Bitcoin
WBTC is an ERC-20 token that is supported by bitcoin. The main idea of the founders of the DeFi startup is to use the global liquidity of the BTC network and transform it into a more flexible Ethereum space. Issues related to the storage of coins are solved at the expense of BitGo. As for providing initial liquidity, Kyber and Ren are responsible for this. The WBTC coin is available on many popular centralized and decentralized crypto exchanges. Therefore, everyone will be able to purchase it.
Each user can verify the real security of the WBTC. Information about reserves is public. The management structure is presented in the DAO format. All platforms involved in the implementation of this idea have the right to vote. In total, we are talking about 16 platforms, including Compound, Dharma, and Maker. The process is completely public. The control is carried out using smart contracts with multi-signature, all the participants of the DAO support it.
Uniswap
This is a DeFi protocol that was developed for the exchange of digital assets based on the Ethereum blockchain. The founders of Uniswap decided to replace the classic order books with liquidity pools. Therefore, absolutely every participant will be able to exchange ERC-20 tokens and ether. Users can earn money by supplying liquidity to the protocol. The profit is formed at the expense of exchange commissions — 0.3% for a trading operation.
If desired, users will be able to create their own liquidity pools. To do this, it is necessary to add an equivalent amount in Ethereum coins to the liquidity protocol. You can also use any ERC-20 standard token. The exchange rate is determined by the automated market maker. Quotes are adjusted during trading. Balance is always maintained. The rate depends on which side has more assets.
Aave
This is a non-custodial protocol with open source code. It is designed for lending and processing loans in cryptocurrency. At the time of entering liquidity into the protocol, the user converts his digital coins into tokens that are compatible with ERC-20. Dividends in the interest format are automatically accrued on this amount.
Users can not only lend cryptocurrency but also take loans. To do this, you need to provide a deposit in coins. Depending on the selected asset, additional parameters of the transaction will depend on the liquidation threshold, the amount of the fine, and the security coefficient. Interest rates vary depending on the supply and demand for a particular cryptocurrency. Fixed-rate offers are also available to Aave users.
Maker
This is a credit platform that was also created based on Ethereum. It supports the DAI dollar stablecoin. Each user has the opportunity to open a wallet. Cryptocurrency blocking is available in the vault as collateral. Based on it, you can generate an equivalent amount in DAI. Payment for stability is carried out in the format of infinite interest. Dividends are paid when the debt is repaid.
With the help of the Maker platform, you can make loans to DAI in the amount of up to 68% of your collateral. The security ratio is approximately 150%. If the price falls below this level, you will have to pay a fine, besides there will be a liquidation of the collateral. The owners of the MKR internal token participate in the management of the platform, they vote for innovations.
Compound
The project is aimed at creating an algorithmic financial market on the Ethereum blockchain. This direction of DeFi will allow you to issue secured loans or receive passive income from an open deposit. Dividends are accrued instantly after freezing coins in a decentralized protocol. The rates are updated every 15 seconds under current market trends.
The liquidity is delivered in the format of the token. Participants of the DeFi network can get up to 75% of the amount of their collateral on credit. You can top up your account or withdraw your assets at any time. The only condition is to maintain the necessary level of collateral to prevent the liquidation of the transaction. 10% of the number of dividends is allocated for the formation of reserves, and the rest is received by liquidity providers in COMP tokens.
Chainlink
It is a decentralized network of oracles. The Chainlink blockchain platform allows you to work with smart contracts, and connect to external information sources, including APIs, internal systems, and all kinds of data channels. Payment for the services of the service is carried out using the internal LINK token. It is created following the ERC-20 standard. It will become more expensive as the DeFi industry and the platform itself develop.
One of the key advantages of Chainlink is the network functionality that allows you to initiate verification of information coming from several sources at once. The internal degree of reputation allows Chainlink to identify reliable sources with high accuracy. This feature allows you to achieve accurate results, protecting smart contracts from potential threats.
Tezos
The platform was created to host smart contracts and to work with decentralized applications. Internal XTZ coins cannot be mined, but they can be bought. You can also earn cryptocurrency by participating in transaction confirmation. The network uses an energy-efficient Proof-of-Stake consensus algorithm. Users of the network contribute to maintaining its operability and receive remuneration for their work.
There are several key differences between Tezos and other DeFi. On the platform in question, there are so-called bakers who perform the same functions as miners — they provide transaction verification. Instead of expensive equipment, they use the freezing of their assets. This is the advantageous difference between PoS and PoW.
Let's Summarize:
Judging by the capitalization, the DeFi market continues to develop. There is a real public demand for the creation of a decentralized financial world for a new generation. Blockchain technologies are quite capable of coping with this task. Institutional investors also believed in this niche. They are ready to invest money in it, which will contribute to development.
- DeFi is a new, global, flexible, and transparent financial structure based on the principles of decentralization.
- You can earn money on classic investing, staking, lending, and profitable farming.
- The leaders of the decentralized finance industry are Binance and Ethereum. It is on these blockchains that most of the projects are launched.
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