There’s a lot of buzz surrounding DeFi cryptocurrencies right now and I’m going to give you a quick break down on what they are and their purpose.
Since the beginning of 2020, DeFi (short for Decentralized Finance) became the hottest term and it’s featured everywhere: news articles, youtube videos, social media posts… there’s loads of talk about DeFi these days and for a good reason. The best performing tokens (and coins) in the crypto space are in fact those that work within the area of DeFi, so let’s take a look at what they are and what innovation they offer in this space.
In a previous post on this blog, I listed these cryptocurrencies without going into details of their technicals, so this time, I decided to go a step further and give you a more in-depth breakdown of the most popular DeFi tokens and coins.
One of the most successful DeFi projects, MakerDAO has over $1 billion in committed assets. According to Coindesk, MakerDAO’s dominance over other DeFi projects comes in at 27.1%
It was first formed in 2015, but they did not launch their stablecoin DAI until 2017.
MakerDAO serves as a smart contract platform on the Ethereum blockchain that backs and stabilizes the value of their stablecoin DAI.
MKR tokens are created or destroyed following price fluctuations of DAI to keep DAI’s value as close to $1 as possible. They are also used to pay transaction fees on the MakerDAO system and provide holders with voting rights within the network’s continuous approval voting system. MKR tokens are also traded on all good exchanges, including Binance and Kucoin, Bittrex and Poloniex.
MakerDAO does this through a dynamic system of Collateralized Debt Positions (CDP), autonomous feedback mechanisms, and incentivized external agents. These actions are a part of a fully inspectable system on Ethereum’s blockchain. With MakerDAO, anyone can borrow DAI against their Ethereum if the collateral is 1.5 times the amount of DAI requested.
* Main Innovations in the DeFi world;
* Stable Rates – help borrowers financial planning
* Flash loans – borrow without collateral in single transaction
* Rate Switching – Get the best rates by switching between stable and variable, when the market is on your side.
Chainlink (LINK) is a decentralized oracle service, which aims to connect smart contracts with data from the real world. Since blockchains cannot access data outside their network, oracles are needed to function as data feeds in smart contracts. Oracles provide external data (e.g. temperature, weather) that trigger smart contract executions upon the fulfillment of pre-defined conditions. Participants on the Chainlink network are incentivized (through rewards) to provide smart contracts with access to external data feeds. Should users desire access to off-chain data, they can submit a requesting contract to ChainLink’s network. These contracts will match the requesting contract with the appropriate oracles. The contracts include a reputation contract, an order-matching contract, and an aggregating contract. The aggregating contract gathers data of the selected oracles to find the most accurate result.
Chainlink aims to bridge the gap between on-chain smart contracts and the off-chain information crucial to run those smart contracts. The team has been building decentralized oracles on Bitcoin and Ethereum for over three years. The team is also working with SWIFT on their oracle called SWIFT Smart Oracle. This will allowing smart contracts on various networks to make payments, send governance instructions, and release collateral with over 11,000 banks.
Only 35% of the LINK’s total supply is circulating at the moment. There could be a potential downward pressure on the price once more supply unlocks.
Band Protocol (BAND)
Similar to Chainlink, Band Protocol offers a decentralized data oracle by making data readily available to be queried on-chain, using delegated proof of stake (“dPoS”) to ensure data integrity. It aims to be the go-to data infrastructure layer for Web 3.0 applications by providing decentralized, curated off-chain data to smart contracts through oracles managed by its dPoS consensus mechanism.
It is is a permissionless blockchain protocol to create token-curated communities, each with its own personalized tokens. It makes it easy for any entities (developers, companies, brands, celebrities) to issue a personalised Community Token used to curate data in their specific community. These Community Tokens, issued via continuous bonding curve, are used as an economic incentive for curators to provide good, reliable set of data within the community.
Band Protocol is a cross-chain data oracle platform that aggregates and connects real-world data and APIs to smart contracts.
BandChain is aiming to build a high-performance public blockchain that allows anyone to make a request for APIs and services available on the traditional web. It is built on top of the Cosmos SDK, and utilizes Tendermint’s Byzantine Fault Tolerance consensus algorithm to reach immediate finality. This finality is specifically reached upon getting confirmations from a sufficient number of block validators.
BandChain’s network consists of a number of network participants, each owning BAND tokens. These participants can be broken down into two groups; validators and delegators follows Cosmos-based delegated proof-of-stake blockchains.
Synthetix Network (SNX)
Synthetix Network operates as a decentralized synthetic asset issuance protocol on top of Ethereum. Essentially, the Synthetix platform allows the creation of on-chain synthetic assets that track the value of assets in the real world. The project initially was called Havven, but later rebranded to Synthetix Network (in 2018). With the rebranding, the project launched with a whole slate of new features. Their native token is SNX and its current price is $5.40
Some of the assets supported by the platform include things such as synthetic fiat currencies, synthetic commodities like gold and silver, and even complex assets like equity indices.
The goal of this DeFi project is to solve liquidity and slippage issues common for tokens trading on DEXes (decentralised exchanges). Holders of SNX token stake the coin to get paid a portion of the fees generated from the exchange activity.
The best exchange the token currently trades on is Kucoin, with around $1 million in total daily volume.
Bancor (BNT) offers a marketplace that facilitates the exchange of cryptoassets that may otherwise lack consistent liquidity on exchanges. Bancor’s protocol uses smart contracts to create Smart Tokens, which performs conversions of various ERC-20 tokens with its reserves of other ERC20 tokens. The built-in automated market makers dynamically adjusts token price and supply after each trade.
Bancor provides the service of a DEX as well as a wallet. The site is now releasing Bancor 2.0 to improve on the service. The Bancor Protocol enables automatic price determination and an autonomous liquidity mechanism for tokens on smart contract blockchains. The Bancor Network provides decentralized liquidity, based on the Bancor Protocol, which leverages the capabilities of Ethereum smart contracts to build liquidity directly into tokens which are always available to be both bought and sold directly through their smart contracts.
The Bancor Network Token (BNT), which is used as the hub Network Token, connecting all tokens in the Bancor Network.
Compound was one of the first DeFi projects to gain mass attention in the current DeFi cycle. It was launched in 2017, in the midst of the parabolic crypto bull-run, and as a result, Compound’s native token COMP skyrocketed in value before correcting to its current levels.
Compound operates as a decentralized finance lending protocol built on Ethereum that enables users to borrow or lend from a pool of assets. With Compound, users can earn interest on their holdings, short assets they believe are overvalued, and obtain assets without purchasing them.
Surprisingly, Compound has recently passed MakerDAO in terms of assets with the recent DeFi surge as they have over $1.5 billion in committed assets.
COMP also functions as a governance token that allows holders to participate in protocol governance. Stakeholders who hold at least 1% of COMP tokens in circulation can submit governance proposals. In contrast, stakeholders with fewer coins can vote on proposals or delegate their votes to other community members.
The COMP token is crucial in maintaining the DeFi nature of the project as Compound is currently turning over development and control of the protocol to its users.
Aave is an Open Source and Non-Custodial protocol to earn interest on deposits & borrow assets. Depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.
The Aave protocol relies on the lending pool model to offer high liquidity. Loans are backed-up by collateral and representation by aTokens, derivative tokens which accrue the interests.
The Total Supply is 1,299,999,942 LEND and has a very good overall score on Token Metrics (as seen in the screenshot above).
Aave is not the only lending protocol in the DeFi space, in fact, the decentralized lending industry is thriving this year, with not one, but more than 10 strong blockchain-based projects competing for their share of the billion-dollar market that is lending and borrowing, with Nexo, Celsius, Aave, MakerDao and Blockfi being the current leaders.
Nexo, just like Aave, comes in as a leader in crypto lending projects. Backed by one of the leading European FinTech groups, Credissimo, Nexo launched in 2018 as the world’s first instantly crypto-backed loan platform. It allows investors and businesses to access instant cash while retaining ownership of their cryptocurrency holdings. In their launch year alone, Nexo raised over $50 million.
As Nexo is a crypto-backed loan service, the platform primarily exists for instant crypto overdrafts. This statement means that with Nexo, you can overdraft your account to get cash to spend while keeping your crypto, including the profits. One of Nexo’s most appealing aspects is that it is a licensed and regulated financial institution in the European Union.
It is essential to note, though, that the only fiat currencies that can earn interest on Nexo’s platform are the EUR, GBP, and USD.
The native token, NEXO, serves as a compliance token backed by Nexo’s loan portfolio’s underlying assets. The NEXO token provides holders with regular passive income in the form of 30% of the company’s profits. The first dividend payout using the NEXO token was in 2018 and reportedly totaled $912,071.
The native token also allows for discounted interest rates on Nexo’s instant loan service, amounting to 50% off while also being used as collateral on the platform.
Uniswap has more than earned its spot on the list as it became one of the most popular decentralized exchanges this year and at some point even surpassed CoinbasePro in trading volume.
Uniswap launched in November of 2018 and was recently replaced by Uniswap Version 2 on May 18th of this year (2020). The main headline of Uniswap Version 2 is that it comes with more token-swap pairs, an oracle service, and an added flash loan functionality.
Flash loans are a somewhat controversial addition as they have been used to attack various protocols, but at their heart, they enable flexibility and composability. An experienced trader could also watch the market to see where prices get out of sync and take advantage of the opportunity for immense profits via flash loans.
A flash loan permits a user to borrow any amount up to the total liquidity available if the whole sum returns in the same transaction.
Uniswap is a genuinely unique DEX, and with the recent release of Uniswap Version 2, it is one to look out for as an increasingly popular alternative in the DEX realm. They do not yet have their own token (but I wouldn’t be surprised if we see that in the near future).
Yearn Finance (YFI)
Yearn.finance is a decentralized ecosystem of aggregators that utilize lending services such as Aave, Compound, Dydx, and Fulcrum to optimize your token lending. When you deposit your tokens to Yearn.finance, they are converted to yTokens, which are periodically rebalanced to choose the most profitable lending service(s). Curve.fi is a prominent integrator of yTokens – creating an AMM (Automated Market Maker) between yDAI, yUSDC, yUSDT, yTUSD that not only earns the lending fees but also the trading fees on Curve.fi.
As I reported in a previous post on this blog, the price of YFI shot up in the crypto stratosphere by nearly 4000% recently and is currently valued at more than 3 BTC. Yes, this is more than $30,000 at the time of writing and according to some industry professionals, a $100,000 price tag is not impossible too, so all eyes are currently on this project which has one of the most scarce supply (only 30,000 tokens ever to be released).
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