In light of the global adaptation of blockchain technology around the world, the focus of many private and individual investors, as well as public institutions and private financial corporations, is to maximize the benefits of introducing new and innovative approaches into various segments of the economic system in order to reduce their control and regulation by interested institutions, as well as to create a new ecosystem for the development of financial institutions. This issue is addressed by DeFi technology, which today has dozens of ambitious projects, each having a specific DeFi coin and unique features.
This article will shed light on what DeFi coins are, what promising areas the DeFi field consists of today, and what the future of the DeFi field and its prospects are within the crypto industry. You will also learn about the 10 most prominent DeFi coins to consider buying in 2023.
Decentralized finance, or DeFi, is a movement that enables financial services such as borrowing, lending, and trading without having to rely on centralized organizations. These financial services are provided through decentralized applications (Dapps), most of which are deployed on the Ethereum platform.
DeFi is not a single product or company, but a set of products and services that replace financial institutions such as banks, insurance organizations or money markets. Decentralized financial applications allow users to combine their services, which opens up many possibilities. Because of this componentization of DeFi applications, they are often referred to as a money LEGO.
The overall amount of crypto assets deposited in smart contracts of DeFi applications (or DeFi projects) is often referred to as Total Value Locked (TVL). According to crypto analytical platform studying DeFi ecosystem, Defillama, Total Value Locked in early 2019 was about $275 million, and it peaked at $1.2 billion in February 2020. The significant growth in total engaged value serves is an indicator of the rapid growth of the DeFi ecosystem.
These DeFi applications (DeFi platforms) have the potential to revolutionize traditional financial services by eliminating the need for intermediaries. However, it should be noted that DeFi in its current state is still in its nascent and experimental stages. Many projects are rapidly improving by the day, creating their own DeFi crypto coins, DeFi protocols that may evolve over time to become quite different from what they are today. Nevertheless, it is useful to understand the early origins of DeFi in order to get the most out of the possibilities offered by decentralized financial applications, which also give a boost to GameFI, Web 3.0, NFT, etc.
The DeFi coin is a native cryptocurrency of decentralized platforms that utilizes smart contracts to automate the process of transactions. In addition, those who own these coins have access to a wide range of blockchain-based financial services and applications. As part of their native networks, DeFi coins are capable of performing a variety of functions. As an example, some of these assets serve as management tokens, which confer voting rights and control over the tokens. There are numerous instances in which users may stack coins and earn rewards for doing so.
Today, there are many projects in the crypto world that are being created within the DeFi field, developing their own coins to revolutionize the way finance is used. Let’s take a look at the 10 best DeFi coins worth considering as an investment opportunity.
One of the top DeFi coins is Aave. The Aave project can be considered one of the leading decentralized finance (DeFi) protocols. It is currently one of DeFi’s most potential cryptocurrencies. Aave is now firmly among the top five DeFi protocols, accounting for about 5% of the total value registered in DeFi.
Aave is a decentralized finance (DeFi) protocol that enables cryptocurrency borrowing and lending, including so-called flash loans. Flash loans are considered the first unsecured loan option in the DeFi space. Aave is built on the Ethereum protocol and is regarded as one of DeFi’s largest platforms and one of the best that specializes in lending and borrowing cryptocurrency through a pooled liquidity system. Lenders can earn passive income with relatively low risk from the interest paid on loans without the need for third parties or intermediaries.
DAI is a stablecoin secured by cryptocurrency, particularly Ethereum.
The price of a DAI is pegged to the U.S. dollar and is secured by a set of other cryptocurrencies that are deposited into smart contract vaults each time a new DAI is minted. It is important to distinguish between multiple-collateralized DAI and single-collateralized DAI (SAI), an earlier version of a token that could only be backed by one cryptocurrency; SAI also does not support the DAI savings rate, which allows users to earn savings by storing DAI tokens.
The UNI token is the native token of Uniswap, the largest DEX running on the Ethereum blockchain. It was one of the first DeFi applications on Ethereum to gain significant traction after launching in November 2018. The UNI token provides community ownership of the protocol, allowing stakeholders to vote on key protocol changes and development initiatives.
Uniswap pioneered an automated market making model (AMM) in which users place Ethereum tokens in Uniswap’s liquidity pools and market prices are set based on supply and demand through algorithms. Users can earn rewards while enabling peer-to-peer trading. Hundreds of tokens are currently available in the Uniswap ecosystem, and many popular trading pairs are represented by stablecoins such as USDC.
Avalanche is positioned by developers as a highly scalable open-source platform for running highly decentralized applications, designed for new financial services and blockchain networks.
Its multi-network programming approach has provided solutions to Ethereum blockchain problems such as high gas fees (transaction fees in the blockchain) and slow confirmation of transactions. AVAX token, the native token of the Avalanche ecosystem, has gained popularity among crypto users and quickly rose in value due to its versatility. Since AVAX is a key provider of decentralized finance solutions, its future seems bright, especially due to the exemplary speed and low cost of transactions.
dYdX is a decentralized multifunctional platform for trading, exchanging, and lending cryptocurrency assets based on Ethereum and Cosmos blockchains. Also, when it comes to dYdX – it also mentions the native token of the same name to manage the protocol of the second level of this platform.
DYDX is the proprietary token of the decentralized crypto exchange dYdX. In the dYdX token, individual borrowers or lending transactions are replaced by a linked global transaction in the global lending pool. Essentially, each asset has individual loan pools that reside within smart contracts. Any digital transactions such as loans, lending, and withdrawals can occur anytime without waiting in line for correspondence, approvals, or sufficient capital. Interest rates on each loan would be based on the chain of supply and demand behavior between lenders and borrowers, as well as assets.
Compound (COMP) is an ERC-20 asset that allows the community to manage the Compound decentralized exchange and decentralized funding platform protocol. COMP token holders and their delegates discuss, propose and vote on changes to the protocol using this token.
Compound (COMP) is a protocol that allows people to lend and borrow cryptocurrency. Like most DeFi protocols, Compound is a public smart contract system built on Ethereum. Unlike traditional finance, the interest rates paid and received by borrowers and lenders to Compound are determined algorithmically based on the supply and demand of each crypto asset. Interest rates are generated with each block mined, and locked assets can be withdrawn at any time.
Maker (MKR) is a cryptocurrency platform based on Ethereum. The main goal pursued by the developers is to create a line of decentralized virtual assets, the value of which is directly linked to the price of the means of the material world, such as actual currency, base metals, etc.
The main advantage of Maker is the decentralization of virtual currency; in other words, its users are fully autonomous financially and do not depend on the state or financial institutions. This virtual currency can be used in any country without restrictions or control over financial transactions.
The e-currency Maker (MKR), according to the developers’ idea, is an investment vehicle that allows users to take an active part in the project’s development. By acquiring these electronic coins, the user can vote and make specific decisions on the project’s directions. Subsequently, investors receive income or incur losses together with the company.
Tezos is a blockchain network based on smart contracts, which is similar to Ethereum. However, there is a big difference: Tezos aims to offer a more advanced infrastructure – meaning that it can evolve and improve over time without the danger of a hard fork.
The Tezos project has a cryptocurrency called XTZ and is traded on most cryptocurrency exchanges. The issuance model is inflationary, which means that every year there will be more and more XTZ tokens (by 5% on average). On the one hand, this is good because more coins can be staked, and the higher network’s security will increase. On the other hand, the more coins – the higher probability of their depreciation (for example, if a large holder decides to drop all XTZ tokens at once and causes the exchange rate to collapse). Tezos is not unique in this regard; such risks are inherent to most DeFi tokens.
SushiSwap is a decentralized exchange (DEX) on the Ethereum blockchain that allows users to trade ERC-20 tokens. It was created in September 2020 by an anonymous developer known as “Chief Nomi” and then acquired by FTX Exchange.
SushiSwap (SUSHI) is an Ethereum token that powers SushiSwap. SUSHI holders can participate in community management and contribute their tokens in exchange for a share of transaction fees in SushiSwap.
Kyber Network Crystal (KNC) is an ERC-20 service token and an integral part of the Kyber Network. The KNC is the glue that connects the various stakeholders in the Kyber ecosystem. The Kyber Network’s liquidity network protocol allows decentralized token swaps to be integrated into any application, enabling a seamless exchange of value between all ecosystem members. Using the protocol, developers can create payment flows and financial applications, including instant token exchange services, ERC-20 payments, and innovative decentralized finance (DeFi) applications.
In today’s decentralized finance, many development areas of blockchain technology are at the center of the field, enabling the use of various cryptocurrencies, tokens, stablecoins, insurance services, and tokenized securities in addition to simplifying the borrowing, lending, and transaction processes. You should be aware of the many innovative areas within the DeFi industry in order to start DeFi investments. Following is a list of some of the most popular:
Among the variety of digital assets, there are tokens that occupy a unique position in the portfolio of traders and investors – stablecoins. These coins are tied to fiat currency, so they have a stable price and are not subject to the volatility of the crypto market. They provide more opportunities for risk management, portfolio management, and flexible trading strategies.
Among the different types of derivatives are special contract types that determine their value based on the value of the underlying asset – such as cryptocurrencies, indices, stocks, commodities, and bonds. The purpose of derivatives is to hedge the risk associated with transactions. There is already evidence that DeFi platforms will be used for dealing with derivatives, since they are currently traded mostly on centralized platforms. These protocols allow access to synthetic assets without buying them, since they track the underlying assets’ value.
A traditional financial system entails lending bodies providing borrowers with money. Decentralized finance (DeFi) lends cryptocurrency through lending protocols (or DeFi lending protocols). With DeFi protocols, members of the network can lend directly to one another (P2P). No intermediaries are needed in this case.
In comparison to traditional banking institutions, these cryptocurrency platforms offer much more attractive interest rates. An interest rate is usually determined by a number of factors, including the type of cryptocurrency you own, how much you own, and the length of time you are prepared to lock the cryptocurrency away. In some cases, you can earn as much as 18% interest for holding cryptocurrency on certain platforms.
The nature of DeFi is decentralized and therefore an attractive target not only for investment, but also for the development of related technologies designed to improve different aspects of both the financial structure in each individual country and society as a whole. In turn, investing in DeFi Coins is an excellent tool for investing in a sphere that, in the near future, has the potential to bring about a digital revolution that will completely change the way we think about money and its use.