Decentralized Finance projects are crypto projects that aim to revolutionize the finance world by offering decentralized and peer-to-peer money services beyond the traditional banking system.
DeFi burst onto the market in 2017, but it was not until mid-2020 when they began to take off strongly and grow in value and liquidity. Thus, they went from a liquidity of just over $1 billion in June to $14.9 billion today. A growth of almost 1,500% in just 6 months.
The attraction that DeFi protocols generate in users and investors is related to their ability to generate great wealth. In the midst of this year’s global crisis and pandemic, users saw great opportunities to generate profits and grow their funds. But it should not be forgotten that great opportunities are often not without risk. So while users and investors can make a lot of money with DeFi applications, they can also lose it all.
DeFi Projects – The Craze and Frenzy in Crypto in 2021
The success of decentralized projects is due to the wide range of sectors and industries where they have proliferated. DeFi’s have spread throughout the financial industry value chain. There are DEX or decentralized exchanges, payment networks, different types of financial services, investment engines, in so-called liquidity pools and in many other products. It could be said that DeFi is a booming trend, but it also has its edges.
In 2020, many users and investors have seen their money disappear due to numerous hacks and scams, but despite all the risks, the sector has not stopped growing disproportionately. And not only in investors and liquidity, but also in the number of developers who are now interested in these ecosystems.
The number of DeFi developers has grown by 67% since January 2020.
Among the most successful and impressive DeFi projects in 2020 were Yearn Finance, Uniswap, Chainlink, SushiSwap, Aave and Maker. Although, of course, there are many other interesting projects as well.
Yearn Finance – One of the top DeFi
One of the most acclaimed DeFi protocols has been Yearn Finance. In addition to being the first protocol to far outperform bitcoin’s unit price, it has also gained a lot of popularity for its recent mergers with other DeFi protocols.
Yearn Finance was born in 2020 as a decentralized protocol to offer and guarantee easy access to financial services. Especially, for those users who are isolated from the traditional financial system. This protocol allows moving funds automatically between various other projects and decentralized platforms, where users can invest in stable currencies. This new method of decentralized profit generation is known as yield farming. A method that has proven to be quite effective in growing investments in a short time. Causing much of the frenzy on DeFi today.
The Yearn Finance protocol encompasses an entire ecosystem of decentralized products (yearn.finance, ytrade.finance, yliquidate.finance, yleverage.finance, ypool.finance, yswap.exchange). These products range from liquidity pools and vaults that maximize the return potential of an asset, to leveraged trading tools, automated market makers and decentralized insurance.
A curious fact about Yearn Finance is that its creator, Andre Cronje, announced at its launch that his token had no financial value. And that it was only a token for voting purposes for users to exercise governance over the development of the project. However, as we go to press, Yearn Finance’s YFI token has a value of $25,300 USD per unit, but even surpassed $43,600 USD in September this year.
However, despite its incredible unit value, its liquidity is far below several projects. Currently, Yearn Finance has deposited value of just $412,000; a drop of almost 50% from its peak in August and September.
Uniswap – The Unicorn of Decentralized Finance
When we talk about unicorns, it is impossible not to think of mythological creatures that are mere fantasy. Well, DeFi Uniswap is a reality and a great opportunity to generate high returns for investors, traders and users.
Uniswap is a DEX or a decentralized exchange that is gaining great popularity because of the way it works. Uniswap is a fully autonomous and decentralized system designed for automated liquidity provision on Ethereum. It integrates a large number of ERC-20 tokens and allows the exchange of these within its protocol without intermediaries. Ensuring a direct negotiation between the parties, quickly and efficiently. In this way, Uniswap manages to create large pools of cryptocurrencies, which when exchanged are able to generate high profits, both for the liquidity providers and for the platform itself.
In addition, Uniswap integrates a recently launched governance token, with which users exercise control over the development of the platform. Uniswap has a total liquidity of $1.37 billion; although it was the first protocol to surpass the $3 billion mark at DeFi.
Chainlink – The Bridge that connects the real World to Blockchain
This project, which was born in 2017, aims to connect real-world data with blockchains. To achieve this, it uses the famous decentralized oracles in blockchain.
Chainlink is recognized as one of the veterans in DeFi, thanks to its ability to capture and verify real-world information. And transmit it to the digital world through smart contracts. Its potential as an intermediary is what is making it gain in popularity and demand. Many of the best-known DeFi protocols, such as Aave, Synthetix and Yearn Finance, use Chainlink-based oracles to boost the decentralization of their projects and guarantee secure and reliable data to their users and investors.
During 2020, Chainlink’s LINK token experienced more than 600% growth from being worth about $2 USD at the beginning of the year to more than $12.6 USD as of today.
SushiSwap – DeFi’s “Vampire”
SushiSwap is known as the vampire of DeFi ecosystems. This decentralized protocol is also a DEX, which stems from the concept of the Uniswap protocol.
Like Uniswap, it is also a decentralized and open source protocol. In fact, any developer can use it to develop a similar protocol or as a basis for its design, as was the case with SushiSwap. Similarly to Uniswap, SushiSwap provides an automated market maker (AMM) for the exchange of tokens without intermediaries.
But because this decentralized protocol offered higher rewards than Uniswap and had a governance token, it succeeded in getting Uniswap users to migrate almost 80% of Uniswap’s total liquidity to its protocol. This situation became known as the “Vampire Attack” or “Vampire Mining”, as it was as if it literally bled Uniswap dry in just a few days.
However, Uniswap developers came up with new ways to attract investors again. Now, SushiSwap ranks below Uniswap, with total liquidity of $1.08 billion.
Aave – Instant Decentralized Lending
One of the biggest advantages of DeFi is the potential it gives users to access traditional financial products, but in a decentralized way. And this is what Aave offers.
Aave is an open source, non-custodial liquidity protocol that was designed to allow users to earn interest on deposits, providing liquidity to the project, and for managing asset loans. This protocol enables so-called flash loans, where users can borrow or request loans instantly and easily, without the need for collateral.
Aave has gained great popularity this year and is one of the first DeFi protocols to obtain an Electronic Money Institution (EMI) license from the UK’s Financial Conduct Authority. With this license, this decentralized protocol can expand its services and attract new potential investors to its platform.
Through its LEND token, Aave puts governance in the hands of users and investors. It also has a bug bounty program and audits, which guarantee the security of the protocol, securing users’ funds.
At the close of this edition, Aave had liquidity of $1.7 billion, with a growth of 70% in the last month, with an impressive advance of more than $700 million.
Aave was formerly known as Ethlend (ethlend.io is now aave.com)
Maker – The lending Protocol reborn from the Ashes.
This decentralized protocol, designed to control the issuance of the DAI stablecoin, was and remains one of the largest DeFi projects in the digital industry.
Maker’s development began in 2015, but its true potential was not known until 2017, when its whitepaper and DAI, the world’s first stablecoin, decentralized and unbiased currency, was born. The birth of this protocol opened the doors to many financial opportunities in blockchain. And it allowed users and holders of Ether (ETH) to lock their funds in DAI, a stable currency that maintains parity with the U.S. dollar, to help users protect themselves from the volatility of digital markets.
Maker uses smart contracts to provide decentralized loans to its users and freeze the borrower’s collateral. And although it was considered an icon of decentralized systems long before the DeFi boom, this year it was heavily displaced by Uniswap, in terms of capitalization and liquidity. However, Maker is regaining its position and once again holds the top spot as the most liquid project in DeFi.
At press time, Maker has a total deposited value of $2.64 billion, reflecting a growth of over 65% in the last two months. This protocol currently holds about 18% dominance in the DeFi markets.
Chainlink and Etherisc bring DeFi to Kenya with agricultural insurance on blockchain.
Other DeFi Protocols attracting Interest
Other DeFi projects also known and valued in decentralized ecosystems include Compound, Curve and Synthetix. With total liquidity of round about 1.7 billion, 950 million and 826 million, respectively, these protocols are also big DeFi players.
On Curve in August, one user earned $16,000 USD with a flash loan, which lasted only 13 seconds. The user borrowed USDC on dYdX and exchanged it for DAI on the Curve protocol. Taking advantage of the difference in the exchange rates of the two stable currencies, the user managed to generate a total of $16,182 USD with an investment of only $57.8 USD. In other projects, some users have also been quite lucky, to the point of generating more than $250,000 USD in profits.
Although these are extraordinary cases, which do not happen every day, the potential of DeFi projects is attracting more and more investors, who see these platforms as a unique opportunity to grow their investments. DeFi is a trend that is causing great frenzy and that many compare to the ICO boom in 2017.
- Currently hyped DeFi projects can also be found in BitcoinTradingSites’s DeFi projects list.
- Nearly all DeFi projects can be found in DeFiPulse’s list organized in categories.
- DeFi projects based on the Ethereum platform are listed at DeFiPrime.
- All DeFi prices can be checked on Coinmarketcap in this separate list.