Within the almost 10 years since decentralized finance (Defi) arrived on the scene, it has managed to carve out its own niche in the global economy. One might even say to the point of comfortably competing with traditional finance in many ways. The success of this industry so far can be attributed to the problems it was launched to address.
Defi rose as an answer to the general unwieldiness of traditional finance. Traditional finance is slow in processing payment, and difficult to access because of the high level of regulations and paperwork it requires. It is also quite expensive all as a presence of middlemen. Also, its centralized nature meant that the customers had limited autonomy over their own assets which could be easily overturned by both banks and the government.
Decentralized finance rose to address those issues and also provided transparency, anonymity, and extra security through the blockchain in addition. As a result, the sector attracted a huge number of investors causing it to thrive in leaps and bounds. Soon the increase in the adoption of Defi instigated the launching of multiple projects each with its own acclaimed benefits. Here are some of the top Defi cryptos to consider:
The first project on the list is Aave, a Defi borrowing and lending protocol powered by Ethereum. It was founded in 2017 as ETHLend by Stani Kulechov but was later rebranded and given its current name a year later. Aave was built to provide crypto holders a place where they can earn interest by lending out their assets in a safe space. And where others can also borrow at good rates.
This happens in a process where lenders put their digital assets into a liquidity pool where borrowers can take out loans with crypto as collateral.
Interestingly, this process is relatively safe as Aave adopted the concept of over-collateralized loans to guard against loan defaults. This formula requires borrowers to deposit assets worth way more than the amount of crypto they wish to borrow. In that way, the Defi platform can maintain its liquidity pools and protect the lenders servicing it from loss.
Another thing that makes Aave a great Defi coin to invest in is the impressive range of cryptos Aave protocol offers, up to 20. On Aave, users can easily access coins like DAI, ETH, and USDC among others. The platform also has its own token, AAVE, which gives holders governance rights on the project as well as special discounts on fees.
Uniswap is one of the biggest decentralized finance protocols based on Ethereum. It is a project built to facilitate the automated trading of Defi tokens, also known as an Automated Market Maker (AMM). In other words, Uniswap is a place where crypto holders can swap their tokens without the interference or inefficiencies of middlemen, and without the hard rigor of identity requirements. Unlike traditional exchanges, trading on Uniswap is completely automated and accessible to anyone with tokens.
Uniswap was launched in 2018 by Hayden Adams an Ethereum developer. Since then, the Defi project has gone on to carve itself a niche in the crypto space gaining in both popularity and profitability. The project’s native token is the $UNI and is currently ranked #20 by market cap. A governance token, holders of the UNI can vote on proposals, participate in protocol upgrades, and receive a share of fees generated by Uniswap trades.
At the moment, Uniswap DAO has over 300,000 members all of who can participate in making governance decisions about the future of the project. Currently trading at about $6, but with an ATH of $43, the $UNI might be one to keep an eye on.
Balancer is another Ethereum-Based Automated Market Maker (AMM) on the list. Founded by Fernando Martinelli and Mike McDonald in 2018, Balancer as its name implies doesn’t just provide liquidity. It also serves as a weighted portfolio that balances itself and as a price sensor.
Balancer is different from Uniswap because it operates 3 different types of Liquidity pools: smart pools, shared pools, and private pools. The private pools have only the owner as a contributor and governing entity. The shared pool allows anyone who wants to be a Liquidity provider (LP) to participate and rewards them with Balancer Pool tokens (BPTs,). The smart pools work as a combination of both private and shared but runs on smart contracts.
Balancer’s token $BAL was launched two years after the protocol. It serves as a governance token to ensure decentralization as it grants holders the right to vote on all important decisions guiding Balancer. It is also used to reward Liquidity providers. $BAL currently ranks #111 by market cap and is trading upwards of $7 at the time of writing.
This is a Defi crypto for anyone looking for a protocol with range.
Synthetix, simply put, is a liquidity provider for the activities of other protocols. It is a decentralized project that offers deep liquidity and low fees which makes it a favored backend for numerous projects including the giant Ethereum. Others include; Optimism, Curve, Kwenta and Lyra, and so on. Synthetix is housed by Optimism and Ethereum mainnet with ETH, LUSD, and SNX as collateral. These allow for synthetic assets known as synths to be issued. These Synths can then be traded and exchanged on the Synthetix platform to earn returns even without holding the underlying assets.
Synthetix tracks the underlying assets using Oracles, smart contract price delivery protocols that ensure a seamless trading experience and mitigates slippage and liquidity issues. $SNX is the native token of the Synthetix protocol. Ranked at #70 by market cap, it allows holders to participate in Synthetix’s staking pool. There SNX holders can stake their tokens and earn passive income from the transaction fees shared as a reward. $SNX is currently trading around $3 and analysts predict it could hit $6 if it breaks through the $3 resistance.
Curve is a multichain decentralized finance protocol built specifically to provide liquidity pools for stablecoin trading. The Defi protocol operates a permissionless and decentralized system where anyone can deposit tokens in the liquidity pool. During exchanges, Curve uses an Automated Market Maker to match token liquidity and guard against spillage. In the various Curve pools, plain stablecoins can be swapped for each other as well as wrapped tokens and also L-P tokens from other pools.
The unique thing about Curve Finance is that it extends beyond a single chain which takes the limits off trading to a large extent. It is available on several protocols including Avalanche, Aurora, Ethereum, Optimism, Fantom, Polygon, Moonbeam, and many more. As such it plays a very strategic role in Defi and has attracted numerous protocols who are competing over it for Governance privileges.
Curve DAO (CRV) is the governance token of Curve Finance and ranks #62 by market cap at writing. Considering its robust project, Curve is definitely worth considering if you are in search of the best crypto to invest.
Another decentralized finance protocol worth noting is GMX. The exchange is one of the few perpetual exchanges on our list. The Defi protocol was launched in 2021 to facilitate the trading of popular cryptocurrencies like Bitcoin directly from crypto wallets. GMX first launched on Arbitrum, then Avalanche in 2022. It is widely known for facilitating limit orders, and zero-price impact trades with its low swap fees.
GMX boasts a revolutionary multi-asset liquidity pool that incentivizes liquidity providers in a variety of ways. These include 30% of fees recovered from asset rebalancing, swap fees, market making, leverage trading, etc.
The GMX token, $GMX, serves as both the liquidity and governance token of the project. GMX can be staked to earn rewards and is available on crypto exchanges like Binance, Deepcoin, Bybit, OKC, and CoinW.
GLP, also known as GMX LP, is the platform's liquidity token. GLP is unavailable for trade but can be used for redeeming assets locked during minting. GMX’s goal is to bring ease into spot and perpetual trading and has already gathered a ton of enthusiasts, with more than $92 billion in trading volume.
Lido Finance is a liquid staking solution compatible with Ethereum 2.0 and several Layer 1 PoS blockchains. It was built to provide liquidity for staked assets. Previously assets that were staked were virtually useless for anything else for the period in which they are locked. Lido finance presents a way to squeeze some liquidity from staked assets by using them as collateral for loans or for yield farming.
The Defi protocol was launched in 2020 and is run by Lido DAO, which oversees the running of the project and makes all the key decisions concerning its development through Lido Finance’s token Lido DAO (LDO). The token is ranked #30 by market cap. Trading at $2.5 at writing, LDO’s all-time peak of $11 has investors hopeful of a bullish run in the near future.
Stargate is a new Defi protocol (launched in 2022) but with a much-needed use case. The platform works to provide a bridge for transactions between multiple chains. Stargate eliminates the need for wrapped tokens so that users can exchange tokens between non-native chains all without having to use multiple transactions.
The platform achieves this by combining several mechanisms and using a multichain Layer Zero infrastructure which effectively bridges the gap between different chains and allows them to interact with each other. Stargate is powered by $STG, a governance token that can also be staked to earn rewards. Users are also rewarded with stablecoins on every transfer. At the time of writing, $STG was trading just below $1 and investors are bullish about the Defi crypto.
As explained earlier, Defi was built to address issues in traditional finance and provide a better way to approach the subject of finance. Let’s look at a few benefits it brings to the table.
As of March 2023, the Total Value Locked or TVL in DeFi protocols had officially exceeded $200 million. It doesn’t stop there. In fact, the DeFi market is expected to grow at a compound annual growth rate (CAGR) of 43% between 2022 to 2030. That would cause it to exceed $200 billion by 2030. To present a contrast to this, healthcare, another sector that exploded as a growth industry with the Covid-19 pandemic, has a CAGR of 11%.
Furthermore, Defi is packed full of myriads of investment opportunities in the form of the protocols and projects that make up its ecosystem. At any point in time, investors can turn a good profit from staking, borrowing, lending or trading, and many more activities. Coupled with the other benefits mentioned earlier, these numbers suggest very strongly that Defi crypto is something shrewd investors cannot afford to overlook, especially with how tech is rapidly taking over.
Like all investment opportunities, even well-established ones, Defi crypto is not without its own risks. Therefore it is always advisable to make sure to thoroughly do your research before investing any significant amount into it.
The biggest risk in Defi crypto would be the relative newness of the sector. Although newness isn’t necessarily a sign that something is bad, it does mean that it is relatively untested and will still need a lot of adjustments before it can be fully trusted. However, the Defi community has been tireless in rising to meet challenges as they arise. And though there have been some instances of volatility, security mishaps, hacks, and even regulatory issues, the sector has managed to bounce back fairly well.
Still, on the flip side, the nascent industry has done quite well in turning up high returns on investment while solving highly relevant problems. Therefore, it cannot be easily dismissed as a viable investment option.
As a fairly new sector, the Defi crypto space has managed to attract a significant following and remains one of the best use cases of the blockchain. It has broadened what can be done with finance and has made it infinitely more effective and accessible.
Additionally, the sector is constantly evolving and providing new ways for savvy investors to earn a profit. The list above should give you a starting point if you are contemplating entering the space. Just remember to carry out due diligence before making any investment decision.