The next big development in the cryptocurrency space is decentralized finance (DeFi). DeFi allows you to replicate many of the functions of traditional finance using cryptocurrencies including lending, borrowing, saving, insurance and even earning interest by staking your coins. So what are the best defi platforms and projects? Let’s find out.
What is DeFi?
Users on a decentralized finance platform, known as “DeFi” interact with each other without the need of a central authority thanks to blockchain technology. The platforms provide the ability to swap tokens and offer a way for users to access financial services in a decentralized manner like crypto backed loans.
DeFi platforms use decentralized technologies, such as DeFi tokens, smart contracts, and other blockchain technology to allow consumers to participate in the financial system without having to go through traditional routes to access lending, borrowing, investment, and trading
Users of DeFi platforms have a lot of power and control over their finances and often don’t have to complete KYC requirements. The issue however is that due to these platforms being decentralized, their typically is no direct support beyond community outreach.
Is it risky to use a DeFi platform?
In short yes. While there are numerous centralized finance platforms (CeFi) like NEXO, Youhodler, Blockfi and so forth that provide more of a traditional banking experience. There is always risk with lending out your crypto and taking loans on both DeFi and CeFi platforms.
In reality it is often not worth lending out a valuable digital asset like Bitcoin just to earn 1% interest. However, if you’re less risk adverse and want to learn and understand new technology then DeFi platforms are the perfect fit.
Last, DeFi platforms that offer a high APY often do so because they are new platforms and are trying to attract new users. As such, a high APY is usually a red flag and you should be very cautious about investing any money on such a DeFi platform as they typically have not be audited or tested for long term stability and performance.
Total locked value (TVL)
One term you need to be familiar with is total locked value. This is important because it represents the liquidity in a staking pool. The larger the staking pool, the higher the potential profits. New platforms have low TVL put a high APY.
However, a larger TVL is a honey pot for hackers who are incentivized to manipulate the smart contract that is controlling the protocol for the staking pool. A lot of platforms, particularly newer ones won’t have any sort of insurance policy to protect you the end user.
How are you paid out?
When looking at a DeFi platform understand how you’re being paid out. If you’re exchanging your hard earned crypto like Bitcoin or Ethereum and then you’re being paid interest in some platform specific token I would pass on that as it’s not a fair trade to receive interest payments in an inflationary token.
The best DeFi platforms in 2022
DeFi provides a great opportunity to earn a high yield, take out loans, buy crypto currencies and more. It’s also important to understand how new technology works so you leverage it for your online business. Here are my top DeFi platforms:
- Aave – Lending and borrowing
- Uniswap – Market maker and liquidity
- Bancor – Exchange and yield farming
- Angle Protocol – Stablecoin liquidity provider
- Hats Finance – Decentralized cybersecurity
- Pool Together – Lottery and savings
- Loopring – Payments and trading
- Solace – Decentralized insurance
Aave – Lending and borrowing
Aave is an open source liquidity provider that allows users to earn interest on their deposited tokens and also allows users to take out loans, using their deposited tokens as collateral. Aave is based on the Ethereum blockchain and uses the ERC20 token standard. Aave is powered by the Aave Protocol, which is an open source protocol that is available to anyone.
The Aave Protocol is based on the idea of “pools” which are created when users deposit tokens into the protocol. These pools are then used to provide liquidity to users who take out loans. The Aave Protocol is designed to be extremely flexible, allowing for a wide variety of use cases. For example, developers can create their own pool tokens, which can be used to represent any asset class. This flexibility makes the Aave Protocol an ideal platform for a wide range of financial applications.
Aave is one of the most popular protocols on the Ethereum blockchain and is used by a variety of different applications. The Aave Protocol is also being developed by a number of different teams, which makes it an extremely active project. Last, numerous blockchains are supported including Polygon, Avalanche, Fantom, Harmony, Arbitrum and of course the Ethereum network.
Uniswap – A top liquidity provider and automated market maker (AMM)
Uniswap is a top liquidity provider and automated market maker (AMM) on the Ethereum blockchain. It enables decentralized exchanges of ERC20 tokens and ether (ETH). Unlike traditional exchanges, Uniswap does not require order booking or matching. Instead, it uses an algorithm to calculate the price of each token based on its supply and demand.
This makes it easy to trade tokens without having to first find a buyer or seller. Uniswap also provides liquidity to other decentralized exchanges (DEXs), meaning that it can help to keep prices stable and trading volumes high. In addition, Uniswap charges a small fee on each trade, which goes to the protocol’s liquidity providers.
This helps to incentivize people to provide liquidity to the platform and keep it running smoothly. Overall, Uniswap is a powerful tool for anyone looking to trade ERC20 tokens or ETH in a decentralized way.
Bancor – Exchange and yield farming
Bancor is a decentralized exchange (DEX) platform that allows users to buy and sell crypto assets without the need for a third-party broker like Gemini or Coinbase. Instead, Bancor uses smart contracts to match buyers and sellers directly, with trades being executed automatically on the Ethereum blockchain.
This allows for 24/7 trading, with no need to wait for an order to be filled by a traditional exchange. In addition, Bancor charges very low fees for trades, making it an attractive option for those looking to save on transaction costs.
Recently, Bancor has also launched a yield farming program that allows users to earn interest on their holdings by staking them in the Bancor Network. This provides an additional way to generate income from your cryptocurrency holdings, as well as contributing to the security of the Bancor Network.
With its 24/7 trading, low fees, and yield farming program, Bancor is quickly becoming a popular option for those looking to trade or invest in cryptocurrency.
Angle Protocol – Stablecoin liquidity provider
Angle Protocol is currently issuing agEUR, the most liquid Euro stablecoin on Ethereum and other chains. Angle Protocol’s ambition is to create a sustainable money layer for blockchains that can power the decentralized future. In order to achieve this, Angle Protocol focuses on creating liquidity for blockchain assets by connecting them to real-world fiat currencies.
In addition, Angle Protocol also aims to provide stability for blockchain assets by pegging them to real-world assets such as precious metals or commodities. As a result, Angle Protocol provides a much needed service for the blockchain ecosystem that helps to make it more stable and liquid.
Angle Protocol’s native token, agEUR, is used to power the protocol and its ecosystem. ANGLE tokens are used to pay fees on the Angle Protocol, which helps to incentivize liquidity providers and keep the system running smoothly. In addition, agEUR tokens are also used to vote on governance decisions within the Angle Protocol.
Get into crypto without exposing yourself to volatility, earn interest, and diversify your stablecoins away from the US Dollar. Leverage all of Angle’s integrations and partner projects with this protocol.
Hats Finance – Decentralized cybersecurity
Hat Finance gets it’s name from the old concept of “black hat” and “white hat” with regards to activities online. Black hat regarding hackers and those looking for exploits and white hat for those who follow the rules.
Hats Finance is a decentralized cybersecurity bug bounty protocol. This enables members of the community to give liquidity to their favorite DAO bug bounty, lowering hacking and exploit risks by stacking and farming $HAT tokens.
A “bounty vault” is created when a project’s tokens are locked up in a hat, which can fill up to a certain proportion of the circulating supply. In doing so, hackers are incentivized to reveal the flaw in order to be rewarded with the $HAT tokens stored in the vault.
In the event of a detected vulnerability, a hacker will disclose it to the vault committee on-chain with a hash proof of the disclosure. Each vault has its own committee made up of the project’s trusted technical team, and security experts and white hat hackers will be joining in the future. This group will review the vulnerability and grant or deny money to the hacker based on the vault’s token allocation.
The project’s own token is used to create scalable security vaults in the hats. The bounty increases as the project and its token grow more popular.
Pool Together – Lottery and savings
PoolTogether is a new savings protocol that allows users to earn interest on their deposited funds while also having a chance to win a weekly prize. The protocol is based on the concept of premium bonds, where savers are entered into a pool and have a chance to win a prize each week.
However, unlike premium bonds found in the UK, Pool Together does not require users to pay any fees or charges. Instead, the protocol uses an innovative form of cryptography known as “commit-reveal” to ensure that all deposited funds are accounted for.
This allows Pool Together to offer savers a much higher interest rate than traditional savings accounts while also providing a chance to win a prize each week. Players may join a game by purchasing saving tickets, which provide them with a chance to win a prize. After each week is over, a few winners are chosen from the pool and get their tickets back.
What sets this game apart is that players who don’t win are given their tickets back as well. Everyone keeps their money. Currently Pool Together supports USDC, DAI, UNI, and COMP.
Loopring – Payments and trading
Loopring is a non-custodial, open-source audited exchange and payment mechanism. Nobody in the Loopring community needs to trust anybody else and zkRollup ensures that assets are always under users’ complete control.
The loopring protocol can settle 2,025 trades per second while maintaining the same degree of security as the underlying Ethereum blockchain. Combined with a special construction called the zkRollup, this allows for off-chain transaction processing in a correct manner.
For comparison, prior versions of Loopring (and current versions of some other decentralized exchange protocols) can only settle two or three trades per second. Non-custodial exchanges may now match the performance of custodial alternatives thanks to Layer 2 scaling by Loopring.
By batch-processing thousands of requests off-chain, with verifiably correct execution via ZKPs, Loopring is changing the way individuals trade and send money. Ethereum’s scaling performance is no longer an issue.
Most activities, such as trade and transfer settlement, are off the Ethereum blockchain. This substantially lowers gas usage and overall transaction cost, to the point that it is essentially nothing.
Solace – Decentralized insurance
As the cryptocurrency industry continues to grow and evolve, there is an increasing need for protection against smart contract exploits. Solace is a platform that provides comprehensive coverage for your funds across 180+ protocols. With a personalized single policy that dynamically updates as your portfolio changes, Solace gives you the peace of mind knowing that your funds are safe from smart contract exploits.
The way Solace works is that it is an insurance protocol that protects DeFi investors. When you buy coverage you mint an NFT called SPT. The SPT gives you the verified owner the rights to claim for a loss event. Once claimed the SPT will be reviewed by Solace. If it is determined that there is a financial loss, it authorizes the user to submit a claim. Once a claim is submitted the original SPT is burned and a new NFT called SCT is minted. The SCT can be redeemed for Ether.
How to check the safety of a DeFi platform?
With newer platforms there is always inherent risk due to liquidity issues or perhaps the project being an outright rug pull. This is why I like to run any app, protocol or website through DefiSafety.com. The Decentralized Finance Safety Scoring System from DeFiSafety is a comprehensive security grade based on transparency and compliance with best practices that assesses Decentralized Finance products.
Technical risk is quite complicated with and decentralized protocol but DeFi safety mitigates this complexity through their “contract scores” product. In addition they have their own internal process quality review for a protocol’s deployed smart contracts.
Their “Process Quality Reviews” (PQRs) are straightforward, standardized, and well-established, allowing consumers to evaluate the quality of different projects immediately. Their evaluations may be duplicated by reading the PQR documentation on their website.
Best DeFi Platforms for Cryptocurrency – Conclusion
What DeFi platform you’re looking to use should really depend on your needs and preferences. If you’re looking for a decentralized exchange to buy Bitcoin then check out Bancor, if you’re looking for an alternative savings account/lottery then Pool Together is an interesting choice.
Maybe you need insurance coverage for your investments? Solace has you covered. Perhaps you’re looking to get into lending and borrowing then you’ll be keen to check out Aave. Whichever platform you choose, remember to always do your own research before investing in any cryptocurrency.