DeFi has exploded in 2020, and unlike many other trends, it did not disappear.
DeFi is still going strong in 2021, with new projects emerging all the time, and older ones continuing to grow and improve.
Today, we present some of the biggest DeFi projects in 2021, that likely have a long, prosperous future ahead of them.
The DeFi sector of the crypto industry has been thriving for nearly a year now, and it is impressive what was achieved in such a short time by some of the top DeFi projects.
The cryptocurrency industry has had many trends over the years, and most of them have disappeared after having their run. However, this is not always the case. For example, ICOs were massive in 2017. However, due to the great number of scams and failed projects, they were simply dropped after that, and will likely never be picked up again.
As mentioned, not all trends end up like this, and some grow to become a new, essential part of the crypto industry, which is what happened to DeFi. DeFi, or decentralized finance, had its big boom last year, in 2020. However, even though 2021 has brought a new trend — NFT tokens — DeFi did not die out. Instead, it is stronger than ever, and it is establishing itself as a permanent sector of the crypto industry.
DeFi currently holds $40.5 billion in total value locked (TVL), which is still lower than its all-time high from March 14th, which was at $45.97 billion. However, with it being strongly influenced by crypto price performance, it is not surprising that the money will flow out once the prices start dropping.
DeFi growth will continue, however, as soon as the market turns and bulls come to be in the lead once more. Until then, investors and traders have the chance to investigate the DeFi sector and find some of the top projects that they can consider supporting when they feel the time is right. That is what we will focus on today, looking into some of the best DeFi projects in 2021 and beyond.
What is DeFi?
Before we get to listing the projects, let’s briefly cover what DeFi is. This might be necessary, given how many new traders have joined the crypto market due to the surging prices, institutional interest, and alike.
DeFi, or decentralized finance, is a part of the crypto industry that includes projects that are offering banking-like services in a decentralized way. Those include things like lending/borrowing, staking, yield farming, decentralized exchanges (DEXes), liquidity providing, and more.
If cryptocurrency — decentralized currency — came in response to mishandling of money, then DeFi — decentralized finance — came in response of mishandling financial services. It solves the issues of centralization and someone else having control over your money, it can help bank the unbanked and underbanked, thus allowing them to join the global economy, it offers ways to earn passive income, and more.
DeFi has been around for years, but for most of its existence, the crypto industry was not interested in it, as it was simply not mature enough to think beyond the prices. This changed last year, and it is a major step in the right direction for the future of the entire crypto industry.
With that out of the way, let’s discuss the biggest and best DeFi projects that are currently in the lead.
What are the top DeFi projects?
DeFi projects are mostly categorized according to what they do, as most of them focus on a single purpose. There are projects that offer money lending/borrowing, or those that work as decentralized exchanges. Others offer staking, or derivatives, or simply wish to handle decentrlaized payments.
Lending seems to be the biggest and most popular type of protocol at the moment, as the top 3 largest protocols focus on lending, and those are:
After that, DEXes are the next three most popular projects at the time of writing (March 14th), with the biggest ones currently being:
- Curve Finance
After that, there is a rich mix of different protocols dedicated to different things, with some of the best-known and most popular ones being:
Let’s review some of them and see what they are all about.
Maker is a simple enough project which allows holders of its native MKR token to help govern the platform. The token’s price is not pegged to any asset or a concrete price, which makes it subjected to change. Maker also has a sister token, DAI, which is a stablecoin, unlike MKR. As such, it has a fixed price — $1. Holders of DAI do not have to worry about losing the value of their investment to volatility, which is usually the case with stablecoins.
Compound is the second-largest protocol according to TVL at the time of writing, and it is a lending protocol that functions as an open money marketplace. It is permissionless, and it allows users to simply deposit cryptos and borrow assets against them, or earn interest, if the user is more interested in passive income. The platform works automatically, using smart contracts for storage and capital management. Furthermore, lenders and borrowers do not have to negotiate the terms like they would on regular exchanges. The interest rates are also handled by the protocol, and so is collateral.
Next, there is Aave, which is the third-largest DeFi protocol, and the third-largest lending protocol. It is a non-custodial, open-source protocol which allows users to borrow assets and earn interest on deposits, like the others. Aave uses flash loans, which help use assets in the best way possible, by bringing liquidity to DeFi. It also offers undercollateralized loans, provided that the users return the liquidity to the pool in a one-block transaction. Aave has a few additional use cases, such as refinancing, arbitrage, and liquidity.
SushiSwap is a DEX that also functions as an AMM, or Automated Money Maker. It allows users to access its automated liquidity pools. Once they do, they can exchange different ERC-20 tokens for one another.
Curve Finance is the fifth-largest DeFi protocol, and the second-largest project classified as a DEX. It works as an AMM protocol, designed for swapping between stablecoins, with lower fees and slippage. Essentially, it is a decentralized liquidity aggregator, which allows users to deposit their assets into different liquidity pools and earn money from the fees.
Once the world’s largest DEX by TVL, Uniswap has recently dropped to being the third-largest. It offers an easy way to list new coins and trade them in decentralized conditions. It has also become the world’s first DEX to offer margin trading thanks to another protocol, UniMex. However, margin trading is only available for ERC20 tokens paired against ETH. It is an Ethereum-based protocol, and it requires MetaMask in order to be used.
Other Major DeFi Protocols
As for others, we mentioned Synthetix, which allows users to create new tokens on the blockchain, which present the real-world asset value. There is also Chainlink, which has developed an oracles network that can be used for retrieving real-world data and importing it to the blockchain.
Yearn.finance is a robo-adviser for yield driven by the community, while Terra is another stablecoin, that provides an easy cross-border exchange, instant settlements, and low fees.
As for THORChain, it can be used for any asset on any blockchain thanks to the fact that it is a cross-chain project that serves as a decentralized validator network that secures constant liquidity pools. To do that, it uses cross-chain bridges, and it represents one of the biggest steps towards broader interoperability in the crypto industry.
All of the mentioned projects are only some of what the DeFi sector consists of, and what it has to offer. DeFi is growing rapidly, and it has quickly spread away from Ethereum to other chains, although Ethereum will always be where the sector originally emerged, and for now, at least, it is the network where DeFi is the strongest and where these projects are most numerous.
This might change in the future, thanks to plenty of competitors. Cardano, for example, recently exploded after an update that allowed the creation of smart contracts. Developers are rushing towards it, creating dApps and other products, so it is likely only a matter of time before DeFi thrives on Cardano, as well.
However, Ethereum is also working on improving its ecosystem and network conditions through an upgrade to Ethereum 2.0, which might give it the edge it needs to remain on top for a long time to come. The future remains unclear, but it is worth remembering that anything is possible.