What are DeFi crypto, and how do they work?
DeFi crypto is network tokens providing utility to the DeFi ecosystem. Each token is native to its protocol and empowers token holders to access almost every DeFi feature.
As a sole product, DeFi allows users to buy, sell, swap, stake, yield farm, borrow and lend cryptocurrencies within a decentralized system. DeFi crypto tokens are built on top of smart contract platforms like Ethereum. However, there is a notable difference between Ethereum and DeFi, and DeFi crypto can be built on other protocols like Solana or Polygon.
The potential of DeFi tokens is only fully unlocked when users entirely access the decentralized ecosystem and participate in staking or farming using DeFi yield strategies that help users generate income. Thus, DeFi tokens empower users to access financial products even though they don’t interact with governmental-issued assets.
As the DeFi industry grows, so does the number of cryptocurrencies. To ensure you have a profitable and thriving DeFi investment experience, we’ve created a list covering the Top 10 DeFi coins.
Top 10 DeFi Coins
Below we are covering the top 10 DeFi coins and protocols where investors can benefit from buying DeFi tokens and holding them.
Maker DAO (MKR) is a decentralized lending and borrowing protocol that’s developed to facilitate the deployment of DAI stablecoin. The protocol uses cryptocurrency assets as collateral to generate the DAI token at a value of 66% of the total deposit.
DAI is pegged to the value of USD 1. Launched in 2017, Maker is one of the most prominent DeFi protocols contributing to providing liquidity to the subsequent DeFi applications. MKR, the native token of the protocol, is an essential element of the entire ecosystem as the token ensures the peg of DAI remains stable through a burn mechanism, preventing asset volatility in the long run.
Aave (AAVE) is a unique decentralized lending protocol built as an additional layer to the already expanding DeFi industry. Aave allows users to lend or borrow cryptocurrencies without relying on centralized institutions. In addition, the protocol automates the lending process and will enable users to create lending pools for over 17 different cryptocurrencies.
The protocol is EVM compatible and allows Fantom, Avalanche, or Harmony users to earn interest by lending or borrowing assets to diversify their positions. In addition, AAVE, the native currency of the protocol, allows traders to increase borrowing limits when posting AAVE as collaterals. Thus, demand for AAVE will continue to rise as AAVE becomes an intricate token that offers higher limits for the end-user.
Built on the Ethereum blockchain, Uniswap (UNI) is a decentralized exchange platform (DEX) that automates peer-to-peer transactions using smart contracts. UNI, an ERC-20 standard, is the platform’s native utility token, giving platform users access to many network services, including swapping, trading, staking, and farming.
Uniswap has the highest trading volume among all DEXs on Ethereum as it leverages users’ crypto and rewards their participation through UNI rewards. Thus, users who provide liquidity in token pairings on the network are awarded discounted fees and additional UNI tokens for facilitating censorless transactions.
Following the DeFi boom of 2020, Uniswap has become a staple of trust among Ethereum DeFi users. Moreover, as users can actively participate in network governance, Uniswap is driven and guided by community consensus.
SushiSwap (SUSHI) is an Ethereum-based DEX that was developed as an alternative to the already popular Uniswap platform. SushiSwap enables users to swap and trade a wide array of cryptocurrencies without the need for a middleman to execute transactions.
SushiSwap utilizes the same open-source AMM mechanism that Uniswap developed. Furthermore, users who provide token liquidity in the form of LP can earn additional tokens, which can further be added to farm new assets. As a result, LP token holders can generate additional passive income by staking their LP tokens on SushiSwap.
Compound Finance (COMP) is a lending and borrowing protocol for Ethereum tokens, allowing users to auto-compound their platform earnings. Compound runs on the blockchain, which entails that payout rates are automatically adjusted.
The protocol rewards borrowing with interest paid in cToken, a utility token on Compound. Additionally, COMP is the native governance token of the protocol, and token holders have voting rights on the protocol. Thus, the value of COMP rises as new users begin accessing the platform.
Yearn Finance (YFI)
Yearn Finance (YFI) is an Ethereum-based DeFi protocol developed to facilitate automated processes to offer users higher yields on alt and stablecoins. The protocol uses Vaults for managing deposits and ensures transaction fees are kept to a minimum value by pooling capital under a single pool.
The protocol provides additional on-chain benefits such as quick Zap swaps or targeted Earn yields on stablecoins and Bitcoin. In addition, YFI is the governance token of the protocol, and users holding YFI can earn transaction fee rewards for simply holding or staking the token.
While YFI is a governance token, its ability to generate passive income has positioned YFI as an indispensable asset for everyday cryptocurrency users who want to diversify their portfolios.
Balancer is a DeFi portfolio manager which uses automation and on-chain data to balance assets on the platform. The protocol is similar to an index fund on the blockchain, using arbitrage trading to generate yields for the end-user.
The platform can weigh and manage up to 8 tokens in a single pool, and anyone providing liquidity earns trading reward fees paid out in BAL tokens. In addition, Balancer’s network value is reflected in the BAL token, which becomes more than a network enabler and governance token. BAL thus enables users to generate passive income through liquidity pooling on Balancer.
ThorChain (RUNE) is a cross-chain DeFi liquidity network that allows users to interact with financial products across multiple blockchain networks. By being chain agnostic, ThorChain facilitates a DeFi bridge between Bitcoin, Ethereum, and other networks and increases DeFi applications’ usability.
The protocol integrates DEX and AMM, allowing users to borrow, trade, and lend cryptocurrencies across chains. RUNE, the native token of the protocol, is the decentralized intermediary that facilitates transactions across two chains. RUNE becomes the token bridge that enables interoperable asset exchanges.
As the value of the network continues to grow, RUNE becomes an indispensable token for new and future investors.
Curve (CRV) is a decentralized automated market maker (AMM) providing liquidity for stablecoin exchange between users. Built on the Ethereum blockchain, Curve has developed a smart contract algorithm that minimizes the risk of impermanent loss for traders while additionally using lower fees to facilitate transfers.
The platform is built on the same basis as other DeFi protocols. However, by focusing on lower-risk DeFi strategies, users can stake their stablecoins in the token pool and earn additional CRV tokens for facilitating network transfers.
CRV is the network’s utility token and holds voting rights in the Curve DAO. CRV enables users to vote on platform development decisions such as increasing yield, decreasing fees, or creating new liquidity pools.
Convex Finance (CVX)
Convex Finance (CVX) is a new yield-generating layer. Built on top of the existing Curve protocol, holders staking CVR tokens can generate additional rewards if they connect to Convex Finance. BY offering boosted yields for CVR holders and LP stakers, Convex Finance ensures they obtain enough veCVR tokens to pool assets together and maximize the return.
Thus, CVX tokens become network utility tokens as they allow token holders to generate additional cvxCRV tokens from platform trades. In addition, CVX will also be used as a governance token in the near future.
Decentralized Finance is slowly rolling out as a viable alternative to traditional finance. Getting exposure to DeFi coins is a good way of diversifying your portfolio and catching the next bull cycle with a solid stack of DeFi tokens.
There are a lot of new cryptocurrencies on the market that promise the unthinkable. However, before going all-in into crypto, always do your own research and stick to the leading DeFi coins that have lasted the test of time. This way, you will have bigger chances for an upside move than following the hype.
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