Top 4 DeFi Projects to Invest in

Jul 15, 2021 03:43 PM ET
Top 4 DeFi Projects to Invest in

Decentralized Finance (DeFi) is a relatively new industry that is disrupting the world of finance. The industry has grown from zero two years ago and has more than $55 billion in total value locked (TVL). At its peak in 2021, the total amount of money that was locked in the system was worth more than $90 billion. This article will look at what DeFi is and some of the best projects to invest in.

What is DeFi?

The current financial world is highly centralized. To save money, you use a bank that is controlled by the senior management and shareholders. Similarly, to borrow, you can use a peer-to-peer platform like LendingClub that is also controlled by its owners. Further, to invest or trade online, you use companies like Robinhood and Schwab that are highly centralized. Most importantly, we all use fiat currencies that are printed by central banks that have an immense amount of control.

DeFi is an industry that wants to change this using cryptocurrencies or digital currencies. Cryptocurrencies like Bitcoin and Monero have no central developer. Instead, they are mined using decentralized technology that is not controlled by anyone. The system is so efficient that Bitcoin has never had any mining problems since it was started more than a decade ago.

Therefore, with DeFi, you can borrow money no matter where you are. You can also invest and trade in crypto assets and even send money digitally. This technology has been widely accepted since it does not have central control and that it has no borders. As such, it is possible for people from developed and developing countries to borrow and invest online.

Why is DeFi controversial?

DeFi is a highly controversial industry. Indeed, in the past few months, many analysts have cautioned that it presents significant risks to the world economy. Many “experts” and regulators have said that policymakers and politicians needed to intensify their industry regulations. 

The biggest issue for DeFi is that it is a relatively new industry that regulators are finding difficult to regulate. For one, the industry is highly decentralized, making it hard to crackdown. Also, regulators believe that the industry posed risks to the existing financial sector. Most importantly, they see it as an industry that puts many vulnerable people at risk and one that helps to spread crime. So, let us look at some of the best DeFi projects to invest in.

Aave (AAVE)

Aave is one of the leading DeFi platforms with a total value locked of more than $9 billion. Its Aave token has a market capitalization of more than $4 billion, making it the 26th biggest cryptocurrency in the world. It is classified as a lending platform.

Aave is relatively similar to a peer-to-peer lending marketplace like Lending Club. The only difference is that the latter company is highly centralized and that it deals with fiat currency.

Aave, on the other hand, is a decentralized platform that helps people invest and borrow cryptocurrency. The concept is simple. A lender wishing to generate returns will deposit cryptocurrency to the network. At the same time, borrowers can access the pooled funds. 

Unlike Lending Club, no single person determines the interest rate charged for the loans. Instead, the rate is generated automatically using an algorithm that looks at the supply and demand components. The chart below shows the market activity at the time of writing.

Aave marketplace

Aave marketplace

Aave returns

Aave is a good DeFi to invest in because of its strong market share and stability. Its token has also performed strongly over the years.Aave returns

 Further, Aave has migrated to the Polygon network that makes it faster and more reliable.

Uniswap

There are many online exchanges that you can use to trade cryptocurrencies. Some of the most popular ones are centralized platforms like Coinbase and Binance. The challenge with these platforms is that they are controlled by the management and are highly expensive. This is where DEXes come in. A DEX is a decentralized exchange that is controlled by the community. 

Uniswap is the second-biggest DEX in the world after Curve Finance. It has a total value locked of more than $5.6 billion. Its token has a market capitalization of more than $13 billion, making it the 10th biggest coin in the world.

Uniswap works in a relatively simple way. For one, unlike centralized platforms like Coinbase, it uses a technology known as an automated liquidity protocol. This means that market participants provide liquidity to the platform, which helps them set the conditions. 

Another difference between centralized platforms and Uniswap is that the latter is open source. As such, anyone with coding experience can take the code and create his own exchange. 

Uniswap price action

Uniswap price action

Further, the platform charges a fixed fee for trades and deposits these funds into a reserve that liquidity providers can access at any time. Uniswap is a good investment because of its growing market share and the strength of its brand.

Synthetix (SNX)

Synthetix is a popular DeFi platform that has a TVL of over $1.2 billion. Its token has a market cap of more than $1.2 billion and is the 64th biggest token in the world.

Synthetic is a DEX that also issues synthetic assets that are backed by SNX. Like in the traditional finance industry, a synthetic asset is one that represents real assets like stocks and fiat currencies. For example, a user can create a synthetic asset that tracks a stock like Amazon or Twitter.

Synthetix (SNX)

Some of the most popular Synths in the ecosystem are sUSD, sEUR, and sAUD. Other popular ones are sFTSE, sNIKE, and sAAPL. The chart above shows some of its statistics.

Synthetix price action

Synthetix price action

Synthetix is a good DeFi project to invest in because of its strong market share, uniqueness against other DEXes, and strong user adoption.

PancakeSwap (CAKE)

The three DeFi projects we have looked at above are built on Ethereum’s blockchain. PancakeSwap, on the other hand, is built using the Binance Smart Chain network. The network helps people buy and sell tokens and yield farms. It also allows the traders to win presents like BNBs and NFTs. It is relatively similar to Uniswap and has a total value locked of more than $7 billion. It also has a total volume of more than $590 million. 

PancakeSwap price

PancakeSwap price

The chart above shows the overall returns of the PancakeSwap token that has a market cap of more than $2.9 billion.

Notable mentions

There are hundreds of DeFi projects that you can invest in today. In this article, we have looked at just four. Others that you can invest or trade are Maker, SushiSwap, Balancer, and Alpha Homora.


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