Decentralised finance, also known as DeFi, is a wildly innovative technology that could completely alter the financial landscape as we know it. While NFTs took the spotlight for a while and then petered out, the DeFi trend is still going strong. But with so many top DeFi projects on the market, where do you start?
In this article, we’re analysing the seven top DeFi coins that you should consider investing in to get in early on this financial revolution.
What is Decentralised Finance (DeFi)?
Decentralised finance (DeFi) is used as an alternative to the centralised banking system. Traditionally, banks and payment providers offer a way to transact and lend cash, but this often comes with trade-offs, like fees, a lack of privacy, and a loss of control. While these intermediaries can make the world of finance simpler, they require a certain amount of trust and stability to function. And in inflation-ravaged countries like Argentina and Venezuela, DeFi presents an alternative way to protect your money’s value.
DeFi offers a way for anyone to start participating in the peer-to-peer financial world with virtually no restrictions. Because everything is stored on an open ledger, code can be written to perform all kinds of financial activities. All you need is an internet connection to get started!
So what can you actually do with DeFi?
You can:
Borrow funds
Lend funds
Send money
Earn interest on your portfolio
Exchange assets
Fund your ideas
Manage a portfolio
Find insurance
Practically anything you can do in the traditional world of finance, you can do with DeFi.
1. Metacade (MCADE) - the Top DeFi Project
Metacade is a community hub that’s built to be the heart of GameFi. GameFi is a twist on the traditional gaming model, combining finance and gaming to create an entirely new experience. GameFi is typically better known as play to earn or P2E, which is a system that combines NFTs, crypto, and blockchains to allow players to earn while gaming.
The GameFi industry is set to explode at 10x the rate of traditional gaming by 2025, according to some sources. And among the projects’ Metacade is positioned to become the number one destination in Web3 for Play2Earn. In Metacade, users will be able to link up with like-minded gamers, crypto investors, developers, and entrepreneurs to discover the virtually unlimited potential of GameFi. It’s a platform users can come to visit to find the latest games, learn how to earn more from them, and also directly influence the future of gaming.
Metacade’s plan is to be an all-in-one solution to the problem of increasing centralisation in the gaming industry by allowing users to vote on the games they want to see developed. Metacade is letting game developers do just that with Metagrants, which are powered by MCADE. To win MetaGrant funding, developers post their ideas into a competition alongside dozens of others. The Metacade community vote for their favourite, and the winner receives both funding from the treasury and support from community members to build a polished game. The final game is then added to Metacade’s virtual arcade for anyone to play.
In return for contributing reviews, GameFi alpha, or long-form content, users are also rewarded with the MCADE token for simply sharing their expertise and growing the community. Once the community flourishes, the Metacade team will step back and hand over the reins to its members, allowing them to vote on the future direction of the platform.
Given Metacade’s innovative ideas that are set to shake up the gaming industry, we’re crowning it as the king of the top DeFi coins. While it might be slightly different from the more traditional top DeFi projects on this list, the future prospects of GameFi and the rate at which it’s growing represents an outstanding opportunity for Metacade to quickly rise up the ranks and become a leader in its field.
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2. PancakeSwap (CAKE) - Staking and Swapping
PancakeSwap is a decentralised exchange that acts as an alternative to centralised exchanges, like Binance or Coinbase. Built atop the BNB Chain, PancakeSwap allows users to swap their coins for BEP20 tokens, which are tokens that use the BNB Chain. Traditionally, exchanges require one participant to be matched with a counterparty. Decentralised exchanges operate by allowing users to trade with liquidity pools instead.
Liquidity pools allow those with a particular token, say Binance Coin (BNB), to lock up their funds to provide liquidity to others. When someone wants to swap their token for BNB, an automated market maker (AMM) deposits their token into the pool and withdraws the BNB. For those providing liquidity, they’re rewarded with liquidity provider tokens, like the platform’s native CAKE, in return for locking up their tokens.
While this offers an excellent way to diversify and earn from your crypto portfolio, yield farming is the real benefit of PancakeSwap. Farms are basically staking pools that allow you to earn even more by locking up your holdings. Using your liquidity provider tokens, you can deposit them into farms and auto-reinvest your interest to take advantage of compound interest.
The revenue streams and high yields PancakeSwap offers have attracted over 400,000 daily active users, according to Decrypt, with over $2.8 billion locked on the platform as of October 2022. It holds the #8 spot on DeFiLlama in October 2022 as one of the top DeFi coins and #2 on our list.
3. Uniswap (UNI) - Direct Coin Swaps
Uniswap is another decentralised exchange, except it runs on the Ethereum blockchain, and is one of the top DeFi projects on the market today. This means instead of BEP20 tokens, users are able to seamlessly trade any two ERC20 tokens together without using a centralised exchange. Uniswap was the first major decentralised exchange to hit the mainstream and has stayed in pole position ever since.
Like PancakeSwap, Uniswap uses liquidity pools to offer direct swaps for its users while rewarding liquidity providers with the UNI token. Part of what makes Uniswap unique is its pricing mechanism known as the Constant Product Market Maker Model.
Let’s say you wanted to create a pool for an altcoin called X Coin to trade with Ethereum, you could deposit $100 worth of X Coin and $100 worth of Ethereum. When someone buys X Coin with Ethereum, the supply of X Coin decreases while the Ethereum supply increases, causing the price of X Coin to go up. This creates a pricing model determined by supply and demand without needing a centralised order book.
Uniswap takes the lead over PancakeSwap, with a total of 2.5 million users, according to Decrypt, and a total value locked of $4.67 billion. It currently sits at #16 on the list of the top cryptocurrencies by market cap, and at #5 on DefiLlama’s list of top DeFi coins.
4. Compound (COMP) - Lending and Borrowing Crypto
While PancakeSwap and Uniswap are focused on exchanging tokens, Compound facilitates the lending and borrowing of a wide range of crypto tokens without the need for a centralised authority. Traditionally, you need to go to a bank to receive a loan, which is subject to your financial status, background, and other factors that may impact your ability to borrow. With Compound, you can borrow without restriction or the need to expend time and effort dealing with intermediaries.
In reality, the way Compound works is not dissimilar to a bank. Lenders deposit their crypto to the platform, and are awarded a new token called a cToken, like cETH, cDAI, or cUSDT, which represents the deposit. These cTokens can be traded without restriction but can only be redeemed for the corresponding crypto token, which can be done at any time. The interest rate earnt is dependent on the supply of the deposited token on the market. The less supply, the greater the interest rate, and vice versa.
Borrowers put up collateral to receive a set percentage of the collateral put up in the form of the same or another cryptocurrency. This holds several advantages, the foremost being you don’t need to sell your crypto assets (which is a taxable event) to access liquidity.
Compound is one of the top DeFi projects on the market today, with a total of $2.3 billion locked on its platform, sitting at #9 on DefiLlama’s list of top DeFi coins.
5. Curve (CRV) - A focus on StableCoins
Curve is an automated market maker platform, like PancakeSwap and Uniswap. The key difference is that while these two focus on a wide range of cryptocurrencies, Curve is built around stablecoins. It was launched with the intention of creating a kind of decentralised exchange that offered low fees for traders while giving liquidity providers bank-beating interest rates on their fiat currency.
While Uniswap and PancakeSwap might offer higher rewards, they also come with higher risk. These platforms allow swaps between any two tokens, meaning that volatility is high. When volatility is high, the risk of impermanent loss increases. Impermanent loss is a phenomenon found in AMM platforms where those providing liquidity lose more token value relative to the market value of the token because of high volatility.
Curve minimises this because swapping stablecoins means they are relatively similar in price. When USDT is swapped for USDC, for example, the supply of USDC decreases while the supply USDT rises, causing a slight fluctuation in price. Curve’s algorithms automatically rebalance the pool with ease, minimising the risk of impermanent loss.
Curve is one of the top DeFi projects and #5 on our list for this reason. It favours stability over speculation, and while it offers lower interest rewards than the two platforms mentioned, it’s cornered a niche in the DeFi market. You’re also paid CRV tokens for locking up your tokens, which can be yield-farmed like CAKE and UNI.
Because of this stability, Curve is ranked as one of the top DeFi coins by total value locked, according to DeFiLlama. It currently has $5.86 billion locked on its platform, holding the #3 spot on DeFiLlama’s list.
6. Aave (AAVE) - Flash Loans and Fast Transaction Speeds
Aave is a borrowing and lending platform like Compound. It would be redundant to explain the process again, but just know that it is very similar to Compound’s system, in that borrowers put up collateral to receive a percentage in the form of a loan, while lenders receive variable interest rates for the liquidity they add.
Where Aave differs from Compound is in its ability to offer flash loans. For a flash loan to be successful, the borrower must pay back the loan before the block is finalised, along with a 0.09% fee. If they don’t, then the transaction is cancelled. These flash loans allow traders to automatically take advantage of arbitrage opportunities across different exchanges, without the need for a large amount of capital.
Because of this feature, Aave is consistently ranked as one of the top DeFi projects on DeFiLlama. It’s ranked #4, just below Curve, with a total value locked of $5.14 billion.
7. MakerDAO (MKR) - Total Decentralisation
MakerDAO is a platform similar to Compound and Aave, but with much bigger ambitions. MakerDAO is part of a larger ecosystem that aims to be a completely decentralised, trustless banking system that doesn’t require actual banks. This has made MakerDAO the top DeFi project by total value locked, according to DeFiLlama.
It has its own stablecoin, DAI, that’s pegged against the US dollar. DAI is created whenever a user locks up their tokens to take out a loan in DAI. Loans are heavily overcollateralised, meaning that if a user wanted to lend $1000 at the current collateratisation rate of 135%, they would need to put up $1350 of collateral.
This protects MakerDAO and DAI against large fluctuations in the price of the collateralised assets, which are liquidated once a certain threshold is reached. The greater the level of collateralisation, the more the value of the locked assets would need to fall before DAI loses its 1:1 status with the dollar.
While this system works effectively, there are times when adjustments need to be made. This is where MakerDAO comes in. Holders of the MKR token can vote to shift the monetary policy of the Maker ecosystem, adjusting saving rates and the tokens backing Maker. In March 2020, for example, holders of MKR saved Maker by voting to back DAI with USDC, stabilising its price while mass liquidation occurred.
There are plenty of competing projects to Maker, but the DAO’s ability to function like a central bank makes it the top DeFi project for lending and borrowing. This has led to MakerDAO dominating the DeFi space, ranking #1 on DeFiLlama’s leaderboard with a total value locked of $7.7 billion - more than PancakeSwap and Uniswap combined.
Conclusion
Hopefully this list has helped you narrow down the top DeFi coins to invest in for the future of finance. While there are plenty of incredible projects on this list, Metacade has to be our number one choice for investment potential. Combined with its outstanding ideas for community engagement and simplifying the world of Play2Earn, we see a bright future ahead for Metacade.
As the token is still in presale, Metacade represents an exciting opportunity to get in on the ground floor to participate in the rapid acceleration of the GameFi industry.
You can participate in the Metacade pre-sale here.
Disclaimer: Insights provided by crypto industry players and is not a part of the editorial content of BanklessTimes.
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