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Decentralized finance (DeFi) is a major game-changer in the cryptocurrency sector. Following the rapid boom of DeFi this year, many projects have sprouted, with some even overtaking projects that have been in the industry for many years.
Decentralized finance micks the traditional financial system, only that in this case, there are no intermediaries such as banks and governments that will facilitate transactions. DeFi projects are based on blockchain technology; hence they offer security, fast speeds, and transaction fees are also relatively low.
The advantages of decentralized over traditional finance is among the factors that have made these projects popular. DeFi projects offer almost every service that can be offered by financial institutions, including lending and borrowing.
As mentioned, there are many DeFi projects right now, and those who are new to the DeFi world might be overwhelmed by the many choices available. However, if you are looking for a DeFi project that you would want to invest in, below are the top three DeFi projects in 2021:
When it comes to ranking DeFi projects in terms of popularity, PancakeSwap ranks highly. PancakeSwap is an Automated Market Maker (AMM) Decentralized Exchange created on the Binance Smart Chain network. PancakeSwap also comes in highly recommended in terms of Anonymity because the platform does not require Know-Your-Customer (KYC).
In the real sense, PancakeSwap is almost similar to Uniswap, but it offers several unique and new features that make it more advanced than most DeFi projects. One of the leading use cases of this DeFi project is yield farming. It provides access to yield farming tools that allow users to stake liquidity provider tokens and earn CAKE tokens as rewards. A user can also stake the earned CAKE tokens for even more rewards.
The CAKE token is also among the popular and highly utilized altcoins in the market, with a market cap of over $2 billion. However, it has an inflationary nature because it does not have a supply cap. Nevertheless, the platform’s developers regularly implement token burning mechanisms that reduce the supply of the CAKE tokens, which usually has a positive effect on prices.
To learn more visit our Investing in PancakeSwap guide.
The other popular DeFi project in 2021 is Maker. Maker is a project created by the MakerDAO decentralized organization. The Maker protocol allows users to issue and manage the DAI stablecoin on the network.
Maker is a unique case of a double-token system. The platform has both the Maker and the DAI stablecoin. The DAI stablecoin is used to give stability to the network and ensure that users do not deal with volatility issues when staking their assets on launching projects on this network.
The Maker DeFi network is based on the Ethereum blockchain. One of the factors that propelled Maker into popularity is that it was among the first DeFi projects to build on top of a smart-contract blockchain. Like other DeFi projects, the Maker DeFi project allows users to lend and borrow other cryptocurrencies without the interference of an intermediary.
Users who lend their coins on this protocol earn interest at a specified annual percentage yield (APY) rate. Those who borrow tokens from the network can also do so and pay later at interest.
Users on the Maker DeFi platform enjoy voting rights for staking Maker tokens. The voting power of a user depends on the number of MKR tokens they hold. Unlike in PancakeSwap, Maker tokens have a capped supply, which protects their values from inflation.
To learn more visit our Investing in Maker guide.
If you are looking for a DeFi project that is well-established and one that has made a name for itself in the blockchain sector, you can consider Aave. Aave is famed for being top lending and borrowing DeFi project. Its main competitor in the market is compound.
Aave leads the DeFi world in terms of total value locked (TVL), which currently stands at over $13 billion. This figure shows that the Aave network is gaining adoption as one of the leading DeFi projects.
As mentioned, Aave allows users to lend and borrow cryptocurrencies. Users then receive interest on the deposits made. Those who want to take out loans on Aave can do so easily, unlike going to a traditional bank. The borrower does not need any credit approval, but they can use the cryptocurrencies they hold as collateral.
For lenders, Aave acts as a high yield savings account. Users who lend out their tokens can enjoy higher interest rates compared to depositing money in a bank. The only disadvantage of lending and borrowing in DeFi platforms is the highly volatile nature of cryptocurrencies, which could lead to price differences.
To learn more visit our Investing in Aave guide.