Blockchain-based decentralized finance protocols have become increasingly popular with members of the crypto community. In response to this increase, the DeFi markets have experienced exponential growth within a short time. According to previous estimates, the market capitalization of Decentralized Finance was about $128 billion at the peak of the recent bull market.This fantastic growth for DeFi can be attributed to the massive adoption of DeFi protocols by crypto traders worldwide. In this article, we will examine the top five trending DeFi platforms in the crypto space; however, before we begin this article by reviewing the concept of DeFi.
What Is DeFi?
DeFi is a short term used to refer to decentralized finance. Defi is an innovative new financial system that removes the need for intermediaries to execute financial transactions.In place of intermediaries, DeFi platforms make use of automated smart contracts to execute financial transactions. Among these transactions are trading, transferring, and investment, among others.Similar to Centralized Finance, DeFi is made up of all kinds of blockchain-based financial products and services. However, keeping true to the guiding principles DeFi, these products are based on the principle of decentralization. As a result, these projects are managed by automated smart contracts and decentralized crypto communities.Generally speaking, DeFi financial products include traditional services like payments, money issuance, trading, borrowing and lending, insurance, and asset management. However, several new DeFi platforms also offer financial services like yield farming, staking programs, and automated market makers (AMMs). Let us now examine some of the top trending DeFi platforms currently rocking the crypto space.
Our Top 5 DeFi platforms in trends are:
Aave is a decentralized lending platform that offers crypto traders lending and borrowing services. As a result, users of the platform can lend and borrow a wide range of digital assets on the platform. These include digital assets like stable coins and altcoins. Aave, like other DeFi protocols, eliminates the need for third parties or intermediaries. Similarly, the Aave protocol is governed by its token holders.
Initially launched in 2017 as ETHLand, Aave was rebranded and relaunched at the start of 2020. The Aave lending protocol was built on the Ethereum network. As a result, all lending services on this platform are processed using the Ethereum blockchain. Furthermore, Aave uses decentralized autonomous organization (DAO) for executing smart contracts on its network.Aave is an algorithmic lending platform, meaning that lending is obtained in a pool of funds. The platform does not match lenders to borrowers. However, lenders will receive interest for lending their digital assets. Similarly, borrowers are required to pay back with interest after they receive their loans.Recently, Aave upscaled its activities and came up with a new financial product called flash loans. According to the Aave website, “Flash Loans are the first uncollateralized loan option in DeFi.”Users can take out instant and easy loans without providing collateral through flash loans. However, borrowers are required to repay the loan within one transaction block. Additionally, this lending platform launched a game called Aavegotchi that utilizes non-fungible tokens (NFT). Currently, Aave is ranked as the largest DeFi protocol, with over $15 billion worth of digital assets locked away on its lending protocol.
Compound is an online lending protocol that focuses on providing decentralized loans to crypto users. Borrowers on the Compound platform can secure loans because lenders lock their crypto assets into the Compound protocol.
As a reward for locking their assets into the protocol, lenders are paid interest on their digital assets. Additionally, borrowers are required to pay back loans with interest.
Interest rates are determined by the supply and demand of each crypto asset that is locked into the protocol. Users are allowed to pay back loans at any time, while lenders are free to withdraw their locked assets whenever they wish. Based on locked liquidity, Compound is the second-largest DeFi protocol in the world. Currently, the Compound protocol has over $10 billion in locked liquidity.
Thorchain is a non-custodial cross-chain liquidity protocol built on the Cosmos blockchain. The Thorchain protocol aims to serve as a bridge for swapping tokens across different blockchains.
At the moment, swapping digital assets across blockchains is controlled by crypto exchanges. As a result, users who want to send digital assets from one blockchain to another must use crypto exchanges. Similar to crypto exchanges, Thorchain aims to offers swapping services to crypto users across different blockchains. However, unlike centralized exchanges, Thorchain eliminates the involvement of third parties in the swap process.Thorchain also provides a decentralized exchange for crypto traders to trade or lend their assets for a return on their investments. The native token for the Thorchain network is RUNE. Currently, the Rune token has a total market cap worth over $1.5 billion.
Uniswap is a fully functional DEX platform based on the Ethereum blockchain. Due to its decentralized nature, Uniswap cannot be owned or operated by a centralized entity. In place of traditional trading methods, this DEX platform uses an automated liquidity protocol. Like many other exchanges, Uniswap allows its users to swap tokens using the swap features on its exchange. Additionally, this exchange offers lending services to users.
Created in 2018, Uniswap is an open-source crypto exchange – meaning that the code used for creating this exchange is accessible to anybody. Furthermore, Uniswap allows crypto traders to list new tokens on its exchange free of charge. This practice is unique because centralized exchanges charge huge fees for the listing of new tokens.There are many benefits attached to the use of this DEX platform. For example, users have full control of their tokens at all times, unlike in centralized exchanges. Uniswap makes use of two types of smart contracts for the execution of tasks on its platform. The first smart contract is called an Exchange contract, while the second smart contract is called a “Factory” contract.Uniswap’s exchange contract facilitates transactions on the exchange, while its factory contract adds new tokens to the exchange. Uniswap does not have a native token for its dex platform. Currently, Uniswap is ranked as the sixth-largest DeFi protocol, with over $7 billion worth of digital assets locked away on its DEX platform.
MakerDao is another lending protocol that was built on the decentralized Ethereum network. Similar to Aave, this lending protocol offers lending and borrowing services to its users without using intermediaries. Instead, MakerDao makes use of a smart contract.
Initially, this DeFi protocol had difficulty providing loans using volatile cryptocurrencies. The solution to this challenge was to combine their lending services with a stable coin. This stable currency is the DAI token which is native to the MakerDao protocol. However, there is another native token associated with MakerDao, and that token is called MKR.Crypto traders who wish to borrow from MakerDao must own ETH and a Metamask wallet. To borrow from MakerDao, users must lock up Eth in MakerDao’s smart contracts to create the stable coin DAI. The more ETH, a user, locks up, the more DAI the user creates. The locked ETH serves as collateral for the loan, and users who wish to claim back their locked collateral, simply need to repay their loans. Currently, MakerDao is ranked as the fifth-largest DeFi protocol in the world. MakerDao has over $8.5 billion worth of digital assets locked away on its lending protocol.
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