No doubt blockchain, the digital ledger built across the networks, and the technology on which cryptocurrencies exist have brought fantastic financial opportunities for every participant and investor. However, the popularity of Bitcoin and other cryptocurrencies is the security and independence of government authorities.
Blockchain is a prevalent and highly advanced technology because it can be used in many different ways, not just to make cryptocurrencies. DeFi is one such application that leverages blockchain and gives financial services like banks and exchanges, but with cryptocurrency.
There’s a booming crypto-economy out there, where you can lend, borrow, long/short, earn interest, and more. Crypto-savvy Argentinians have used DeFi to escape crippling inflation. Companies have started streaming their employees their wages in real-time. Some folks have even taken out and paid off loans worth millions of dollars without the need for any personal identification.
With the revolution in the making, it is most likely attractive for investors and crypto spectaculars to take a dip. But before getting involved in any financial task, you need to have sound knowledge about it. So, let us move forward and dive into the article to know all about DeFi and the projects you can look at if you are interested in getting good returns.
What is DeFi?
It stands for decentralized finance and leverages blockchain technology. The primary purpose of DeFi projects is to make it possible for users to interact peer to peer with the set of codes, say software, by eliminating the involvement of central banks, brokers, and exchanges. The DeFi projects and services that it provides are available to everyone to use.
In simpler terms, you can think of DeFi as a smart contract working on blockchain. Centralized projects have humans operating the whole process, while decentralized projects do not involve human operations, making transactions a speedy process. For example, with DeFi projects, anyone can loan out cryptocurrency and earn interest on their investments just like any other bank.
Top DeFi crypto projects to participate in 2021
№ 1. Chainlink
Sergey Nazarov and Steve Ellis founded Chainlink in 2017. Chainlink is a decentralized Oracle network that enables universally connected smart contracts and allows blockchains to interact with external data feeds securely.
The Chainlink Network constitutes a large open-source community of competent contract developers, node operators, data providers, researchers, security auditors, and more. The company focuses on ensuring that decentralized participation is guaranteed for all node operators and users looking to contribute to the network.
ChainLink allows the integration of off-chain data into smart contracts, making itself the first network of its kind. LINK is one of the major players in the data processing field with many trusted partners, ranking 14th with a total market cap of $6,972,051,934.96 on the Coin market cap.
№ 2. AAVE
Stani Kulechov created AAVE and was first known as ETHLend when launched in 2017. AAVE is unique when compared with other finance projects in this vast, crowded crypto space market. In 2020 it was one of the most significant projects according to the total funds locked in its ecosystem.
AAVE, a decentralized finance protocol, allows users to lend and borrow crypto. As a lender, you can earn interest by depositing digital assets and providing liquidity to the pools. AAVE provides coins holders governance tokens — giving owners a say in the future development of the protocol.
According to Cornmarket cap, AAVE ranks 30th with a max. supply of 16,000,000 AAVE coins. AAVE is highly trusted and can be a good DeFi project to invest in.
№ 3. Uniswap
Hayden Adams, an Ethereum developer, created Uniswap in 2018 by collaborating with ETH founder Vitalik Buterin. Uniswap is one of the popular decentralized protocols. Its primary purpose is smoothing automated trading of DeFi tokens.
Uniswap aims to keep the token entirely open for the users by making trading automated. Uniswap works on improving the efficiency of trading versus that of traditional exchanges. It creates more efficiency by solving liquidity issues with automated solutions, avoiding the problems which plagued the first decentralized exchanges.
The working of Uniswap makes it unique and worth looking into. Currently, it ranks 11th with max. supply of 1,000,000,000 UNI coins.
№ 4. Pancake swap
PancakeSwap is a decentralized finance application that allows users to exchange tokens, providing liquidity via farming and earning fees in return. The cake is the official coin of the Pancakes swap project.
PancakeSwap is an automated market maker model where users trade against a liquidity pool. As a user, you can deposit tokens in the pool and get ROI by staking your tokens. PancakeSwap also allows users to farm additional tokens such as CAKE and SYRUP. On the farm, users can deposit LP tokens and get rewarded with CAKE.
PancakeSwap is on Binance Smart Chain and is created by anonymous developers. It is currently ranked 41, with a circulating supply of 184,630,074 CAKE coins.
Risk involved
Although it might sound fantastic and authentic, investing in DeFi projects is highly risky. Traditional banks’ returns seem too minor but are real, while in the DeFi project, you can see returns as high as 2000%.
When you borrow a crypto loan from any project, you will need to stake some initial investment to start the yield farming or returns. Sometimes, someone can scam and manipulate the asset value if the project is not trusted.
But according to crypto investors, if you invest in some good projects at an early stage, it also has the potential to give you massive returns as the future of decentralized finance is bright.
Final thoughts
DeFi was first created on Ethereum, and still, a large number of it works on the Ethereum blockchain. Decentralized finance might have a prosperous future but is still in the initial stage of its evolution, and seeing it stabilized might take time.
Moreover, as the whole concept of DeFi is very new, it gives shelter to many scammers and is still vulnerable to hackers. Hacking, price manipulation, or even asset dumping is quite common in the current DeFi infrastructure. So, it’s better to take a deeper look into the project before investing in any DeFi projects.