DeFi (by Decentralized Finance) is an ecosystem of finance applications and services that run decentralized on public blockchains. DeFi refers to financial instruments that are set up on the blockchain as services and apps. Decentralized finance’s main goal is to become a viable alternative to the banking industry and to replace the technology in the financial system with open source protocols.
This means that a lot of people will be able to get decentralized loans and new investment platforms without having to pay for them. Allowing users to earn money from their bitcoin assets while also saving money on transfer, lending, and deposit costs is a big deal.
Decentralized finance applications are becoming more and more common. The Ethereum blockchain is at the heart of most of them, and the number of new decentralized finance applications is always growing. So, by the start of February, the total amount of Ethereum in smart contracts for DeFi apps had reached $938 Million. So, in this article, let’s look at the top 6 De-Fi projects that are changing the crypto universe!
Top 6 De-Fi Projects
1. Aave
Aave (from the Finnish word for “ghost”) is an open, distributed protocol for the Ethereum blockchain, designed for lending and borrowing. For lenders, the protocol issues ERC-20 protocol-compliant tokens called aTokens, which are created on a one-to-one basis for the lending assets provided. The interest rate starts to accumulate constantly, in the form of additional aTokens in the lender’s account.
The interest income stream can be redirected to any address. Users can borrow in a large number of available assets (tokens and stablecoins) by providing their cryptocurrency as collateral. The liquidation point and penalty varies from one asset to another. Any member of the network can receive a bonus for liquidating unhealthy loans.
The interest rate on loans is calculated algorithmically on the side of the smart contract based on the supply/demand ratio. The protocol also holds a large liquidity pool to ensure that funds can be withdrawn at the user’s request at any time.
2. Maker
MakerDAO is an Ethereum-based decentralized lending platform that supports Dai, a USD-pegged stablecoin. Anyone can use the Maker to open a Vault, close the collateral in the form of ETH or BAT in it, and generate Dai in the form of a loan against this collateral. Debt denominated in Dai carries an interest rate that is paid in total at the time Dai is paid back to the smart contract.
Users can borrow up to 66% of their deposit amount. Vaults whose balance falls below this level are subject to a 13% fine and liquidation (by any willing network member) and zeroing. The liquidated collateral is sold at a public auction with an initial discount of 3%.
3. Curve Finance
Curve is an Ethereum decentralized exchange and liquidity pool designed with stablecoin trading in mind. Launched in January 2020, Curve allows users to exchange stablecoins with low fees.
Under the hood, tokens are held using special liquidity pools and replenished using the Compound or iearn.finance protocol, which allow stablecoin holders to receive passive income interest if they decide to become liquidity providers.
4. Synthetix
Synthetix is a decentralized platform for creating mint crypto assets by mimicking the real life assets! Synths are synthetic assets (existing on the blockchain) that are linked to real world assets. Initially, the project was called Havven, but later the concept and name was changed and Synthetix was launched on the main Ethereum blockchain in February 2019.
As of March 2020, the platform supported 30 Synths, including fiat currencies, gold, and crypto assets. The addition of stocks, indices and other derivatives is planned. Synthetics has its own native SNX token. Holders of this token can pledge their SNX or ETH and issue Synths, which are freely traded ERC-20 tokens.
5. Compound
Compound is an algorithmic money protocol that allows users to earn interest on deposits and borrow against collateral. Anyone can lend their assets to Compound’s liquidity pool and start earning passive income instantly. Interest rates automatically vary based on supply/demand.
Funds provided in the form of assets are issued in the form of cTokens. Users can borrow up to 50-75% of the collateral value (depending on the security of the asset) and have the ability to add or withdraw funds from the account at any time, but if their loan becomes unsecured, anyone can liquidate it. The 5% discount on liquidated assets goes as motivation to the liquidators.
6. Uniswap
Uniswap is a fully decentralized Ethereum token exchange blockchain protocol that uses liquidity pools instead of an order book. Any user can quickly exchange ETH for any ERC-20 token or earn income from trading fees providing liquidity for the exchange. Also, each user has the opportunity to create a market- by providing the smart contract with an equal amount of ETH and ERC-20 tokens.
Uniswap only allows you to create one market per ERC-20 token. The market creator determines the exchange rate, which automatically shifts when transactions are made. If the execution of transactions significantly shifts the liquidity balance in favor of one of the tokens, the price changes.
It was designed specifically to create arbitrage opportunities, and thus further motivate users to trade (thereby giving income to the entire system in the form of commissions)!
