Which DeFi Cryptocurrencies has Potential to Explode?

Which DeFi Cryptocurrencies has Potential to Explode?

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Before we take a closer look at the finer points of DeFi and some of the more prominent DeFi projects, here is a quick rundown of the top DeFi cryptocurrencies that could explode in 2022: 

1、Uniswap

2、Chainlink

3、Aave

4、Pancake swap

5、Compound

6、Yearn.finance

7、SushiSwap

8、MakerDAO

9、Wrapped Bitcoin

10、UMA

The following DeFi coins list represents some of the most interesting projects in the space today. We can’t say which will prove to be the best investment in 2022, but if you are new to the concept of DeFi, then you’ll certainly want to be aware of the following contenders, as they could well be the best DeFi projects of 2022.

1. Uniswap

Uniswap is amongst the most well known DeFi projects and has been going from strength to strength in 2021. The network operates as a decentralised exchange, using the ERC-20 tokens to create liquidity pools that allow traders to buy and sell cryptocurrency without the need for a central authority. 

Users of the Uniswap network who contribute their Ethereum-based tokens to the liquidity pools are rewarded with a fee proportionate to the amount they have staked. Assets in these pools are then made available for trading via smart contracts based on the Uniswap protocol. As more trades are made, the liquidity providers accrue more transaction fees.  

Uniswap has established itself and its viability, which makes it one of the more stable investments in the DeFi space. Its governance token, UNI has seen substantial growth in 2021 and is now amongst the top twenty cryptocurrencies in terms of market capitalisation. As such, it is definitely amongst the best DeFi coins to invest in.

2. Chainlink

Decentralised Apps need to interact with different kinds of data from numerous feeds - many of which are from non-crypto, or off-chain sources. In order to do this, they need a data provider - known as an oracle - to link these various off-blockchain feeds and other data sources together and put them into a digestible format. The current market leader in this realm is Chainlink. 

Initially, it may appear that a single aggregator for all this data goes against the overarching crypto ethos - that of decentralisation. However, Chainlink gets around this thanks to its unique infrastructure. Put (very) simply, the network consists of nodes that provide data and information from off-blockchain sources to on-blockchain smart contracts via numerous oracles. These smart contracts are then easily absorbed into the smart blockchains that require the data. 

Chainlink’s native token is called LINK.  It was originally launched to help finance the growth of the project and is used to pay for services on the network. Operators of the Oracle nodes on Chainlink also have to stake LINK to verify the workings of the network and incentivise usage. 

3. Aave

Similar to Uniswap, AAVE provides an open-source liquidity protocol. However, Aave’s focus is as a cryptocurrency lending platform that allows users to lend and/or borrow crypto assets without the need for a middleman. Once again, liquidity providers can stake their holdings to earn interest and fee commission. 

Running on the Ethereum blockchain, borrows can stake one cryptocurrency and borrow another, thus allowing them to gain market exposure without needing to actually own crypto assets outright. Aave uses two tokens in its operation but the one we are concerned with here is AAVE.

AAVE has several uses on the network. Firstly, AAVE borrowers don’t get charged a fee if they take out loans denominated in the token. Holders of the token who offer it as collateral also get a discount on fees. Those who pay network fees in AAVE also get access to loan rates before the general public. Finally,  AAVE also acts as the network’s governance token.

4. Pancake swap

PancakeSwap is another Automated Market Maker Decentralized Exchange that allows users to trade via liquidity pools. However, this DeFi system is actually built on the Binance Smart Chain and received funding from Binance as part of a DeFi accelerator. However, whilst the protocol uses the BEP-20 token for smart contract exchange, PancakeSwap was also designed to work with other wallets - so users can transfer from the Ethereum blockchain to the BSC 

Once again, PancakeSwap operates in a very similar way to Uniswap, but with a few key differences. Firstly, it can offer much lower transaction fees than other, Ethereum-based DEXs. The PancakeSwap network also has additional yield-farming tools allowing liquidity providers to earn the native cryptocurrency, CAKE. 

As with other liquidity-pool based systems, CAKE can be staked to earn rewards. However, in addition to this, the token is also how you gain access to the SYRUP pools. This is effectively another token on the PanCakeswap network that allows holders to engage in higher-level liquidity mining by stacking CAKE and SYRUP tokens in pools simultaneously. 

CAKE holders can also use the token for NFT Auctions and participation in various features of the PancakeSwap environment.

5. Compound

Compound is another Automated Market Maker built on the Ethereum blockchain that allows users to stake their crypto holdings as collateral to borrow against or earn interest from. As the name implies, Compound allows users to earn continuously compounding interests. The project received substantial investment from Coinbase’s venture fund. 

The network allows users to ‘double up’ on rewards by using cTokens, which represent users funds deposited in the Compound liquidity pools. Users can then use these cTokens to earn further rewards from the network, whilst their holdings in the LPs continue to yield income. 

The network’s native cryptocurrency, COMP, is primarily used as a governance token. Effectively, this means holders can vote on updates, suggest changes and engage in discussions about the future of Compound, which in turn means that the Compound organisation has delegating control of the running of the network to its users. 

6. Yearn.finance

Yearn.finance is a group of DeFi services built on the Ethereum network. These services include a data feed on interest rates across the various lending pools available, allowing users to find the best rates they can earn for lending their assets, Vaults - which are effectively combined yield farming strategies that automatically invest user deposits in the highest-yielding positions, and Zap - which makes it easier for traders to swap in and out of liquidity pools to maximise returns. 

Yearn.finance is effectively a go-between, working on behalf of its users. The network scans different protocols on the Ethereum network, such as Compound or Aave, to find the best rates.

The platform launched to some fanfare and within its first month had attracted almost $800m in assets. As such, it has been one of the fastest-growing DeFi projects on the market. 

The platform’s native token, YFI, acts as a governance token, which gives users the same rights as the ones detailed above - namely to vote on decisions and upgrades to the Yearn infrastructure. 

7. SushiSwap

Another Ethereum-based DEX that has grown in popularity is SushiSwap. It is actually an offshoot of Uniswap, with its developers promising users greater control over the direction of the development of the platform. The recipe seems to have struck a chord with crypto investors, as over $1bn worth of assets were locked into the protocol within a few days. 

Whilst SushiSwap operates in an almost identical way to Uniswap, there are a few key differences. The main one is the introduction of the SUSHI token, which offers an additional reward stream for liquidity miners, as SUSHI itself can be farmed to generate more profit, whereas Uniswap’s UNI no longer can. 

SUSHI is also the governance token of the platform, allowing the holder a say in the running of the network and thus giving it a user-centric authority system. 

8. MakerDAO

MakerDAO is the decentralized autonomous organization behind the DAI stablecoin. The idea is that by using a stablecoin, MakerDao can issue crypto loans without having to worry about huge price movement between the collateral currency and the one issued. 

Stablecoins allow holders to lock cryptocurrency into a smart contract and obtain tokens of equal representative value. This allows for cryptocurrency to be used in place of traditional currency, without having to be concerned about wild price fluctuations between transactions.

The advantages of this should be fairly obvious, but crypto-savvy readers may point out that stable coins already exist - Tether and Binance USD, for example. What makes MakerDao unique is that it is backed by another cryptocurrency: Ether. The platform achieves this through a protocol termed ‘over-collateralisation’ wherein excess Ether tokens are held to protect against fluctuations. For example, $2,000 worth of Ether may be held as reserves for issuing $1,000 worth of DAI, this means the reserve currency can swing in price by 50% and still cover the loan.

9. Wrapped Bitcoin

One name seems notable by its absence so far - Bitcoin, the first cryptocurrency and by far the biggest in terms of market capitalisation. In the age of second and third-generation blockchains, it may seem as though BTC has been left behind - but fear not, Wrapped Bitcoin is the original cryptos ticket into the world of DeFi. 

Created by BitGo in 2018, Wrapped Bitcoin is basically an ERC20 token that is used to represent Bitcoin on the Ethereum blockchain. Users can simply deposit their Bitcoin with a wallet operated by WBTC merchants and they will be issued with an identical amount of WBTC to be used on the Ethereum blockchain. 

The advantages of this should already be obvious - WBTC allows Bitcoin holders to get involved in all the DeFi projects we have mentioned thus far. It is also a great example of composability. At the time of writing, there is around 107,000 BTC that is wrapped as WBTC - which effectively means there is around $1.3bn locked into the protocol. 

10. UMA

UMA (Universal Market Access) is an open-source protocol built on the Ethereum blockchain that allows synthetic derivatives to be created. Effectively these operate in the same way as a traditional derivative, in that they allow users to speculate on the price movement of just about anything that has a price, without ever needing to own the underlying asset. 

Naturally, this opens up a wealth of possibilities in the DeFi space. In the simplest sense, the UMA protocol allows users to mint synthetic tokens that can be used to represent anything - the price of gold, for example. These tokens are backed by ERC20 as collateral. The inner workings of UMA are remarkably complex, but it represents the synergy of several DeFi protocols working to remove the need for a middle man. 

The UMA token is used for governing the ecosystem, as is the case with many other DeFi tokens. It can also be used for paying fees on the network.

What is DeFi?

DeFi is a fairly broad term that applies to a variety of financial services and applications that can be provided by utilising blockchain technology and cryptocurrencies. In a nutshell, DeFi allows blockchain to realise its true potential in removing the need for a central authority by connecting lenders, borrowers, buyers and sellers peer-to-peer. 

Of course, there is still a need for some kind of mediation between these agents and that is where DeFi tech is used to effectively replace the traditional middle man. This is often done using a combination of technologies, including blockchain, smart contracts, Dapps and third-party software. 

The role of cryptocurrency tokens themselves can vary depending on the network and the financial service being performed. For example, stablecoins like Tether offer a means to stabilize price within the crypto space and are often used as an intermediary for investors holding value, whereas tokens like UNI are used in the governance of the Uniswap infrastructure.  

You may have guessed by now that DeFi has limitless potential applications, but the following are those which have gained serious momentum recently:

How to Invest in DeFi Cryptocurrencies?

The easiest way to invest in DeFi cryptocurrencies is to add them to your portfolio just as you would any other token. Of course, in order to do this, you’ll need to find a broker that can give you access to the market. 

Most users will find that eToro can meet their needs. Not only does it have one of the best reputations in the industry, but it also offers an approachable yet powerful trading interface. Opening an account is simple and you can be up and running within just a few minutes.

There are also plenty of learning resources on eToro, making it an ideal place to start your cryptocurrency investment portfolio.