The rapid growth of the decentralized finance (DeFi) sector over the past couple of years has driven unprecedented crypto adoption. 2020 saw a notable surge in the number of DeFi protocols and applications.
Amid the ongoing crypto rally in 2021, the DeFi market has more than doubled in total value locked (TLV) year-to-date, having reached $65.76 billion at the time of writing. Matt Hougan, the chief investment officer of Bitwise Asset Management, called decentralized finance "the story of 2021", and it is tough to disagree with him.
DeFi represents digital peer-to-peer (P2P) financial service technologies. The sector collectively aims to eliminate financial mediators and bypass conventional banking services. The emerging DeFi market offers an alternative with cheaper and faster financial transactions with no minimum transaction amount, no paperwork, complete transparency, and audibility.
Decentralized finance protocols run on blockchain networks (often on Ethereum). They typically imitate traditional services and concepts seen in the banking and finance industry.
Now that we understand the basics of decentralized finance let us look at the top 5 DeFi assets of 2021.
Five Most Successful DeFi Assets of 2021
1. Aave (AAVE)
Aave is a renowned decentralized lending platform helping drive interest in the DeFi sector to new lengths. This next-generation protocol was one of the first enterprises to allow users to borrow, lend, and earn interest on digital assets. Notably, there is no need for an intermediary with Aave as the entire system runs autonomously through smart contracts built on the Ethereum network.
One of the Aave protocol's best features is that it permits a borrower to get exposure to various cryptocurrencies without owning them completely. Using Aave, users can earn rewards without having to trade their preferred digital assets. This strategy also effectively decreases the risk of loss.
To use Aave, lenders should deposit funds into the platform's liquidity pools. Borrowers can then access these funds and borrow as they wish. To borrow assets from the liquidity pool, users must lock a certain amount of collateral that is larger than the amount being withdrawn. The value of this collateral is typically based on USD.
AAVE is the native cryptocurrency of the platform. It skyrocketed to a whopping high of $651 on May 18, 2021. The protocol currently has a total value locked (TVL) of $10.12 billion.
2. Uniswap (UNI)
Uniswap is a famous decentralized exchange (DEX) built on the Ethereum blockchain. It is also known as an automated liquidity protocol as there is no order book or any centralized entity needed to carry out trades. With a high degree of censorship resistance and decentralization, Uniswap permits users to trade without mediators.
Uniswap users can choose to participate as liquidity providers in the network and receive rewards from trading fees. A set part of all trading fees gets redistributed between the liquidity providers based on their share in the pool. In this manner, users can earn a passive income without losing ownership of their crypto holdings directly.
The Uniswap ecosystem uses UNI as its native token. UNI is an ERC-20 token and is compatible with the Ethereum network. At the moment, UNI is traded on numerous crypto exchanges, including various top centralized exchanges such as Coinbase Pro. Uniswap currently has $6.81 billion in total value locked (TVL).
3. Yearn Finance (YFI)
Yearn Finance is a next-generation DeFi platform that continues to make waves across the crypto market. This growing decentralized ecosystem was designed to reduce the most common issues facing the DeFi market. The Yearn Finance platform has earned a reputation for providing users with high annual percentage yields (APY) on their deposited crypto assets.
Yearn Finance changed the decentralized finance market with its unparalleled toolset that uses proprietary protocols to enhance investor yields. Yearn users enjoy a modernized approach to DeFi. The platform is known to provide high-quality security and an open-source code appreciated by the community.
Yearn Finance's native coin, YFI, is the principal governance token of the network. This ERC-20 token serves various purposes within the Yearn ecosystem. Fundamentally, it is used to administer the protocols within the protocol. Notably, there is a maximum supply of 30,000 YFI tokens. Since none of these coins were pre-mined, the only two ways to acquire YFI is by providing liquidity to one of Yearn Finance's platforms or trading them on crypto exchanges.
The TVL of Yearn Finance is $3.69 billion.
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4. Compound (COMP)
Compound is a decentralized protocol that enables seamless borrowing of Ethereum tokens. The platform focuses on allowing borrowers to take out loans and lenders to provide loans by locking their crypto assets into the protocol.
The interest rates paid and received by borrowers and lenders are determined by the supply and demand of each crypto asset. Users can also earn and pay a floating interest rate.
Compound's native tokens are called cTokens. These are similar to other Ethereum ERC 20 tokens and can be traded, transferred, programmed, or redeemed at any time. In other words, cTokens represent a user's funds deposited in Compound.
Compound has a total value locked of $7.5 billion.
Read More: Compound Price Prediction
5. Synthetix (SNX)
Synthetix is an emerging decentralized finance protocol built on Ethereum. The platform issues synthetic assets, and its native tokens are the Synthetix Network Token (SNX). The synthetic assets represent real-world assets on the Synthetix network and are known as synths. To issue synthetic assets, SNX must be locked in a contract.
One of the main benefits of the collateral model followed by Synthetix for issuing synthetic assets is that it eliminates the need for any counterparties for conversion between synths. Instead, all conversions between synths take place via smart contracts. Another notable advantage of this model is that it solves pressing slippage and liquidity issues commonly seen on decentralized exchanges.
Synthetix is gaining the benefits of being the first mover in the synthetic assets space. Given that the global derivatives market is currently worth billions of dollars, Synthetix has a lot to gain in 2021. There is no doubt that Synthetix is one of the most promising protocols in the decentralized finance sector.
Five Most Successful DeFi Assets of 2021: Conclusion
The growth of DeFi in 2020 has indicated its potential in the financial sphere. The traditional services revolutionized via trustless smart contracts have swiftly gained the public trust and interest. DeFi is signaling high-profit potential to investors and companies.
This could signal the beginning of an enormous DeFi boom, making now a great time to invest in these top 5 DeFi assets of 2021.
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