Top 10 DeFi Coins In 2022
Planning to invest in DeFi cryptocurrencies in 2022? With more than 500 DeFi cryptocurrencies, choosing the best to invest in 2022 is not an easy thing to do. Fear not, we at Trading Education have put a list together of the best DeFi cryptocurrencies to invest in 2022!
The growing popularity of DeFi appears to be changing the cryptocurrency market almost beyond recognition. Whilst Bitcoin may still dominate the number one spot, it seems that the days of simple, value exchange tokens could be numbered. Instead, cryptocurrencies that offer a more complete financial ecosystem are increasingly coming to dominate the sector.
Cryptocurrency and blockchain have grown well beyond their initial remit of providing a simple means for token exchange. Now, the true potential of this technology is starting to be realised as an increasing number of projects have begun innovating in everything from decentralised applications to the sale of digital art.
Another key development is the emergence of decentralised finance - or DeFi. It’s probably fair to say by this point that anyone with even a passing interest in cryptocurrency will have heard of DeFi, as it has surged in popularity recently and is fast becoming the ‘next big thing’ in the world of finance and technology.
But what is DeFi? And more importantly, is Defi a good investment? In the following guide, we’ll consider how blockchain is being used to disrupt the existing financial industries and explore some of the top projects in the space.
Will also take a closer look at the top DeFi currencies in 2022 and how they measure up as potential investment opportunities.
DeFi is only just beginning to take off and any cryptocurrency investor will probably want to get in on the action at the earliest possible stage. However, there are plenty of projects out there and whilst we cannot say which will prove the most fruitful, some undoubtedly stand a better chance than others.
- What Top 10 DeFi Cryptocurrencies Will Explode In 2022?
- What is DeFi?
- DeFi: Key Concepts
- DeFi Blockchains
- How to Invest in DeFi Cryptocurrencies
- Final Thoughts
- DeFi FAQ
Top 10 DeFi Cryptocurrencies To Explode In 2022
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:
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.
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.
Read Also: Is It Worth Investing in Uniswap?
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.
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.
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.
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.
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.
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.
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:
Decentralised exchanges (DEXs):
Decentralised exchanges are exactly that: platforms that allow cryptocurrency traders to buy and sell without having to go through an intermediary or custodian. Popular DEXs include Uniswap, SushiSwap and Kyber Network.
Again, fairly self-explanatory. Lending platforms offer cryptocurrency holders the chance to lend out their assets by utilising smart contracts. This means that rather than simply HODLing crypto, it is possible to receive interest on tokens by staking them in liquidity pools or loaning to other users on a network.
Stablecoins, such as Tether and Binance USD are cryptocurrencies that are pegged to fiat currency such as the dollar or the euro in order to maintain a stable price. Traders often use them as a means of holding value whilst staying within the crypto space.
DeFi is also ideal for those looking to speculate on sporting events or suchlike, without having to use a traditional bookmaker or betting firm. DeFi can be used to create betting markets and sportsbooks that offer all the same functions, without such intermediaries.
"Wrapped" bitcoins (WBTC):
The Bitcoin network has often come under fire for its lack of ‘smart’ capabilities. Wrapped Bitcoins solve this problem by allowing users to send their Bitcoin on the Ethereum network, to be used in its DeFi systems, such as those outlined above.
What makes DeFi such an exciting prospect for investment is that the technology is still very much in its infancy. Whilst it has been growing steadily in usage and popularity, there is still plenty of opportunity for forward-thinking investors to ‘get in early’ and potentially reap huge rewards if they choose to put their money in DeFi projects that take off.
DeFi: Key Concepts
In addition, many of the applications of DeFi that have started to emerge and generate interest are built around a handful of new concepts.
A central tenet of most cryptocurrencies is the notion of removing the middle man - offering a completely decentralised experience thus giving owners more control over their finances and, in theory, keeping trading costs much lower.
However, the larger exchanges used to trade cryptocurrencies, such as CoinBase and Binance, have become so influential in the industry and gained such a strong hold on the market that they have effectively started to fill the position of a central authority.
Decentralised exchanges change this but completely removing the need for a mediating authority. In fact, the top exchanges are even governed by users via their native tokens.
Many of the applications of DeFi outlined above rely on different iterations of liquidity mining. In its simplest sense, this allows people to lend out their crypto in some way or another to gain rewards, such as interest on a crypto loan or fees accrued from a liquidity pool.
Liquidity pools, for example, are a key feature of decentralised exchanges and allow them to operate away from the traditional order book models of established organisation-owned exchanges.
Yield farming is effectively the latest buzzword for investors who move their holdings around between different protocols and pools to try and garner as much reward as possible. In response to this trend, DeFi networks often seek to provide more and more incentives to encourage these yield farmers to stake their holdings with them.
Another important advantage of DeFi is that apps are often open-source, meaning the code can be viewed, copied and repurposed by other developers. Effectively, this means the building blocks of apps can be dovetailed together to create new apps. This approach has been described as building with Money Legos, as it allows DeFi applications to be connected in a modular approach to create new financial products and use cases.
In a real-world sense, this composability means that developers do not have to build everything from scratch. Instead, they can focus on their core business logic by leveraging existing open-source infrastructure.
Naturally, this adaptability is a massive advantage in a sector that is seeing unparalleled technical advances. As the smart networks upgrade and expand their capabilities, developers can continue to innovate and push the boundaries of what’s possible with DeFi.
Examples of different Money Legos may include DEXs, Automated Market Makers, stablecoins, synthetic assets and DeFi aggregators.
Some blockchains are better suited to DeFi than others. Realistically, to keep up with the ever-developing changes, the ‘smarter’ a network is the better.
As we’ve noted, the potential of blockchain and DeFi is only just being tapped. The developers of the main DeFi blockchains are still adapting to the ever-expanding potential. This means that investors in DeFi need to keep a close eye on protocol and infrastructure upgrades - most notably the ongoing Ethereum 2.0 upgrade.
At the time of writing, it’s probably fair to say that the best DeFi projects are mostly running on the Ethereum blockchain. This is in large part because it is the biggest of the altcoin networks and can support smart contracts and decentralised apps. However, the Binance Smart Chain is quickly closing ground and offers certain advantages over Ethereum - namely lower gas fees.
However, competition in the DeFi arena is hotting up, with other networks - notably Cardano - have their sights firmly fixed on the sector and no doubt this will be a huge area for competition in the coming years. The reality is that the DeFi war could come down to a battle of upgrades, as the existing smart networks seek to expand their functionality and support continuously diversifying DeFi activities.
A key concept for investors will be that of the agnostic protocols - i.e. DeFi that can run on different blockchains. This could well be another key factor in determining which of the DEXs will still be around in five to ten years from now.
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.
DeFi is very much the current trend in the world of cryptocurrencies. Even the most casual observer of the market should easily recognise the immense possibilities of blockchain in disrupting the status quo of the traditional world of finance.
Whilst the inner workings of many of these protocols are extremely complex and require a high degree of knowledge, most investors simply need to understand the basic premise of each project to build an idea of the upcoming DeFi coins that could quickly yield significant returns.
Of course, we can’t tell you which are the best DeFi coins to invest in, but the above list should have given you an idea of some of the most prominent DeFi projects on the scene and what they can contribute to the world of decentralised finance.
It should also be becoming clear that buying and selling tokens is no longer the only way to profit from cryptocurrencies. The concepts of yield farming and liquidity pool mining open the doors for numerous different ways to put your crypto holdings to work - much in the same way you might do with fiat currency in the traditional banking system.
Finally, it could also be argued that DeFi represents an inevitable evolution of cryptocurrency. Whereas the likes of Bitcoin and Litecoin gave us decentralised, peer-to-peer payment systems, the latest DeFi projects are giving us the decentralised infrastructure within which to use them to their maximum potential.
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What are DeFi coins?
DeFi coins are effectively just like any other cryptocurrencies. They can have numerous use cases, but more often than not they are used as governance tokens. This means that holders get certain rights on a given blockchain, such as voting on protocol upgrades or suggesting improvements on how networks are operated.
Is DeFi a good investment?
DeFi is possibly the most exciting aspect of the blockchain world today. The industry is still in its infancy, which of course brings a degree of uncertainty, but it also means that there’s an opportunity to get in early - which as we have seen can very much pay off in the world of cryptocurrency.
How do I invest in DeFi?
DeFi offers cryptocurrency a few options for investment. Of course, you can choose to stake your existing tokens in the various liquidity pools, or you can buy a holding of a given project’s native token. For the latter option, you’ll need a broker. We recommend eToro for most investors, as it has an award-winning platform and is one of the most trusted names in the industry.
Why is DeFi important?
DeFi represents the next stage in cryptocurrency because it offers a way in which an entire financial infrastructure can be completely decentralised. The various DeFi projects demonstrate that loans, trading and even betting can all be done without the need for a middle man. As such, it is hugely important for the future of cryptocurrency and blockchain technology.
How do you make money with DeFi?
One of the best things about DeFi is that it offers numerous ways to make money. DeFi tokens can be traded the same as any other cryptocurrencies, but holders can also put their coins to work by lending them out or adding them into liquidity pools.
What is the best DeFi coin?
It's hard to shortlist the best DeFi coins to invest in for 2022. In reality, there are numerous projects that have serious potential and no doubt upcoming DeFi coins will bring more to the table. As with any investment, it’s a good idea to spread risk across a diversified portfolio. However, at the time of writing, Uniswap’s UNI is seeing some serious price growth that is expected to grow throughout the remained of the year.
Is Ethereum the best platform for DeFi?
There’s no doubt that Etherum is hugely popular with DeFi developers, but following congestion issues in 2020 and 2021, it's safe to say the original smart chain has its rivals. Cardano, Solana and Binance Smart Chain are slowly but surely closing the gap, each offering faster transaction processing than the current incarnation of Ethereum.