What Top 10 DeFi Cryptocurrencies Will Explode In 2022?
Decentralised finance has taken the world by storm over the last couple of years and investors are now scrambling to find the projects likely to see price break-outs in the near future. So with this in mind, how do we decide which DeFi cryptocurrencies are likely to explode in 2022? In the following article, we’ll consider some of the top prospects.
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.
Any forward-thinking cryptocurrency investor needs to have their finger on the pulse when it comes to DeFi, as this is the fastest-growing area of blockchain technology and is likely to become the main application of the technology in the coming years. However, learning the finer points of the top projects can require some serious technical know-how and many newer investors are put off by the apparent complexity.
The good news is that you don’t have to understand the full technicalities of a project to assess its prospects as an investment opportunity - it's enough to understand the service/function a project performs and how it fits into the wider cryptocurrency landscape.
DeFi is still an emerging industry and now is the ideal time to start putting together a portfolio of the top projects in the space. With this in mind, let’s take a closer look at DeFi and weigh up some of the leading names on the market going into 2022.
- What Top 10 DeFi Cryptocurrencies Will Explode In 2022?
- What is DeFi?
- DeFi: Key Concepts
- Top 10 DeFi Cryptocurrencies To Explode In 2022
- DeFi Blockchains
- How To Invest In DeFi Cryptocurrencies
What Top 10 DeFi Cryptocurrencies Will Explode In 2022?
No one can say for sure which DeFi cryptocurrencies will explode in 2022, but we’ve put together a list of some of the leading projects that are widely predicted to see growth in the coming year. Before we delve into each one, here’s a quick rundown of our list:
Whether you choose to invest in any of these projects or not, they are certainly worth watching in 2022 and it's worth spending a little time in getting to grips with what each one brings to the market.
What is DeFi?
Before we take a closer look at the top DeFi projects for 2022, it’s worth taking some time to consider what the term actually refers to. Decentralised finance is actually a fairly broad term and there is quite a high degree of diversity within the field itself.
Essentially, DeFi projects replicate traditional financial functions, like currency exchange, loans and investing, but use a combination of blockchain technology, smart contracts and dApps to remove the need for a middleman, such as a bank or broker.
Each DeFi platform will generally have at least one cryptocurrency, the function of which can vary from project to project. Some projects, for example, utilise stablecoins to reduce volatility for lending and borrowing, whilst others incentivise users and network participation with rewards paid in a proprietary token. There are also some tokens that are used in governing how a particular project operates.
It’s probably fairly obvious at this stage that DeFi has a pretty wide range of applications. A complete overview of each feature is beyond the scope of this article, but what follows is a brief summary of key terms:
Decentralised exchanges (DEXs)
Decentralised exchanges offer a place for the buying and selling of cryptocurrencies. They work in a similar way to traditional currency exchanges, only there is no central authority overseeing operations.
Lending platforms are exactly what they sound like - they offer cryptocurrency lending, delivered via smart contracts. Users can either borrow tokens for a fee, or stake their tokens to provide liquidity to the platform and earn commission. Lending platforms have opened a huge amount of possibilities - but most notably they allow crypto HODLers to put their tokens to work, rather than just keeping them in wallets.
Stablecoins come in two main forms. They can be pegged to the value of fiat currencies, such as the US dollar, or they can have their prices balanced through algorithms and smart contracts. Tether and Binance USD are examples of stablecoins pegged to fiat currency, whilst Maker DAI is an example of an algorithmic stablecoin.
It's also possible to use DeFi to speculate on the outcome of sporting events. Once again, using blockchain means not having to go through a traditional bookmaker, which in theory makes for more favourable betting conditions.
A wrapped token is effectively an ERC-20 token that represents another token, mirroring its exact value in a similar mechanism to that of stablecoins. Wrapping a token means it can effectively be traded on Ethereum based DeFi. For example, Wrapped Bitcoin allows BTC to be traded on the likes of Uniswap or Compound.
DeFi: Key Concepts
There are numerous ways in which blockchain technology is used in DeFi, but there are a few key concepts that are essential to understand before starting any serious investment drive.
As we have touched upon, decentralised exchanges arguably form the backbone of most DeFi projects. They give cryptocurrency holders a way of trading tokens without surrendering control to a central authority, thus keeping trading costs minimal.
Two of the largest Dexs are CoinBase and Binance - and many have argued that they have acquired too much authority due to their market dominance. However, there are more and more DeFi projects emerging that offer alternative ways to swap cryptocurrencies, thus further opening up the market.
There are numerous other DeXs on the market, including Uniswap, SushiSwap and Pancake Swap. Many other platforms have also announced their intention to launch their own proprietary exchanges, including leading meme coins, Shiba Inu and SafeMoon.
Liquidity pools are important to understand as they are effectively what allows DeXs and lending platforms to operate. They are essentially smart contracts that contain a value of a particular crypto asset. Users on the network can add or withdraw tokens from a given liquidity pool based on the rules of a protocol, such as Unisawap or Aave.
Whereas a traditional exchange requires a market maker - someone to match a buyer of a certain token with a seller - liquidity pools allow for tokens to be readily available. They also allow those who deposit their tokens and therefore provide liquidity, to earn a share of the interest charged to borrowers.
The widespread use of liquidity pools has allowed for the rise of yield farming - also referred to as liquidity mining. By moving their tokens between different DeFi projects, users can effectively compound the rewards they earn. It has emerged as a popular way of maximising returns on cryptocurrency holdings, as opposed to simply HODLing them.
There are several yield farming platforms that incentivize liquidity providers (LP) to lock up their crypto assets into their protocols. In some cases, the stablecoins that are returned as a kind of collateral can also be added to other yield farming platforms, effectively compounding returns.
The most popular DeFi protocols currently operate on the Ethereum network or Binance Smart Chain.
Another aspect of DeFi that has been receiving increased attention is composability. Many DeFi projects have recognised the limitations in being separated according to particular blockchains, like Ethereum or WiFi. As such, an increasing number are being developed with interoperability in mind.
By building DeFi applications in a modular fashion - sometimes referred to as Money Legos - different projects can interlink and expand their offerings. Due to the fact that many projects are open source, developers are also able to use existing codes to build their own platforms, without having to start from scratch.
Examples of different Money Legos may include Automated Market Makers, stablecoins, synthetic assets and DeFi aggregators.
Top 10 DeFi Cryptocurrencies To Explode In 2022
So without further ado, it’s time to look at our list of the top 10 cryptocurrencies that could explode in 2022. Of course, this list is only suggestive - there are certainly no guarantees offered here - but these projects are certainly worth keeping an eye on as we head into the new year.
Uniswap is one of the leading decentralised exchanges on the market looks as though it may finish 2021 far below its record high achieved in May 2021 - meaning it has plenty of room to grow moving forward. The project is built on the Ethereum protocol and features an ERC-20 exchange underpinned by liquidity pools.
The main purpose of Uniswap is for users to buy/sell and exchange Ethereum-based tokens. However, the network allows users to stake their tokens in the liquidity pools and earn rewards based on the amount committed and the volume of transactions made from that particular pool.
Uniswap is amongst the most well-established DeXs and has seen record-breaking growth in 2021, at one point making its way into the top ten tokens by market cap. Competition between the top decentralised exchanges is tight and Uniswap certainly has the credentials to be amongst the front runners.
Avalanche is a super high-speed blockchain that offers developers the perfect environment in which to “build the future of finance”. Squarely aimed at the DeFi industry, Avalanche is fully compatible with Ethereum assets but offers a faster transaction rate as well as lower fees.
Whilst in itself Avalanche is not strictly a DeFi project, the Ava Labs website states that the platform’s capabilities make it perfect for just about everything related to DeFi, including asset insurance, Automated Market Makers and decentralised exchanges. Its three-layer protocol offers to solve the classic DeFi trilemma - scalability, security and decentralisation.
Underpinning the whole project is the AVAX token. It has three main use cases within the Avalanche ecosystem. Firstly, users can stake the token to become a validator on the network, earning a reward fee. AVAX is also the common unit for subnets operating on the platform, to boost interoperability. Finally, AVAX can be used to pay for services on the platform.
AAVE provides an open-source, decentralised cryptocurrency lending platform. Much like others on this list, it uses liquidity pools to allow a steady supply of tokens for business operations and to remove the need for any middleman. Not only can users borrow tokens, they can also stake them to earn rewards.
Another project built on Ethereum, Aave is currently the third-largest DeFi project, with some $13.89bn locked into its protocol. Once again, it has proven hugely popular with cryptocurrency holders looking to increase market exposure without having to sell off their tokens. The system actually uses equivalency coins as part of its lending mechanism, but the token that we are discussing here is its native AAVE.
The AAVE has several applications. Firstly, paying for services on the platform entitles borrowers to more favourable terms. There are also better rates for those using AAVE as collateral for loans. It is also the governance token for the Aave project, which means holders get a say in how things are run.
4. Terra Luna
Terra Luna has styled itself as “programmable money for the internet” and is amongst the largest dual-token systems on the market. Terra Luna is another platform that leverages stablecoins to try and reduce volatility and offer more options to investors using its platform.
Terra has some pretty unique features and by using fiat-pegged stablecoins it effectively combines the decentralised benefits of cryptocurrencies with the comparative stability of fiat currencies. A relative newcomer, Terra Luna went live in 2019 and has quickly generated enough interest to see it enter the top ten tokens by market cap at one point in 2021.
LUNA is the native token of the wider Terra platform. It's a utility token that serves several functions on the network. Though not a stablecoin itself, it has a role within the mechanism that stabilises them on the platform. It is also used in staking as part of the Terra ecosystem.
Compound is another Ethereum-based Automated Market Maker and at the time of writing it is the fifth largest DeFi project on the market, with $11.4bn locked in. The network allows users to stake their tokens as collateral and borrow against them, or provide liquidity for other users in exchange for a share of the fees. Compound is backed by Coinbase’s venture fund, which gave it some pretty solid credentials right off the bat.
True to its name, Compound allows users to earn ‘double’ rewards. Those depositing their cryptocurrency to the platform’s liquidity pools are issued with cTokens in exchange. These cTokens can then be reinvested via the platforms to earn more rewards, whilst the cryptocurrency they staked in the first place still accrues interest for them.
In addition to cTokens, the network also has its native token, COMP, which is mainly used in governance. Holders can vote on the general direction of the project and suggest and/or debate changes to the protocol.
Yearn.Finance is a collection of DeFi protocols that allow users to lend and trade cryptocurrency. The platform is built on the Ethereum blockchain and enables participants to maximise passive earnings by staking their tokens in its Vaults.
One of Yearn’s key selling points is that it acts as an aggregator, showing users the highest-yields on several other DeFi platforms. This is one of the platform's core features, referred to as Earn and effectively switches funds between platforms like Aave and Compound to maximise returns for users.
Yearn.Finance essentially carries out legwork on behalf of users and saves them having to search for the best rates and constantly move their tokens around. It has so far proven popular with cryptocurrency investors, with around $4.6 billion locked in at the time of writing. It is governed via its native token, YFI.
SushiSwap is another Ethereum-based DeX and is the closest direct rival to Uniswap - although SushiSwap is actually an offshoot of the older platform. SushiSwap was created with users in mind, with developers behind the platform promising more influence over how it operates. It seems to have been a popular move, as there is currently some $4.98 billion locked into SushiSwap.
Inevitably, SushiSwap and Uniswap are very similar in terms of how each platform operates, but there are one or two important differences. The main one being SushiSwap’s native SUSHI token, which provides liquidity miners with more opportunities to earn passive income, as SUSHI itself can be re-invested in the protocol.
Alongside its role within the exchange itself, SUSHI is also the governance token of the platform, meaning holders have a say in how things are run.
MakerDAO launched in 2015, making it arguably the oldest DeFi platform on the market. In addition to being one of the first DeFi platforms, Makers native MKR token then became the first token to be tradable on the Ethereum blockchain.
Like most DeFi, it is a highly complex system but it's enough to understand that it uses the DAI stable coin to keep volatility to a minimum, which allows users to take out loans without having to worry about huge price divergence between their borrowed cryptocurrency and the one they put down as collateral.
Stablecoins are not unique to DeFi, of course, but whereas Tether and Binance USD, are backed by reserves of fiat currency, MakerDAO keeps its stablecoin steady through a system of smart contracts. At the time of writing, Maker is the number one cryptocurrency on the market and has an impressive $18.4 billion locked into its protocol.
9. Wrapped Bitcoin
There’s no getting around it, Bitcoin is still the biggest cryptocurrency and in terms of market capitalisation it has a considerable lead on the next biggest token (Ether). The problem is, Bitcoin exists on its own proprietary blockchain that cannot support complex DeFi projects. So does this mean BTC can’t be traded on Ethereum based exchanges?
Surprisingly, the answer is no, thanks to Wrapped Bitcoin. Developed in 2018, WBTC is actually an ERC-20 token that represents Bitcoin. Users deposit their BTC in a wallet operated by WBTC merchants and in exchange they receive the equivalent value in Wrapped Bitcoin. Holders are then free to use WBTC on Ethereum-based DeFi protocols, knowing that they can then exchange back again at any time.
This is a pretty big deal, given that most BTC holders are exactly that - holders. WBTC means they can now put their Bitcoin to work, earning passive income instead of just waiting for the price of BTC to rise over time.
10. Shiba Inu
Shiba Inu is perhaps a surprise entry in this list, given that it started life as a meme coin, aimed at cutting in on Dogecoin’s community-driven success. However, since its launch in 2020, the Shiba Inu has gradually expanded and now includes a host of different blockchain services.
The reason for its inclusion in this list is that the platform has now launched its ShibaSwap digital exchange. ShibaSwap offers users the ability to stake their tokens in liquidity platforms, exchange one cryptocurrency for another and even has a dedicated marketplace for NFTs. This means Shiba Inu now has its feet firmly in the DeFi space in addition to being on its way to the meme coin top spot.
SHIB had a pretty successful year in 2021, closing in on its main rival, DOGE, as well as the top ten cryptocurrencies by market cap. Whilst it is undoubtedly a riskier investment than many of the other names on this list, it certainly has the potential to explode in 2022.
Most leading DeFi projects are built on existing blockchains rather than having their own proprietary base network. Most of the leading projects are built in Ethereum, but there are plenty of other options for developers to consider. This is especially relevant in 2022, as the Ethereum network has been struggling to meet demand and much rests on the success of its 2.0 upgrade.
The Binance Smart Chain, launched in 2020, has also proven extremely popular - especially thanks to its integration with the Binance Exchange. In addition to BSC, both Cardano and Solana are blockchains that offer the perfect environment for even the most advanced DeFi projects.
It’s not unheard of for projects to jump ship from one platform to another and investors need to keep their fingers on the pulse as to which blockchain is likely to dominate the space and offer the greatest longevity.
How To Invest In DeFi Cryptocurrencies
If you are looking to invest in DeFi cryptocurrencies, then the simplest way to do so is by acquiring a holding of their respective tokens. To do this, you’ll need to find an exchange or broker that can give you access to the market.
For most investors, eToro provides the perfect solution. One of the most trusted names in retail trading, it provides a powerful yet accessible trading platform and lists several of the major DeFi tokens.
New users will also find plenty of information regarding the different cryptocurrencies, as well as information on the wider market and trading in general.
Of course, no one can predict which DeFi cryptocurrencies will explode in 2022 - the market simply changes too quickly for accurate forecasts to be truly viable. However, there is no doubt that DeFi in general holds a huge amount of potential and the projects that emerge as market leaders are likely to see substantial increases in the value of their respective tokens.
When it comes to picking your investments, research is key. Most DeFi projects are incredibly complex and it would be unrealistic for investors to try and understand their finer points, but it's important to know what each project brings to the market and how it stands out from its main competitors.
We might not be able to tell you outright what the best tokens to buy in 2022 will be, but the ten projects listed above all have potential and each one could well prove a sensible addition to your investment portfolio.
Of course, aside from buying the native token of your chosen DeFi project, you also have the option to use the protocol itself and stake any tokens you already own in one of the liquidity pools.
Whichever projects you choose to buy into, DeFi is very much here to stay and given that it is still in its infancy, 2022 could prove a very lucrative time to enter the market.
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