DeFi reached a new level of maturity this year. It went from its adolescent phase in 2020 to a mature business representative. The year 2021 is the time to figure out which projects are worth investing in and why. Below I provided my opinion on which DeFi projects to consider, backed up with numbers and facts to give you a well-rounded picture.
Ab Ovo* in DeFi-style, or why I choose it
First of all, it’s worth paying attention to trends. Both DeFi and the entire blockchain industry are no longer only ‘about crypto’. The hypostasis of blockchain is a transition from the established financial model to hi-end solutions that aim to streamline processes. Those behind this are no longer punks and anarchists, but rather conscious participants of the ‘game of financial thrones’.
Meanwhile, institutional participation in decentralized finance (DeFi) has increased dramatically over the past few months. As the total locked-in value (TVL) of DeFi approaches $70 billion, it’s clear that the market has moved beyond the first followers and enthusiasts of fast-rich methods to attaining wealth.
The DeFi I choose
As previously mentioned, decentralized finance uses smart contracts, automatically executing code placed on blockchains, primarily Ethereum. The code frequently replicates traditional financial market actions, such as lending or trading, but without an intermediary. It’s the rejection of intermediaries that have caused the mass adoration of crypto-enthusiasts. It’s now possible to create financial products without regulators and get closer to true decentralization.
While individual project performance continues to improve everywhere, and new money investments continue to flow into the global DeFi ecosystem, increasing funds, trading firms, and centralized revenue platforms provide the bulk of project liquidity.
Over the last months, several institutional investors such as Alameda, Three Arrows, 0XB1, and Celsius have now dominated the capital pools of many DeFi platforms. Big Data Protocol, an extremely low-risk peripheral platform, has raised more than $7 billion within 24 hours of launch. It’s becoming something of a rule of thumb that a popular project will attract hundreds of thousands of people when the code can be verified easily.
The perception of low-risk projects is largely due to repeated copying of well-known smart contracts such as Sushi’s MasterChef or Synthetix Rewards. Often the code changes from these benchmark ‘safe’ implementations are minor (though that doesn’t mean they’re risk-free), and are like a pipeline: write a couple of new lines of code and the project is ready. I’ve chosen the projects that can help make money today, as well as those that can move the market leaders in the future.
Nowadays, this DeFi-coin is a project that provides value to other initiatives for a fee. So platforms like Aave, (a DeFi savings and loan fund) automatically know how much a coin is worth when it’s borrowed or deposited. Uniswap has overtaken this project in terms of capitalization, and I consider it a major achievement in 2021 since it currently ranks 13th on CMC with a capitalization of $17 billion.
I really like this platform. A simple idea that has become synonymous with DeFi and has allowed projects in this segment to present themselves. It allows anyone with an Ethereum wallet to trade tokens and get income as a market maker. The platform offers liquidity to provide token exchange and gives users the ability to create a marketplace for any project they like and for which they are willing to fund liquidity. As simple as ‘one-two-three.’ The platform now ranks 11th on CMC with a capitalization of almost $21 billion.
Aave is a platform where you can place your tokens and earn interest on them. At the beginning of 2021, the annual return on participation in the project was 6.1%, and now we can talk about 12% cashback for using debt funds. The Ethereum transaction fee, which can range from $20 to $150 or more per deposit and withdrawal both ways, means you need $10,000 or more, but the income is real. Unfortunately, the platform has a high entry threshold, so this financial tool isn’t popular. But if you have some extra money, you can try without any hesitation. The project is very promising.
Compound is a savings and borrowing app. Similar to Aave, Compound pays out a portion of its profits in its own composite token with a high rating. The composite value arises from the difference between the funds invested and the price of the tokens, which have more value as they are management tokens in a business with $10 billion in total collateral value.
The key conclusion is that the business model of lending through management tokens and using them to make a profit is real. Users can earn 1000% more on their investment than Goldman Sachs or JPMorgan could offer. They also get management tokens in the project, and can transfer them into fiat whenever they want.
DAI is a subsidiary project of the Maker DAO, a dollar-value coin with little additional embedded value. Stablecoins are key to a new understanding of the ‘communication’ between fiat and crypto. They offer stable value in a token that is a bridge to fiat currency, and its $150 trillion global liquidity DAI has a great feature. The project pays a dividend of 3% per year. If you hold a token on Coinbase and other exchanges, the project will collect total income, and you will see your dividends drip.
A three percent annual income isn’t likely to be anything grand for those in the bitcoin world. But when you think about it, it shakes up the paradigm for the entire financial system. Even if you exclude interest, the DAI is a currency that pays dividends in and of itself.
DeFi projects still to come in 2021
Projects that rocketed in 2021 aren’t certain to stay at the top of the DeFi Mount Olympus. Just a week ago, the incredibly bright Shiba Inu came out on Binance, but the hype around it has already faded. There is a large number of projects that could become big players in the second half of the year. These are exactly the 5 projects that complete my top 10. Perhaps they could turn you into millionaires…or not! Once again, this is just my opinion of a highly volatile market that involves constant risk.
An exchange and liquid pool on Ether. The main advantage is the exchange of stablecoins with the lowest commission. It offers a wide choice of pairs and is cheaper and faster than Uniswap. Curve is quite a good solution to fight for your place under the crypto-sun.
A platform for speculative income on tangible commodities, fiat and crypto on ERC20-tokens. MakerDAO has a good reputation and there’s been no scandals in the past with any of its developers.
Everything Tron founder Justin Sun does is a great marketing move. That’s why the new project’s tokens were sold in under 5 minutes during the presale. Its concept is lending with a high rate of return. The platform has already shown its worth, so I’m sure that Sun will push the popularity by the second half of the year even harder.
WBTC (Wrapped Bitcoin)
I like the concept of ‘Bitcoin on Ether’: maximum liquidity with maximum Ethereum functionality. The Decentralized Autonomous Organization (DAO) allows everyone in the ecosystem (the same MakerDAO or Compound) to vote.
The developers’ ambitions are incredible: they want to attract classic cryptocurrencies to DeFi. Right now, it’s BTC, BCH and Zcash. Though, we can’t say that this is a full-fledged dApp. It’s a network where we can safely ‘move’ the liquidity of assets from blockchain to blockchain, which opens up new possibilities for financial strategies.
Eventually: a conclusion with an emphasis on perspective
DeFi will beat classic crypto, even if bitcoin reaches the mythical number of $1,000,000 per coin.
The world of decentralized finance is complex. Users can make a lot of money overnight, but they can also lose it all in seconds. The risk may be high, but the opportunities are much greater.
Being a young market, DeFi still needs to assert itself and establish a clear position. Only the community can make it happen. Nowadays, DeFi is likely to retain its ‘Wild West’ state of cryptocurrency, as ICOs did in 2017. However, trustworthy projects will surge ahead, while dubious ones will settle into the darknet. I am in favor of the first option, and I am sure that all the platforms I have outlined will at least forever write themselves into the history of the digital economy. At most, they will give rise to completely new opportunities in decentralized finance.
Max Krupyshev, CEO of CoinsPaid.
*-Ab Ovo (‘the egg’) – a phraseology meaning ‘from the very beginning’