Decentralized finance (DeFi) refers to websites that offer “decentralized” financial tools and services such as investing, borrowing, lending, trading, tokenized real estate and insurance.
With centralized finance, a bank or financial institution usually sits in the middle to manage the money; with decentralized finance, it is done peer-to-peer, using blockchain technology.
DeFi is one of the biggest trends in the blockchain industry, as many believe it will overtake traditional finance. In this piece, our editors have researched the Top DeFi platforms to make the most of this new world of finance.
Beyond TVL: How We Rank DeFi
Our editors use a set of criteria that allow us to gauge the “trust factor” of DeFi websites, such as year of launch, community following and total value locked (TVL) in the protocols. Even though DeFi is a young industry, we’re looking for platforms that have stood the test of time, with a large user base and lots of value.
Most DeFi rankings look exclusively at TVL, which is misleading. The DeFi industry has over $100 billion locked in apps: think of this like money “locked” in traditional mutual funds or CDs. TVL does matter, as it represents the sum of funds available to a DeFi platform, like the lending and borrowing capacity of a bank.
That said, many DeFi projects quickly attract a lot of capital, then quickly flame out as users leave the service. So TVL is just one part of the picture. We also look for longevity, and the long-term ability to sustain a strong community of users — in the same way we would look at a bank’s history and customer happiness, not just its size.
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Maker
The Ethereum-powered MakerDAO is a decentralized Collateralized Debt Position (CDP) platform that supports the stablecoin DAI, which aims to maintain its value one-to-one with the US dollar. Users can open a Collateralized Debt Position (CDP) by locking up ether (ETH) or other Ethereum assets as collateral to receive DAI as a debt against the locked-up assets. The platform uses the MKR token for interest payments, and the DAI and MKR paid are burnt once the CPD is closed out. BMJ Score 4.5
Curve Finance
Curve finance is a decentralized exchange protocol on which users can swap and trade Ethereum-based assets. It also focuses on providing liquidity to the markets using a market-making algorithm that automatically buys and sells assets whilst profiting from the bid and ask price spreads, which incentivises users to add their funds to the overall pool and earn interest. BMJ Score 4.5
Aave
Aave, formerly known as ETHLend, is an Ethereum-powered, decentralized peer-to-peer marketplace for borrowing and lending digital assets. The peer-to-peer lending platform enables borrowers and lenders to agree on the loan terms that are then executed using smart contracts. BMJ Score 4.5
Compound
Compound Finance is an Ethereum-based, open-source money markets protocol that enables users to borrow or lend against collateral. Anyone can participate in Compound’s liquidity pool and start to earn interest on their digital asset holdings. The interest rates adjust according to the supply and demand on the platform. Compound supports DAI, ETH, and USDC, among other digital assets. BMJ Score 4.0
Uniswap
Uniswap is a decentralized exchange on the Ethereum network that enables users to trade ERC20 tokens autonomously and swiftly. It does so through an algorithm that matches trades based upon supply and demand in a liquidity pool, removing middlemen and intermediaries. BMJ Score 4.0
WBTC
A single WBTC is an ERC20 token with a value equal to one bitcoin. WBTC allows for BTC to exist on the Ethereum network, providing much greater liquidity to the DeFi ecosystem. It also enables users to stake BTC on interest yielding protocols. BMJ Score 3.5
Convex finance
Convex finance is a DeFi protocol built on top of Curve finance. Convex protocol maximizes yields by streamlining the Curve boosting experience. Curve LP (liquidity pool) providers can claim boosted CRV (Curve DAO Token) and earn trading fees without locking CRV themselves. Users receive a token called cvxCRV when they deposit a certain amount of CRV tokens into Convex. Moreover, users can choose to stake cvxCRV tokens and receive CVX tokens as staking rewards along with a part of CRV rewards from Curve through Convex. BMJ Score 3.5
yearn.finance
The Yearn.Finance Protocol is an aggregator that aims to maximize earnings from yield farming platforms that leverage stablecoins. It does so by automatically switching between lending platforms as one becomes more profitable than the other. It does not, however, change the actual token initially deposited. BMJ Score 3.0
Sushiswap
Sushiswap is an automated market maker(AMM) based on Uniswap’s code. This means it lets users trade digital assets without a central authority managing the trades. Instead, trades are processed using smart contracts, while mathematical formulas automatically set prices. Users can borrow, swap digital assets and earn rewards. BMJ Score 3.0
Liquity
Liquity is an interest-free decentralized borrowing protocol and stablecoin running on the Ethereum blockchain. Liquity uses ETH(Ether) as collateral to lend LUSD(a stablecoin pegged to USD). Borrowers lock ETH in a smart contract to create a “trove”, a Collateral Debt Position(CDP) where users interact with their loans. The debt value can be changed by either repaying the debt or adding more collateral. When the collateral is below 110%, the Trove is liquidated. BMJ Score 3.0
Getting Started with DeFi
There are a variety of ways to get started with DeFi:
- Earning Yield: One way to earn “interest” on your crypto assets is by depositing them in DeFi platforms such as Aave or Compound that will pay you an Annual Percentage Yield. (See our current list of Best DeFi Rates.)
- Liquidity mining: This allows users to earn yield for providing liquidity (capital) to a liquidity pool on a DEX (Decentralized Exchange). Users may also be paid rewards in the DEX’s in-house token, which may increase in value, a bit like owning “stock” in the company. (See our list of Top Dex Aggregators.)
- Trading on DEXs: Decentralized exchanges let people directly trade with each other, unlike centralized exchanges. This means you can often trade smaller coins on DEXes that you won’t find in centralized exchanges.
Witnessing the furious growth of DeFi projects has been astonishing. With new decentralized financial services being added every week, it’s one of the most exciting areas to watch.
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