The success of an app in the DeFi ecosystem and its relevance to users is best characterised by the number of the stacked coins.
Their number will tell you whether it is worth investing your money in a DeFi app, whether it is profitable to use it.
Currently, the top 10 DeFi apps in terms of blocked funds include:
- Uniswap's DEX;
- MakerDAO credit platform;
- Aave peer-to-peer lending app;
- WBTC token;
- Curve Finance, a decentralised exchange protocol;
- Compound lending application;
- Synthetix token trading platform;
- Yearn.Finance investment platform;
- RenVM network;
- Decentralised financial protocol Balancer.
The listed DeFi applications are analogous to the financial services of banks with one significant difference: the users of the services remain anonymous, the algorithm controls the application, and the actions of the users are controlled by the algorithm, not the development team.
A brief description of the main features of the listed projects will help to understand why these DeFi apps are popular in the cryptocurrency community.
Uniswap is a decentralised cryptocurrency exchange based on the Ethereum platform.Uniswap users can exchange ERC-20 tokens among themselves or exchange them for ether.
The token exchange is fast, the user does not need to create an exchange account, deposit cryptocurrency into it, create a sell order, just send their digital coins to Uniswap and receive back the desired tokens. Uniswap creates pools of token liquidity within which exchanges can be made.
Users can exchange their ethers for ERC-20 tokens, exchange tokens with each other or add their tokens to the liquidity pool. The amount of ether locked up to power the project is equivalent to $10 billion.
MAKERDAO CREDIT PLATFORM
The MakerDAO credit platform algorithm uses two tokens, DAI, a $1 stackable token that is loaned under a smart contract backed by the user's ether, and Maker, which is used to stabilize DAI if the ether rate falls and the pledged digital coins go cheap.
Maker owners, as an added incentive, are given a vote in the platform's approval system. Through voting, important management decisions are made that affect the performance of the platform. One such decision is the amount of collateral securing the loan. The current amount of locked ETH is $1.9 billion.
AAVE MUTUAL LENDING APPLICATION
The Aave app is a lending system based on smart contracts.
Lenders put their funds into the app, create liquidity, and get rewarded for it. Borrowers receive the funds and the system automatically monitors timely repayment of loans and liquidates unreliable ones. There is no concept of "loan tenure" in the app.
The borrower pays interest on the loan depending on the supply/demand ratio of the asset pledged. The most important characteristic that determines the condition of the collateral is the "health factor". A high "health factor" means good loan conditions; a reduction of the "health factor" to one leads to automatic liquidation of the collateral. The value of the "health factor" is affected by the value of the assets in collateral and the amount charged on the loan.
Deposit holders who have lent their assets to the app to create liquidity will receive a share of the fees paid by the borrowers for the use of the loan. The Aave app currently locks up $9.3 billion worth of ether.
The WBTC token is a stackable token that uses Bitcoin to provide stability. WBTC is ERC-20 compliant, the token's Bitcoin backing is maintained at 1 to 1.
The token enables Bitcoin liquidity to be used in DeFi applications on the Ethereum platform. The WBTC has $6.8 billion worth of ethers locked up in collateral.
CURVE FINANCE DECENTRALISED EXCHANGE PROTOCOL
Curve Finance is a platform for exchanging stablecoins for DeFi tokens.
Curve Finance eliminates the risk of price slippage, a situation encountered by users on other decentralized exchange platforms, where a transaction is priced below the user's stated amount. At Curve Finance, the user can exchange all known stablecoins including DAI and USDC.
Curve Finance takes non-trading stablecoins from Compound and transfers them to liquidity providers. At Curve Finance, the user can exchange all known stablecoins including DAI and USDC.
Curve Finance takes non-trading Stablecoins from Compound and transfers them to liquidity providers. It supports Trezor, Ledger, Metamask and Dapper wallets. The average daily trading volume on the platform is $155 million. $6.04 billion worth of ether is locked up.
COMPOUND LENDING APPLICATION
With Compound, users can borrow or lend cryptocurrencies and stablecoins.
Owners of Compound-backed cryptocurrency can deposit their assets into a smart contract to earn income at the expense of borrowers paying interest on the loans.
The interest rate is regulated by the smart contract and depends on the balance of supply and demand. If there are many borrowers, the rate increases, attracting investors; if there are few borrowers, the rate decreases, encouraging those willing to borrow in cryptocurrency. Compound supports nine assets issued on Ethereum, including Tether (USDT), Dai, Wrapped Bitcoin (WBTC) and Basic Attention Token (BAT). Compound blocks the equivalent of $7.38 billion worth of ethers.
SYNTHETIX TOKEN TRADING PLATFORM
Synthetix is a token trading platform. Users can present real assets - precious metals, securities as a Synth token. The token is created using the ERC-20 standard on the Ethereum platform. The platform receives accurate information about the value of assets represented by Synth tokens through Chainlink, a system for transferring important information from the tangible world to the blockchain and back.
Two types of tokens are used in the system - the Synthetix core network token (SNX) and synthetic assets or Synth. SNX acts as collateral for any synthetic asset. The equivalent of $1.51 billion worth of ETH and BTC has been locked up.
YEARN FINANCE INVESTMENT PLATFORM
The Yearn Finance project is referred to as a "yield aggregation" or "income farming" platform.
Users of the project place their tokens on the platform; the users' tokens are converted into digital assets with optimised returns. Yearn Finance uses DAI, USDC, USDT, TUSD for this purpose. The platform's smart contract, having received tokens from the user, determines which lending application on DeFi - Compound, Aave, Curve or dYdX - offers the highest rate per deposit and places the user tokens on deposit of the lending application with the highest rate.
Managing token platform Yearn Finance, YFI has become a cryptocurrency market sensation. Its creator, André Cronje, conceived YFI as a voting and platform management token.
As soon as it entered trading, YFI began to set price records and even surpassed bitcoin, the "digital gold". By early June 2021, YFI had a value of $45,800 and a daily trading turnover of $464,542,000. ETH equivalent to $3.8 billion was locked up in support of the platform.
The RenVM network is an exchange protocol between Ethereum and the Bitcoin, Bitcoin Cash and Zcash blockchains. With RenVM, users can directly transfer their assets in these digital currencies into the Ethereum network for DeFi applications.
The RenVM network accepts BTC, BCH, ZCH digital coins and converts them into renBTC, renBCH, renZCH tokens. RenVM connects to existing applications as an additional module. Through it, the network tokens, renBTC, renBCH, renZCH can be deposited in the DeFi application or withdrawn back.
The developers plan to add the digital yuan to the list of supported assets soon. The RenVM network has locked up $374 million worth of ETH.
BALANCER DECENTRALISED FINANCIAL PROTOCOL
The Balancer protocol acts simultaneously as an investment portfolio manager, liquidity provider and price gauge.
Two categories of users of the protocol are: owners of free ERC-20 tokens and traders that trade assets on the open market. The backbone of the protocol is the liquidity pools.
The Balancer pool is a smart contract that supports two or more ERC-20 tokens with a balancing protocol. The Balancer protocol is an automated investment portfolio. The purpose of the protocol is to maintain the balance of tokens in the pool. To maintain the balance of tokens in the pool, the pool is balanced by transferring tokens to traders for sale.
The pool owner receives a commission from the trader for each trade. The trader pays for the opportunity to trade without price "slippage", a situation when a deal takes place at conditions worse than stated during trading. In addition to price slippage protection, Balancer gives traders the ability to arbitrage between pools and the open cryptocurrency market.
Balancer has locked up $1.4 billion worth of ethers.
DeFi apps have implemented many financial services - lending, borrowing, exchanging and trading digital assets. The rise in the popularity of decentralised apps shows an increase in the number of funds locked by apps. In May 2020, the figure barely passed the $840 million mark; by October 2020, the total amount of funds locked up by apps was $10 billion. And as of early June 2021, the figure exceeds $60 billion. This is not the limit. DeFi is opening up financial services to all kinds of users, and blocked funds will grow along with the popularity of decentralised finance.