DeFi Explained

What Is DeFi And What Is The Purpose Of It?

So, you have probably heard the term DeFi (decentralized finance) before. But what is it exactly? Can we use it to earn interest on our cryptocurrency holdings? Is it risky? And will it really change the future of finance as we know it? 

So, about DeFi: You already know that Bitcoin is a form of money that is not controlled by any central bank or government. It can be transferred to anyone from anyone around the world, without the need of a bank or a financial institution. This means Bitcoin is decentralized. However, transferring money is only the first of many building blocks in a financial system. 

DeFi is like a big computer program that lets people all over the world borrow and lend money, trade different currencies, and do other financial things without needing a bank or other middleman.

You know how you have a piggy bank where you save your money? Well, in DeFi, people can put their money into digital piggy banks called smart contracts. These smart contracts are like special computer programs that automatically follow the rules for lending and borrowing money.

The cool thing about DeFi is that it’s all online, so people from all over the world can use it. And because it’s decentralized, nobody controls it. It’s like a big group project where everyone works together to make it work.

But there’s a catch. Because DeFi is all online and decentralized, there’s no one to help if something goes wrong. So people have to be very careful and make sure they understand what they’re doing before they use it.

How is DeFi different from traditional finance?

In traditional finance, people use banks or other middlemen to handle their money. But in DeFi, people can use smart contracts to handle their money instead. This means that DeFi is much more decentralized than traditional finance, because there’s no one central authority controlling everything. It also means that DeFi can be more accessible to people all over the world, since anyone with an internet connection can use it.

What are the benefits of using DeFi?

There are a lot of benefits to using DeFi! For one thing, it can be faster and cheaper than using traditional finance. Since there’s no middleman involved, there are fewer fees and less bureaucracy. DeFi can also be more accessible to people who might not have access to traditional banking services, such as people living in rural areas or people who don’t have government-issued ID. Plus, DeFi is a global network, so people all over the world can use it to connect and transact with each other.

What are the risks involved in using DeFi?

While there are a lot of benefits to using DeFi, there are also some risks to be aware of. Since DeFi is decentralized, there’s no one to turn to if something goes wrong. If a smart contract has a bug or is hacked, people could lose their money. Plus, DeFi is still a relatively new technology, so there’s a lot of uncertainty around how it will be regulated and how it will evolve in the future.

How do I get started with DeFi?

To get started with DeFi, you’ll need to have an internet connection and some cryptocurrency. Most DeFi platforms require you to use a cryptocurrency like Bitcoin or Ethereum to access their services. Once you have some cryptocurrency, you can start exploring different DeFi platforms and applications to see which ones might be the best fit for you.

What are some popular DeFi platforms or applications?

There are a lot of different DeFi platforms and applications out there, but some popular ones include Uniswap, Compound, Aave, and MakerDAO. Each platform has its own strengths and weaknesses, so it’s important to do your research and choose the one that’s right for you.

Can I earn money with DeFi?

Yes, you can earn money with DeFi! One way to earn money is by lending out your cryptocurrency through a DeFi platform. You can earn interest on your cryptocurrency while it’s being lent out. Another way to earn money is by trading different cryptocurrencies on a DeFi platform. If you buy a cryptocurrency when it’s cheap and sell it when it’s more expensive, you can make a profit.

Is DeFi regulated by governments?

DeFi is a relatively new technology, so it’s still not clear how it will be regulated by governments. Right now, there’s not a lot of government regulation around DeFi, since it’s a decentralized network that doesn’t have a central authority. However, some governments are starting to take notice of DeFi and are exploring ways to regulate it.

What is the future of DeFi?

The future of DeFi is still very uncertain! 

Again, DeFi stands for Decentralized Finance, which means it’s a new way of doing things with money that doesn’t rely on banks or other traditional financial institutions. Instead, people use cryptocurrencies like Bitcoin or Ethereum to create financial products and services that anyone can use from anywhere in the world.

In the future, DeFi is going to change the way we think about money and banking. It will make it easier for people to access financial services and products, without needing to go through traditional banks. This means that people who might not have had access to these services before, like people in developing countries, will be able to use them too.

DeFi is also going to make it possible for people to earn money just by holding cryptocurrencies. This is called “staking,” and it means that you can earn interest on your crypto just like you would with a bank account, but without needing to give your money to a bank.

Another exciting thing about DeFi is that it’s all built on blockchain technology. Blockchain is a way of storing and verifying information that’s incredibly secure and transparent. This means that you can trust that the DeFi products and services you’re using are safe and trustworthy.

So, to sum it up, DeFi is the future of finance, and it’s going to change the way we think about money and banking. It’s going to make it easier for people to access financial services, help people earn money just by holding cryptocurrencies, and it’s all built on super-secure blockchain technology. How cool is that?!

💥@Streamflow_fi will be having a Twitter space with @Orca_so, @TulipProtocol & @UXDProtocol

💥The platforms will discuss the current state and potential future of #Solana's decentralized finance.

🔽INFOhttps://t.co/MgmNI4EIUt pic.twitter.com/5nTRJsUqgK

— 𝐒𝐎𝐋𝐀𝐍𝐀 𝐔𝐍𝐈𝐕𝐄𝐑𝐒𝐄 🧬 (@SolanaUnivers) March 7, 2023

CeFi 

To understand the world around DeFi more, let’s start discussing CeFi (centralized finance) first. 

CEFI stands for Centralized Finance, which is the traditional way of doing things with money that we’re all used to. This means that you use banks or other financial institutions to hold your money, get loans, or invest in the stock market.

The future of CEFI is also very exciting! While DeFi is changing the way we think about finance, CEFI is still going to be an important part of the financial world. In fact, many big companies and institutions are already getting involved in cryptocurrencies and blockchain technology, which is going to make CEFI even more important.

One of the advantages of CEFI is that it’s often more stable than DeFi. Because CEFI is backed by banks and other financial institutions, it’s less likely to be affected by sudden changes in the market. This can be especially important for people who need a stable source of income or who are looking to make long-term investments.

Another advantage of CEFI is that it often comes with more regulatory protections. This means that there are rules and regulations in place to help protect consumers and investors from fraud and other types of financial scams.

In summary, while DeFi is changing the game when it comes to finance, CEFI is still going to be an important part of the financial world. It can offer stability, regulatory protections, and the involvement of big companies and institutions in the crypto space can make it even more exciting in the future. So, whether you’re interested in DeFi or CEFI, there are exciting things happening in the world of finance that you can look forward to!

Aside from sending money to one another, there are a variety of services we use today. For example, loans, saving plans, insurance and stock markets are all services that are built around money and together create our financial system. Today, our financial system and all its services are completely centralized. Banks, stock markets, insurance companies and other financial institutions all have someone in charge, be it the company or a person, that controls and offers these services. This centralized financial system has its risk, for example mismanagement, fraud and corruption to name a few. 

But what if we could decentralize the financial system as a whole in the same way Bitcoin decentralized money? That is exactly what DeFi is all about.

DeFi 

According to Ethereum.org, DeFi is a collective term for financial products and services that are accessible to anyone who can use Ethereum – anyone with an internet connection. With DeFi, the markets are always open and there are no centralized authorities who can block payments or deny you access to anything. Services that were previously slow and at risk of human error are automatic and safer now that they are handled by code that anyone can inspect and scrutinize.

The building blocks of DeFi

1. Decentralized infrastructure – Ethereum

So, if we would like to create a whole new decentralized financial system, the first thing we need is an infrastructure for programming and running decentralized services, for example Ethereum. Ethereum is a Do It Yourself platform for writing decentralized programs also known as decentralized apps or Dapps. Through the use of Ethereum we can write automated code, also known as smart contracts, that manage any financial service we would like to create in a decentralized manner. This means that we determine the rules as to how a certain service will work, and once we deploy those rules on the Ethereum network we no longer have control over them – they are immutable. Once we have a system in place like Ethereum for creating decentralized apps we can start building our decentralized financial system. 

2. Decentralized Money

About money, why don’t we just use Bitcoin? It is already a popular, working, decentralized cryptocurrency. Well, Bitcoin is indeed decentralized, but it has only very basic programmable functionality and is not compatible with the Ethereum platform. Ether, on the other hand, is compatible and programmable. 

If we are looking to build reliable financial services that people will want to use we will need a more stable currency to operate within this system. This is where stablecoins come in. Stablecoins are cryptocurrencies that are pegged to the value of a real-world asset, usually some major currency like the US dollar. 

For the purpose of DeFi, we will want to use a stablecoin that does not use fiat money reserves for maintaining a peg, since this will require some sort of central authority. What could we choose then? Now, this is where DAI comes into play. 

DAI is a stablecoin cryptocurrency which aims to keep its value as close to one United States dollar (USD) as possible, through an automated system of smart contracts on the Ethereum blockchain. DAI is over collateralized, meaning if you lock up in a deposit $1 worth of Ether, you can borrow 66 cents worth of DAI. As soon as you want your Ether back, just pay back the DAI you borrowed and the Ether will be released. If you do not have any Ether to lock up as collateral, you can just buy DAI on an exchange. 

Because DAI is over collateralized, even if Ether’s price becomes volatile, the value of the locked Ether backing the DAI in circulation will most likely still remain at 100% or more. In essence, the DAI stablecoin is actually also a smart contract that resides on the Ethereum platform. This is why DAI could be a great choice. 

Now that our decentralized financial system has stable decentralized money, it’s time to create some additional services. 

3. Decentralized financial services

The first use case that we will discuss is the decentralized exchange, or DEX for short. DEXes operate according to a set of rules, or smart contracts, that allow users to buy, sell, or trade cryptocurrencies. Just like DAI they also reside on the Ethereum platform which means they operate without a central authority. When you trade on a DEX, there is no exchange operator, no sign-ups, no identity verification, and no withdrawal fees. Instead, the smart contracts enforce the rules, execute trades, and securely handle funds when necessary. Also, unlike a centralized exchange, there’s often no need to deposit funds into an exchange account before conducting a trade. This eliminates the major risk of exchange hacking which exists for all centralized exchanges. Just to name some DEX: Uniswap, which has a volume of $2.5 billion, and Sushiswap, which has a volume of $500 million. But the range of decentralized financial services doesn’t stop there. 

4. Decentralized money markets

Let’s move on to decentralized money markets – services that connect borrowers with lenders. Compound, or Aave are Ethereum based borrowing and lending dapps, meaning you can lend your crypto out and earn interest on them. Alternatively, maybe you need some money to pay the rent or buy groceries, but the only funds you have are cryptocurrencies. If that is the case you can deposit your crypto as collateral, and borrow against it. The Compound platform automatically connects the lenders with borrowers, enforces the terms of the loans, and distributes the interest. The process of earning interest on cryptocurrencies has become extremely popular lately, giving rise to “yield farming” – A term given to the effort of putting crypto assets to work while seeking to generate the most returns possible. 

So, we have decentralized stablecoins, decentralized exchanges and decentralized money markets. How about decentralized insurance? 

5. Decentralized insurance

We will discuss the risks later, but for now let’s talk about a decentralized platform that connects people who are willing to pay for insurance with people who are willing to insure them for a premium, while everything happens autonomously without any insurance company or agent in the middle. 

DeFi services work in conjunction with one another, making it possible to mix and match different services to create new and exciting opportunities. This kind of resembles how you can use different LEGO blocks and get creative with whatever it is you want to build. Hence the term ‘money legos’ has been coined to refer to DeFi services.  For example, you can build the following service from different money legos – You start out by using a decentralized exchange aggregator to find the exchange with the best rate for swapping Ether for DAI. You then select the DEX you want and conduct the trade. Then you lend the DAI you received to borrowers, to earn interest. Finally, you can add insurance to this process to make sure you’re covered in case anything goes wrong. That’s just one example out of the many opportunities DeFi offers.

By now you can probably imagine what advantages DeFi presents. Transparency, interoperability, decentralization, free for all services and flexible user experience, to name just a few. However, there are also some risks you should be aware of. 

What are the most exciting differences between DeFi and CeFi in terms of innovation?

DeFi is a new and innovative way of doing things with money that doesn’t rely on traditional financial institutions. It’s built on blockchain technology, which makes it more transparent and secure. DeFi allows for the creation of new financial products and services that are accessible to anyone with an internet connection. In contrast, CeFi is more traditional and built on the existing financial system. While it may not be as innovative as DeFi, it still plays an important role in the financial world and offers more stability than DeFi.

What are the most exciting differences between DeFi and CeFi in terms of accessibility?

One of the most exciting things about DeFi is that it’s accessible to anyone with an internet connection. This means that people who may not have had access to traditional financial services in the past, like those in developing countries, can now access financial products and services. In contrast, CeFi often requires people to go through traditional financial institutions, which can be difficult or impossible for some people to access. However, CeFi may still be more accessible to some people who may not have the technical knowledge or resources to use DeFi.

What are the most exciting differences between DeFi and CeFi in terms of regulation?

DeFi is often less regulated than CeFi because it’s built on blockchain technology, which makes it more decentralized and less reliant on traditional financial institutions. While this can be seen as a positive for some people who value privacy and decentralization, it can also make DeFi more susceptible to scams and fraud. On the other hand, CeFi is often more regulated, which can offer more protections for consumers and investors. However, these regulations can also make it more difficult for people to access financial services and products.

What are the most exciting differences between DeFi and CeFi in terms of stability?

One of the advantages of CeFi is that it’s often more stable than DeFi. This is because CeFi is backed by traditional financial institutions, which can offer more stability and security. In contrast, DeFi can be more volatile because it’s often based on new and untested financial products and services. While this volatility can offer high rewards, it can also come with high risks. However, the use of stablecoins in DeFi is increasing, which can help to mitigate some of this volatility and make DeFi more stable in the future.

The risks of the DeFi systems

DeFi is a new and exciting way of doing things with money that doesn’t rely on traditional financial institutions like banks. It’s built on something called blockchain technology, which makes it more secure and transparent. While DeFi can offer many advantages, like faster and cheaper transactions, there are also some risks that you should be aware of.

What is the biggest risk of DeFi and why is it important to be careful?

One of the biggest risks of DeFi is that it’s often less regulated than traditional finance. This means that there may be more scams or fraud in the DeFi world, which can lead to people losing their money. It’s important to be careful when investing in DeFi projects and to do your research to make sure that they’re legitimate.

What is another risk of DeFi and how should investors approach it?

Another risk of DeFi is that it can be more volatile than traditional finance. This means that the value of your investments in DeFi can change quickly and unpredictably. While this volatility can offer high rewards, it can also come with high risks. It’s important to be aware of the risks involved and to only invest what you can afford to lose.

Why is the newness of DeFi a risk, and how can investors mitigate this risk?

The most important risk is that DeFi is still in its infancy and this means that things can go wrong. Smart contracts have had issues in the past where people did not define the rules for certain services correctly and hackers found creative ways to exploit existing loopholes in order to steal money. If you decide to test out any of the existing DeFi services, make sure to do it with an amount of money you can afford to lose in case anything goes wrong. Additionally, you should remember that a system is decentralized only as its most central component. This means that some services may be only partially decentralized while still keeping some centralized aspects that can act as an achilles heel. It is important to understand exactly how a product or service works before investing in it so you can be aware of any issues that may come up. To sum it up, it seems that the DeFi revolution has reached its early adopter stage and the coming years will tell if it manages to cross the chasm into mainstream adoption. There’s no doubt that a decentralized financial system can benefit a huge portion of the population that currently suffers from financial discrimination, high fees and inefficiencies in managing their funds. 

Will DeFi replace CeFi, and what are the potential benefits of a decentralized financial system?

Will DeFi completely replace CeFi? It is a hard question and no one has the answer to it yet. But looking at the trends now, we could say that there is a probability of that happening. It would be a great opportunity, if cryptos were not just for trading. Building a whole system behind them seems like a wise decision, but we will see what happens next. 

What is the final risk of DeFi, and why is it important to only invest in projects you understand?

Finally, DeFi is still a relatively new and untested area of finance. While there are many exciting developments happening in the DeFi world, there may be unforeseen risks that we’re not yet aware of. It’s important to be cautious and to only invest in DeFi projects that you understand and that you’re comfortable with.

So what are the risks and opportunities of DeFi, and how can investors make informed decisions?

In summary, while DeFi offers many exciting opportunities, there are also risks involved. It’s important to be careful, do your research, and only invest what you can afford to lose. By being aware of the risks, you can make informed decisions about your investments in the DeFi world.

Top 6 DeFi Projects In 2022

When we talk about DeFi projects, we cannot leave Ethereum out from the topic. After the fall in May, it is trading around $2,500 at press-time and will probably stay like that for weeks. One area of crypto that is the most affected by the Ethereum’s movements is decentralized finance (DeFi). Over the summer of 2020, we saw projects absolutely pumped based on their associations with Ethereum. Then, in early 2021, we saw the same thing. There has been a break recently in the world of DeFi though, and it looks now like it could be bouncing back this summer. In this e-book, we are going to be looking at some of the projects that are the most promising one in the world of DeFi. 

The traditional banking system vs DeFi

First of all, let’s discuss the traditional banking system and how it differs from DeFi. So, you may hear this crypto buzz word “DeFi” quite often, and it can be a little confusing because cryptocurrency is finance to some extent. 

Just a quick reminder what DeFi is exactly: it is some sort of money system, right? Well, decentralized finance is the intersection of traditional and digital finance. The idea of DeFi is that anything you can do with a bank, credit union or lender should be able to be done digitally in a decentralized manner, meaning there is no need for a third party. Thanks to the DeFi system, we do not need credit card processors. We do not need banks to keep our money safe. We do not need third parties to hold our money for us. 

Through crypto and decentralization, individuals are empowered to do anything and everything that traditional finance and banks do for us. Aside from the removal of third parties all up in businesses, DeFi also allows investors and traders more opportunities to make money specifically through crypto investing, lending, staking and yield farming. These are ways where individuals can make big returns on their own money, instead of big institutions making it. To understand it, let’s talk about the way a bank works with interest for example.

A common example

When you put your money into a savings account, you earn a whole 0.01%. So, earn 1/100 of 1% on your money. To put it mildly, it is not too much. But here is the main thing. What about that money that you are earning 0.01% on? The banks are “stealing” from your account to lend to somewhere else where they are charging them anywhere from 3-36%. It is not that fair, right? But that is just the way how traditional baking works. Now, imagine if you can make that 36% on your own money instead of the bank using your money. The good news is you can with some of the DeFi projects. It is pretty smart business model for the banks but DeFi makes it possible for us to leave the banks out of the game.

How is Bitcoin decentralized?

Well, you know how we use money like coins and bills to buy things? Bitcoin is a special kind of money that you can’t touch or hold, but it still works like regular money. What makes it different is that no one person or group is in charge of it. It’s not controlled by any government or bank, which means it’s decentralized.

What a financial system is?

A financial system is like a big puzzle made up of many different pieces. These pieces help people do things with their money, like saving, borrowing, and investing. Banks and other financial institutions are part of the financial system, but there are other things too, like the stock market and different kinds of money.

Can people from all over the world use DeFi?

Yes! DeFi is online, which means anyone with an internet connection can use it. People from different countries and even different parts of the world can all use DeFi to do things with their money, like lending and borrowing.

Why do people need to be careful when using DeFi?

Well, DeFi is online and doesn’t have one person or group in charge, which means there’s no one to help if something goes wrong. People need to be very careful and make sure they understand what they’re doing before they use it. If they’re not careful, they could lose their money or get scammed.

Do you think DeFi will change the future of finance?

It’s hard to say for sure, but DeFi has the potential to change the way people do things with their money. Right now, banks and other financial institutions are in charge of a lot of things, but DeFi lets people do those things without needing a middleman. This could make things faster and cheaper for people, and give them more control over their money. So, DeFi could change the future of finance, but we’ll have to wait and see.

Finding the good projects

DeFi projects will probably fly in the future as well, but the main question is how are we going to take advantage of it? And which project should we be looking at? Well, first, the easiest way to find great DeFi projects is on CoinMarketCap.com. They actually have a good list of DeFi projects on their website. We could say that they are doing the work for you. So, let’s see which projects are the most promising ones this year.

1. Uniswap [UNI]

Uniswap is a decentralized crypto exchange that runs on the Ethereum blockchain, just like Sushiswap. To be more precise, it is an automated liquidity protocol. There is no order book or any centralized party required to make trades. Uniswap allows users to trade without intermediaries, with a high degree of decentralization and censorship-resistance. While other crypto money markets rely on centralized controls or administrators and order book systems that match buyers to sellers, Uniswap distinguishes itself by offering users a fully decentralized trading platform that addresses the prevalent liquidity challenges of the sector. Just to note, in Q1 2021, the platform had handled over $200 billion in trading volume and over 40 million trades.

Many are saying that is the number 1 crypto DeFi project. It is the top decentralized exchange in the world and has a ton of upside. There are also talks that Uniswap could branch out to other chains like Binance Smart Chain, and a few people are saying that the project has more potential and upside than BNB. That means Uniswap has more room to go and will probably grow throughout the summer.

2. Pancakeswap [CAKE]

PancakeSwap is a decentralized exchange that allows you to trade cryptocurrencies and tokens without a centralized intermediary, keeping custody of your tokens all the while. It is built on automated smart contracts deployed on Binance Smart Chain, the blockchain platform run by crypto exchange Binance. 

PancakeSwap is part of the rising wave of DeFi services that enable crypto traders to conduct transactions with trade tokens without a middleman taking a significant cut of the funds. It is one of the largest such DEXs on the Binance Smart Chain, although there are DEXs on Ethereum with significantly higher average trading volume.

Comparing it to Uniswap, the differences between the projects become even more apparent when examining other metrics. Although they have similar trading volumes Uniswap offers over 1,600 tokens and 2100 trading pairs. Whereas Pancakeswap only offers 96 tokens and 690 trading pairs. In terms of users, Uniswap has logged nearly 1 million unique wallet addresses according to June analytics. The most recent statistic I was able to find suggests that Uniswap has 300,000 monthly users. This is nearly double the number of monthly users Pancakeswap has seen in the last 30 days according to Dapp radar.

3. Sushiswap [SUSHI]

SushiSwap is a decentralized, community-owned, and community-run cryptocurrency exchange built on the Ethereum network. It is similar to platforms like Uniswap and Balancer. It uses a collection of liquidity pools to achieve its goal. Users first lock up assets into smart contracts, and traders then buy and sell cryptocurrencies from those pools, swapping out one token for another. 

SushiSwap is an exciting experiment that challenges the competitive advantage of an already successful DeFi protocol – Uniswap. SushiSwap is a fork of Uniswap with the key difference being community governance, so let’s compare them. Uniswap and Sushiswap are competing decentralized exchanges (DEXs) built on the Ethereum blockchain. While Uniswap handles more volume and has been around for more time, SushiSwap does have some unique benefits such as a yield farming platform and bonuses for token holders. Uniswap pays higher fees to liquidity providers (0.3% vs. 0.25% SushiSwap), but SushiSwap throws in an additional 0.05% paid to SUSHI holders. The latter thus incentivizes holding SUSHI, while the former pays LPs.

So, there a few bits on the internet saying that Sushiswap is just a copycat version of Uniswap, but it is much more than that, although there are similarities as well. It is a very good project and it is getting more and more popular every day.

4. THORChain [RUNE]

We have already talked about Uniswap and Sushiswap, two major decentralized exchanges on the market. But they all have a problem. Although protocols like Uniswap, Sushiswap or Curve are great when it comes to exchanging assets within the Ethereum ecosystem, they don’t support swaps between different blockchains. This is the problem THORChain is trying to solve.

To accommodate this problem, a common approach is to represent external assets in the form of wrapped or synthetic tokens on Ethereum. The most popular asset on other blockchains outside of Ethereum is of course Bitcoin. There are multiple ways of representing Bitcoin on Ethereum that allows it to be traded on decentralized exchanges. Wrapped Bitcoin, renBTC, sBTC to name a few.

But moving forward, there is a more important question. What if there was a way of swapping native assets instead? For example, making a trade between Bitcoin on the Bitcoin blockchain and Ether on the Ethereum blockchain. And this is exactly where Thorchain comes into play. Many processes on the network are mediated by its token, RUNE. To secure itself, the network aims to have 67% of RUNE bonded by nodes and 33% staked by liquidity providers. In general, THORChain is designed to have as little formal governance as possible. Important decisions like which assets to list are made by liquidity providers staking capital. To sum up, ThorChain is a protocol that makes it possible to instantly swap cryptocurrencies between blockchains. 

5. Yearn.finance [YFI]

Yearn.finance is a suite of products in Decentralized Finance (DeFi) that provides lending aggregation, yield generation, and insurance on the Ethereum blockchain. The protocol is maintained by various independent developers and is governed by YFI holders. It is quite similar to Alchemix, which is a platform for the creation of yield-backed synthetic tokens that users can acquire for no cost in exchange for locking collateral in the Alchemix system. It gives users the ability to get an advance on their future yield immediately. These Alchemical Synthetic Tokens are a powerful DeFi primitive and a new way to make derivatives based on yield instead of debt. But what makes Yearn.finance unique? Let’s see.

Yearn.finance set out to simplify DeFi investment and activities such as yield farming for the broader investor sector. The platform makes use of various bespoke tools to act as an aggregator for DeFi protocols such as Curve, Compound and Aave, bringing those who stake cryptocurrency the highest possible yield. They make a profit by charging withdrawal fees, which is 0.5% at the moment, as well as 5% gas subsidization fees. Due to its governance model, these can technically be changed by consensus at any time. The project YFI has rallied throughout 2020 and 2021 and we do not expect it to slow down anytime soon. 

6. Avalanche [AVAX]

Avalanche is an open-source platform for launching decentralized applications and enterprise blockchain deployments in one interoperable, highly scalable ecosystem. The network consists of multiple blockchains and uses a novel proof of stake consensus mechanism to achieve high throughput, estimated to reach over 4500 transactions per second.

Avalanche has sought to compete with Ethereum by developing its own decentralized finance (DeFi) ecosystem and a variety of Ethereum-based DeFi projects have integrated with its platform — including bZx, SushiSwap, Reef, Securitize, and TrueUSD. Additionally, Avalanche is developing a bridge to the Ethereum network, which will allow users to seamlessly transfer assets between the two chains.

Apart from Ethereum, Avalanche is a very similar platform to Polkadot [DOT] and Cosmos [ATOM] but with higher throughput, sub second finality, ability to use multiple custom virtual machines and can scale to millions of validators with their revolutionary consensus offering unparalleled decentralization. According to Medium.com, all three platforms offer vastly superior performance to the likes of Bitcoin and Ethereum 1.0. Avalanche with its higher transactions per second, no limit on the number of subnets per blockchains that can be created, and the consensus can scale to potentially millions of validators all participating in consensus scores. Polkadot claims to offer more transaction per second than cosmos but is limited to the number of parachains whereas with Cosmos there is no limit on the number of hubs per zones that can be created. Cosmos is limited to a fairly small validator size of around 200 before performance degrades whereas Polkadot hopes to be able to reach 1000 validators in the relay chain.

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Closing thoughts

The world of DeFi is rising and individuals are trying to take advantages of it. Leaving the traditional banks out of the game could be a good idea when your goal is to make returns on your own money. There are several projects that are standing out of the line but we are trying to show you the best ones that could change the game of DeFi. We believe these 6 projects could be big opportunities for crypto investors and we should definitely keep an eye on them. Just a quick reminder that you should always do your own research, be aware of the risks, and do not fall for scams.