DeFi: the buzzword surrounding the latest crypto wave; its full form – decentralized finance. The notion behind DeFi is to create and run financial institutions from anywhere in the world, separate from traditional financial systems. What was once a pipe dream has now become reality, with the rise of the DeFi movement.
What exactly is DeFi?
As the name suggests, DeFi is a financial infrastructure built on the blockchain with the intent of supporting existing and new decentralized blockchain-based markets. This ‘open finance’ infrastructure was conceptualized as a way to facilitate the movement of illiquid products, as well as allow the creation of new such products. The goal was to have this infrastructure be a transparent, low cost and a censorship-resistant way to effectively hedge, borrow, arbitrage, and access liquidity.
Why is DeFi so popular?
Recently DeFi has undergone a rise in popularity with investors and developers the world-over. The argument for a decentralized financial system with its own apps has become increasingly relevant as centralized financial systems have gained infamy. While the DeFi space is monopolized by its original applications (Bitcoin and Ethereum), a plethora of new apps are starting to dominate the DeFi space. Among these are Compound, a kind of digital fund that allows investors to gain interest in their investments. Another such application is MakerDAO’s stablecoin Dai, which is the most widely used DeFi application after Bitcoin and Ethereum; Dai aims to become a global currency free from the grasps of central banks. Dai has quickly risen to fame in Latin America, becoming an attractive stable US Dollar savings tool amidst ever-worsening economic conditions.
What are the top DeFi tokens?
The year 2020 saw a variety of exciting projects supporting Ethereum, creating stablecoins, and creating new opportunities for smart contracts. In fact, some of the top DeFi tokens have seen increases of up to 10x in 2020. Some of the more popular DeFi tokens that we list on BitOasis are:
ChainLink is a decentralized oracle network that provides real-world data to smart contracts on the blockchain. The Chainlink token LINK is the digital asset token used to pay for services on the network.
Kyber is a decentralized way to exchange ETH and different ERC20 tokens instantly. The native token of Kyber is called Kyber Network Crystals (KNC). All reserves are required to pay fees in KNC for the right to manage reserves.
MKR is an ERC20 token that is created or burned depending on how close the DAI stablecoin is to the US dollar. The creation of new MKR is dependent on the stability of DAI.
Compound is a decentralized blockchain platform that allows you to lend and borrow digital assets. COMP is the governance token for the Compound protocol.
Yearn is a decentralized protocol built on the Ethereum blockchain. Yearn aims to empower decentralized finance (DeFi). The platform rewards users for providing liquidity or for depositing digital assets on the platform to boost lending. YFI is the governance token for the Yearn Protocol.
What is the future of DeFi?
With the surge in demand for DeFi, the protocol enhancements and improvements, the variety of services and opportunities for DeFi apps, and the overall rapid growth in the DeFi space provide a very promising outlook for further development of, and use cases of, DeFi. A growing number of exchanges around the world are working towards supporting DeFi tokens, while at the same time developers are working hard on improving existing, and launching new, DeFi projects. While in 2017 and 2018 the DeFi space was focused on building the decentralized exchange (DEX) liquidity and scalability, the focus later shifted towards lending and product composability.
It is these dynamics that could potentially drive up adoption of, and usage of, DeFi and its tokens in the next few months. It is going to be the most dramatic and fastest-growing technologies in the DeFi space that will prove to be the most valuable and will rise to the top of the pack. A lot of close attention is being to the DeFi space by developers and investors, and only time will tell where the adoption of DeFi will reach in the next 12 to 18 months.
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