According to a market analysis report by Grand View Research, the decentralized finance market size was estimated to be around $13.62 billion in 2022. This was expected to grow at a compound annual growth (CAGR) of 46% between 2023 and 2030. With such promising growth, it’s no surprise that the DeFi ecosystem is filled with promising projects and tokens. This article will look at the top 5 DeFi coins – AVAX, AAVE, LINK, UNI, and CRV.
What Is DeFi?
Before we begin, let’s understand DeFi a little better. DeFi, or decentralized finance, refers to a niche in the crypto space consisting of an ecosystem of financial applications and protocols existing primarily on Ethereum. The main goal of the DeFi ecosystem is to act as an alternative to the traditional financial system and create an open-source, transparent, and permissionless financial system accessible by everyone and operates without any influence from a centralized authority. Thanks to these qualities, DeFi allows users to control their assets completely when interacting with decentralized applications and the larger DeFi ecosystem.
Decentralized finance is especially beneficial for users who are cut off from the current financial system or don’t have easy access to it, allowing them to access financial services such as trading, investing, market making, and more. The ecosystem is powered by smart contracts, thus eliminating the need for intermediaries, and looks to challenge the hegemony of traditional financial institutions and services that exercise excessive control of user assets. DeFi consists of highly lucrative crypto projects, catching the attention of institutions, venture capitalists, and regular investors alike.
Top 5 DeFi Coins – AVAX, AAVE, LINK, UNI, and CRV
What are the top 5 DeFi coins you can invest in? Let’s find out.
Avalanche is a decentralized, open-source blockchain protocol that aims to reduce transaction latency and speeds for the financial system. The protocol leverages a Proof-of-Stake protocol and a highly innovative consensus mechanism to help create a secure and highly scalable environment to facilitate asset exchange. Avalanche allows users to trade tokens securely, quickly, and at far less cost than traditional methods. Users can also deploy their digital assets through smart contracts offered by the protocol.
Avalanche has established itself as a Layer-1 blockchain and has seen an influx of borrowing and lending protocols. The protocol’s native token, AVAX, is currently trading at nearly $18. While this is a far cry from its all-time high of $146 reached during the 2021 bull run, experts are of the view that the token can recapture its previous levels, making it one of the best DeFi investments in the market today.
Aave is a decentralized lending protocol that allows users to borrow, lend, and earn interest on their assets without going through an intermediary. The protocol is based on the Ethereum blockchain and was developed in 2017, becoming one of the most popular decentralized lending protocols in the Web 3.0 ecosystem. Through Aave, users can deposit collateral on the platform and earn a yield on their holdings or borrow assets against the collateral deposited. This allows users to earn interest or earn capital at highly competitive rates. Additionally, Aave gives users features such as collateral swaps and supports platforms such as Ethereum, Optimism, Arbitrum, Polygon, and Avalanche.
The Aave protocol has seen its popularity surge thanks to its risk-mitigation processes and high level of transparency. Transparency has been a particularly important factor in Aave’s popularity after the dramatic collapse of FTX and several other protocols. The protocol’s native token is the AAVE token, an ERC-20 token designed to be deflationary. The token also acts as the governance token of the protocol, giving token holders a greater say in the protocol’s future.
Chainlink is a decentralized blockchain oracle network that allows smart contracts to communicate securely with services and real-world data outside blockchain networks or off-chain. These data sources can range from APIs, and internal systems to other types of external data feeds. The protocol uses a network of nodes to ensure that the data provided to smart contracts is as trustworthy as possible.
Chainlink is vital in the DeFi ecosystem because it greatly enhances smart contract capabilities and functionalities by allowing them to access data outside of the blockchain ecosystem while ensuring the reliability and security associated with blockchain technology. The protocol relies on oracles, a decentralized network of independent entities that gather data from different sources. Chainlink then aggregates this data, delivers it to the smart contract, and triggers its execution. This greatly reduces the chances of a single, centralized point of failure.
Chainlink has several use cases, such as allowing DeFi apps to access interest rates and pricing assets, enabling the automation of smart contracts. At the heart of the Chainlink ecosystem is the LINK token, which can be used to compensate node operators for retrieving off-chain data. To become a node operator, holders must stake their LINK tokens into a smart contract following which they can supply data to Chainlink oracles. Staking is a deterrent against submitting false data or acting against the interests of the network.
Uniswap was one of the first DeFi projects to gain popularity in the crypto ecosystem and is often considered, rightly so, as one of the original drivers of the crypto boom. As a decentralized exchange, the protocol addresses a slew of issues that centralized exchanges face, such as mismanagement of funds, risk of hacks, and extra fees. However, decentralized exchanges face their fair share of problems, especially when it comes to liquidity. Uniswap is able to address the liquidity issue by facilitating token swaps by the exchange without relying on buyers and sellers for liquidity.
As an open-source protocol, developers can easily access the protocol’s source code and create their own decentralized exchange. They can also list their tokens for free, a significant advantage for users because they don’t have to pay a high listing fee. Users also maintain complete control of their funds and private keys. The growth of Uniswap has created an efficient market and has helped solve liquidity issues through innovative automated solutions. The protocol’s native token is the UNI token, which has a total supply of 1 billion UNI.
The UNI token plays a critical role in the Uniswap ecosystem, enabling the growth and development of the protocol. The token also acts as a governance token, allowing UNI holders to have a greater say in the platform’s governance and the larger ecosystem. Furthermore, the wider adoption of Uniswap products will positively impact the price of UNI, incentivizing holders to contribute to the development of the Uniswap ecosystem.
Curve is a DeFi platform that uses an automated market maker (AMM) to manage liquidity. AMM protocols use liquidity pools to allow digital assets to be traded automatically. Liquidity pools are a core technology in the DeFi ecosystem and are used in various protocols, including AMM, blockchain gaming, and borrow-lend protocols. The Curve platform provides an efficient way to exchange tokens with low slippage rates. Consequently, the platform acts as a decentralized exchange by connecting users to trade with the best rates.
The Curve protocol began its journey toward decentralized governance by introducing a DAO (decentralized autonomous organization). The DAO is run by a group of developers with the goal of removing human errors and investor manipulation by providing decision-making authority to an automated system and a crowdsourced process. The DAO, which runs on Ether, allows investors to send money anonymously from anywhere in the world. Most DAOs are managed by governance tokens, which grant voting rights to token holders. In the same way, Curve DAO is governed by CRV tokens.
CRV tokens are utility tokens of the Curve.fi protocol that can be used to exchange stablecoins and other ERC-20 tokens. Unlike other exchanges that match buyers and sellers, Curve.fi provides an exchange platform that uses liquidity pools instead of relying on order books. Curve creates liquidity pools based on smart contracts that function as an automated market makers. CRV token holders have the right to suggest and vote on changes to the platform.
Top 5 DeFi Coins: In Closing
With the DeFi ecosystem gaining considerable popularity, users have a host of protocols to choose from. However, with the sheer number of DeFi projects, it can be overwhelming when it comes to selecting which project or token you want to invest in. This article is intended to simplify things and give you the lowdown on the top 5 DeFi coins currently in the market so as to allow you to make an informed decision.
If you want to invest in the crypto ecosystem, a good place to start would be CoinSmart. CoinSmart offers users a simple trading platform coupled with a host of features. You can also learn more about the crypto ecosystem through our GetSmart section.
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