The most promising DeFi projects for 2022 – an overview and expert opinions

Promising DeFi projects use open source software to provide financial services without intermediaries, transparently and anonymously. Currently, more than $10 billion is already locked in decentralized protocols, and this number is increasing. DeFi helps make the experience of using financial services more democratic and includes various components, ranging from data management to insurance, loans and stablecoins (stablecoins).

There are currently around 250 different DeFi solutions, according to the DeFiPrime website. Consider the most promising DeFi of them as of 2022.

What are DeFi projects, and what they are

DeFi is an acronym that stands for Decentralized Finance. This concept is based on the idea of combining two directions:

– Ability to use services similar to banking, insurance and other traditional services;

– Giving each person the right to complete control over his means.

From a technical point of view, decentralized financial systems are designed to democratize the asset management structure as much as possible and make trading, investment, lending, depositing and other functions seamless.

Most DeFi projects run on blockchain Ethereum, although alternative options are increasingly starting to appear (for example, on the Binance chain ). The advantage of Ethereum is that it was created as an ecosystem for developing decentralized applications and provides extensive functionality for developers in this area. In addition, it allows developers to create and share projects without large sponsors or intermediaries.

The most in-demand types of future DeFi projects

• Credit protocols are based on the work of pools with assets. Users can borrow cryptocurrencies and tokens secured by other assets and deposit their funds into the pool at interest.
• Decentralized trading exchanges (DEX). Network protocols also use liquidity pools to provide instant asset exchanges with minimal fees.
• Synthetic assets. Creating derivative holdings on the blockchain allows users to access various fundamental markets (from fiat to gold) while maintaining a decentralized network’s advantages.
• Payment networks. Allows you to process thousands of transactions simultaneously with low commission fees.
• Assets. Tokenized assets transfer the value of various external products to the blockchain Ethereum. For example, multiple stablecoins tokenized bitcoin, etc.

There are many other categories such as lotteries, insurance or prediction markets. But they are somewhat specific and are used less frequently than the applicable ones we listed above.

Expert opinions on the prospects and future of DeFi

Changpeng Zhao, head of Binance

Zhao said in an interview that in the long term, Binance plans to promote decentralization in every possible way, even though it will remain a centralized project. Launched Binance Chain Smart Chain created to give an alternative to users and developers who want to avoid the rising transaction fees of Ethereum.

Binance actively promotes DeFi projects, allows them to be placed on its blockchain, and lists their tokens. Unfortunately, some of these projects have failed, causing the exchange’s policies to be criticized on Twitter. Zhao remarked that many projects on Ethereum have failed, but no one complains about this to Vitalik Buterin.

DeFi is becoming increasingly popular in the markets of China, Thailand, Singapore, and Binance will continue to experiment in this direction.

Maria Stankevich, EXMO Development Director

The EXMO team approves of the promotion of DeFi, believing that DeFi products can make people’s lives much more accessible. For example, there will be no need to collect documents and certificates to take a loan, make a deposit, or confirm a credit history. Instead, everything happens instantly and transparently. In addition, DeFi blurs the boundaries between countries.

Vitalik Buterin, co-founder of Ethereum

Although the vast majority of promising DeFi projects are hosted on the blockchain Ethereum, Buterin urges to treat the economy developing in them with caution. He compares “profit farming” to how the government prints money.

Profit farming (earning a percentage for providing liquidity) is a real boom in DeFi, but Vitalik highlights that many tokens are inflating aggressively, putting downward pressure on prices.

He is not alone in this opinion. Twitter users have already dubbed income farming a “giant Ponzi scheme.”

Mike Novogratz, head of crypto investment company Galaxy Digital

Novogratz recently invested in decentralized finance asset management company ParaFi capital. He believes that the potential of DeFi is simply stunning, and it is necessary to help this direction develop and cover new market areas actively. And ParaFi CEO Ben Foreman added that DeFi represents an emerging architecture for a new open financial network. Bitcoin has successfully demonstrated the benefits of decentralization in its time, but now it’s time to create a flexible investment structure in a broader sense.

Yuri Mazur, Head of Data Analytics at CEX.IO Broker

Mazur notes that many investors are now moving from traditional investing to DeFi projects and recalls that it costs no more than 10-15% of capital to invest in this area. Of course, the crypto market has always been and remains volatile, but DeFi tokens on it are the riskiest direction that it cannot make the central core of investments.

Ryan Selkis, founder of the market aggregator Messari

According to Ryan, DeFi is in a bubble right now. On his Twitter, he said that this market is flooded with financial pyramids and urged everyone to be prepared for its collapse.

“The DeFi bubble will pop sooner than people expect.

We’re nearing the apex of Ponzi economics, rug pulls, and “yield” hopping and ETH fees are going to eat too heavily into non-whale profits,” — Ryan Selkis said.

How to invest and earn

Promising DeFi projects provide an opportunity to earn additional income in many ways. The most in-demand of them

• Income farming. It was receiving tokens for adding liquidity to the protocol. The concept became famous thanks to the COMP project, which began distributing its control tokens and stimulated users to make transactions in the credit protocol. In September 2020, Binance Exchange launched the Binance platform Launchpool for farming Defi. Now it features promising DeFi projects: Bella, Wing, Flamingo, Venus and Alpha finance.
• Liquidity supplies. Decentralized trading exchanges operate on the mechanism of liquidity pools, which require providers to contribute their assets. The reward allows you to stimulate participants effectively.
• Staking. The user blocks his funds in the wallet and does not touch them for a specific time, thereby maintaining the network’s performance and receiving a reward.
• Investment. Many tokens have good price potential and can be used as investment assets for further resale. However, watching the ups and downs of such tokens by thousands of per cent in a matter of hours is very risky.    
• Landing (p2p lending). Cryptocurrency owners who do not use it yet can put it into circulation and receive a percentage profit from this operation. In addition, cryptocurrency is used to issue secured loans to other users.
• Leverage. DEX exchanges that support margin trading need lenders to provide power to traders. This action is subject to interest.

Different methods have advantages and disadvantages, so choosing the best option or a combination can take some time.

Risks of working with DeFi

The current situation in DeFi is often compared to the ICO craze in 2017. Of course, DeFi is not as subject to aggressive speculation as ICOs. Still, the impressive level of return that decentralized projects offer makes you think about the risks investors often forget about. Among them are:

• Smart contract vulnerability. Whatever security measures the developers come up with, hackers also do not stand still and look for loopholes that allow them to steal funds or change the protocol in their favour.
• User-side vulnerabilities. Not every user adequately monitors the safety of their private keys and passwords. At a minimum, it is recommended to use hardware wallets and two-factor authentication.
• Unsuccessful protocol upgrades. Many DeFi projects are managed with the help of DAO, that is, with the participation of the votes of all token holders. But the opinion of the majority may not always coincide with yours personally.
• Financial risks, the main of which is the fall in the value of an asset. The lack of historical data makes it almost impossible to predict rate jumps.

The best way to learn about the features and risks of DeFi products is to try it yourself with small amounts while always considering that this type of investment is high-risk.

Advantages and disadvantages compared to CeFi

Let’s look at how promising DeFi sites differ from similar centralized services.

Pros

• Anonymity, lack of verification and any requirements for the identity of the user;
• Low commission fees and high transaction speed;
• Independent control of own funds ;
• Open-source.

Minuses

• Risks of vulnerabilities in protocols ;
• Less clear user interface;
• High volatility of tokens ;
• Lots of low-quality projects on the market.

What criteria are used to evaluate DeFi platforms?

To find up-and-coming DeFi sites, you can analyze them yourself or (which is more reasonable) trust the opinion of experts. In addition, some areas on the net evaluate projects according to various parameters to compile a list of the best.

The main factors that are taken into account in analytics

• the number of active users;
• platform token capitalization;
• the total amount of value blocked in the protocol;
• availability of open source;
• security of smart contracts that are audited;
• financial risks (whether the assets are secured or their value is supported only algorithmically).

We offer a list of 10 DeFi platforms that deserve attention. They are listed in descending order of blocked value as of October 2020.

The most promising DeFi projects

Uniswap

Uniswap is a decentralized protocol created for exchanging assets on the blockchain Ethereum. The traditional order books are replaced with liquidity pools so anyone can exchange ERC-20 tokens with each other and ETH directly. You can also earn here by providing liquidity to the protocol. Exchange commissions (0.3% per trade) reward liquidity providers.

It is noteworthy that, if desired, any user can create their liquidity pool by depositing an equivalent amount of ETH and an ERC-20 token into the protocol. Then, the market maker sets the exchange rate, which is adjusted during trading; when there are fewer assets on one side and more purchases on the other, the price changes to keep the balance.

Maker

MakerDAO is a lending platform based on Ethereum that supports USD DAI stablecoin. A Maker user can open a vault, block cryptocurrency there as collateral, and create an equivalent amount of DAI based on it. The stability fee is expressed as continuously accruing interest on the invested cryptocurrency. When the debt is repaid, interest is paid.

You can borrow up to 66% of the value of the collateral in DAI (thus a collateral ratio of 150%). If the deal falls below this level, a fine and liquidation of the collateral threaten. Native holders of MKR tokens participate in the system’s governance by voting on various parameters.

Curve Finance

The Сurve Finance is an exchange-based liquidity pool powered by Ethereum and focused primarily on interaction with stablecoins. As a result, members get the opportunity to trade stablecoins with low fees and low slippage.

The platform offers seven pool pools, which differ in support assets and additional conditions. Compound, BUSD, Y, PAX, sBTC and Ren pools make it possible to work with an extensive range of ERC-20 currencies. In addition, the CRV token is used to stimulate liquidity providers, which rewards investments in a particular pool.

Aave

Aave is an open-source non-custodial protocol for decentralized lending and borrowing. By adding liquidity to the protocol, users convert their cryptocurrency into ERC20 compliant aTokens. These tokens immediately begin to accrue interest.

On the other hand, users can borrow any supported assets against cryptocurrencies, depending on the particular investment, such as liquidation threshold, liquidation penalty, or collateral ratio. Interest rates are also constantly adjusted based on the supply and demand for a specific asset, although a participant may choose a more stable rate option.

WBTC

WBTC is a supported bitcoin ERC-20 token. The main idea is to transfer all the large-scale liquidity that the Bitcoin network has to the more flexible Ethereum space. Initial storage is provided by BitGo, while Kyber and Ren supply initial liquidity. WBTC is available for trading on various decentralized and centralized exchanges.

 It can convince anyone of the total provision of WBTC, which is public information. The governance structure of WBTC is a DAO where each of the sixteen participating projects has voting rights, including Compound, Dharma, MakerDAO, and others. The process is open but controlled by a multi-signature contract maintained by DAO members.

Compound

The Compound is an algorithmic financial market on Ethereum, allowing you to take secured loans or earn interest on deposits. Interest starts accruing instantly after depositing funds into the protocol, and rates change every 15 seconds based on market conditions. All liquidity deliveries are in the form of tokens, and the participant can borrow up to 75% of the total value of tokens.

You can deposit or withdraw funds at any time; the main thing is always to keep the required level of collateral to avoid position liquidation. 10% of the interest paid goes to the reserve, and the rest is spent on the providers in the form of COMP governance tokens issued in May 2020.

yearn.finance

An yearn.finance is an ecosystem that is an aggregator of credit services. It gives access to the Compound, Dydx, Aave and Fulcrum protocols and automatically selects the option that looks the most profitable at any given time. As soon as the client deposits tokens, the system converts them into yTokens and adjusts the balance in such a way as to optimize the deposit.  

Token serves to manage the platform and is distributed among liquidity providers. Control over the token issuance belongs to the multi-sig wallet, which requires the consent of at least six of the nine participants for each change.

Synthetix

Synthetix is an Ethereum platform for creating synths (so-called synthetic assets). The value of these assets always corresponds to the real ones, whether it be cryptocurrencies, fiat currencies, commodities, etc. (about thirty variants of synths, plans to expand the list). The platform’s native token is SNX; users need to lock it up or ETH as collateral to create freely tradeable synths.

SNX holders who create synthetic assets earn transaction fee income when synths are exchanged on the Synthetix. Exchange internal exchange.

Balancer

A Balancer is an AMM (Automated Market Maker) with which any participant can create liquidity pools or add assets. The principle is similar to Uniswap, but the deposited assets are automatically divided by value 50/50, and in Balancer, you can adjust the ratio.

There are different types of pools within the protocol: private (one owner has the right to add liquidity and freely edit any parameters), general (anyone can add liquidity, everyone has equal privileges), smart pools (a private but with the difference that the smart contract mainly controls the parameters).

RenVM

DeFi project RenVM is a project that provides the ability to combine external digital assets (BTC, BCH and ZEC are currently supported) with the DeFi realm. RenVM is not a standalone application; instead, it is a network upon which developers can build new decentralized applications. With Ren, the value of assets can quickly move between blockchains. Furthermore, a fail-safe protocol ensures that transactions are handled fairly.

PancakeSwap

PancakeSwap is one of the decentralized exchanges built on the BNB chain. The PancakeSwap app is considered one of the largest DeFi apps operating on the BNB network, with at least 400,000 daily active members.

In turn, Binance Labs is committed to investing and providing financial support to the most promising blockchain startups, entrepreneurs, communities and industry platforms dedicated to developing blockchain on a global scale. Now the entire BNB ecosystem Chain includes at least 1300 active dApps from the fields of decentralized finance, Metaverses, blockchain games and NFTs.

Binance Labs, the venture arm of the Binance exchange, has decided to fund PancakeSwap ‘s decentralized governance token, CAKE. Binance Investments Labs is one of the segments of the company’s overall strategy for the implementation of blockchain technology, marketing methods related to virtual assets and Web 3 enterprise solutions.

As a result of such mutually beneficial cooperation between the two platforms, we can expect an increase in the capitalization of the CAKE token PancakeSwap and investment fund interest in Binance.

Binance invests in PancakeSwap.   

According to Binance representatives Labs, thanks to PancakeSwap, the global adoption of the BNB chain is taking place. In addition, PancakeSwap is considered one of the most famous dApps and high TVL decentralized projects on the BNB chain. Therefore, it decided to provide financial support to PancakeSwap.

Also worth mentioning that Binance makes every effort to obtain licenses from regulators in different countries. Such a policy is entirely justified against the backdrop of tightening control by government agencies about cryptocurrencies since they are trying to be used to circumvent US and EU sanctions.

You can fix the trend – most popular crypto exchanges are increasingly paying attention and resources to projects that have proven their viability for a long time.

New startups are finding it increasingly difficult to raise funds from such platforms as the virtual asset and blockchain market becomes more demanding. In addition, very soon, out of the existing tens of thousands of cryptocurrencies, a few hundred, no more, will remain on the market.

Those projects and applications that manage to gain support from companies like Binance will continue to grow and grow their customer base.

Conclusion

Today we are witnessing the birth of an entirely new global, flexible, transparent financial structure. New DeFi projects appear almost every day, but, of course, not everyone achieves success, but only the most promising in terms of security and usefulness. Therefore, before investing in a little-known protocol, it must first.

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