Here at Token Metrics, we understand that our most valuable asset is you, our audience.
With your help, we have put together a guide to the Top 3 DeFi Projects of 2020, as voted upon by you.
So sit back, relax, and enjoy the Moon Awards.
What is a DeFi Project?
In the cryptocurrency space, DeFi projects have been at the heart of the current bull market due to their parabolic increase in popularity and use cases. As a result, it is essential to understand what DeFi projects are and their place in the crypto ecosystem.
DeFi stands for decentralized finance, and DeFi projects focus on bringing non-custodial financial services to the mass market. In short, the DeFi movement aims to create an economic system that is open to everyone and minimizes the need to trust central authorities.
DeFi projects achieve this goal by leveraging Ethereum’s interoperability and smart contract capabilities. The DeFi movement’s reliance on Ethereum is the driving force behind the Ethereum network’s skyrocketing fees as there are a plethora of DeFi projects interacting with Ethereum’s smart contracts.
In the crypto space, DeFi projects currently account for over $6 billion in assets, and the number continues to grow each week substantially. With over 100 projects providing various DeFi solutions, it is no surprise that the DeFi movement has taken the crypto market by storm.
Top 3 DeFi Projects of 2020
1) MakerDAO (MKR)
“MakerDAO and its complimentary token DAI are the most prominent DeFi projects to date. A lot of new DeFi projects have launched, but MKR and DAI still dominate market share. These are two solid DeFi projects in our opinion that provide DeFi exposure with long term staying power.” – Ian Balina, Founder and CEO of Token Metrics
Coming in 1st place with a dominating 57% of the total vote is the DeFi leader MakerDAO. This result comes as no surprise as MakerDAO has over $1 billion in committed assets and is the most recognizable DeFi project. According to Coindesk, MakerDAO’s dominance over other DeFi projects comes in at 27.1%
MakerDAO first formed in 2015, but they did not launch their stablecoin DAI until 2017. DAI is featured in our previous Moon Awards category of Best Stablecoins of 2020 and plays a crucial role in MakerDAO’s DeFi network.
MakerDAO serves as a smart contract platform on the Ethereum blockchain that backs and stabilizes the value of their stablecoin DAI. MKR tokens are created or destroyed following price fluctuations of DAI to keep DAI’s value as close to $1 as possible.
It is also important to note that the MKR token serves another function as well. MKR coins pay transaction fees on the MakerDAO system and provide holders with voting rights within the network’s continuous approval voting system.
MakerDAO does this through a dynamic system of Collateralized Debt Positions (CDP), autonomous feedback mechanisms, and incentivized external agents. These actions are a part of a fully inspectable system on Ethereum’s blockchain.
With MakerDAO, anyone can borrow DAI against their Ethereum if the collateral is 1.5 times the amount of DAI requested.
2) Synthetix Network (SNX)
“Synthetix is a promising Defi project that provides on-chain exposure to any asset class. Synthetix has a first-mover advantage by controlling 91% of assets locked in the derivatives space. As more promising competitors emerge, it will be great to see if Synthetix still holds to its massive dominance.” – Ugo Nduaguba, Token Metrics Advisor
Arriving in 2nd place with just over 20% of the total vote is the DeFi project Synthetix Network. Starting initially as Havven, the project rebranded to Synthetix Network in 2018. With the rebranding, the project launched with a whole slate of new features.
Synthetix Network operates as a decentralized synthetic asset issuance protocol on top of Ethereum. Essentially, the Synthetix platform allows the creation of on-chain synthetic assets that track the value of assets in the real world.
Some of the assets supported by the platform include things such as synthetic fiat currencies, synthetic commodities like gold, and even complex assets like equity indices.
The goal of this DeFi project is to solve liquidity and slippage issues common for tokens trading on DEXes. Holders of SNX token stake the coin to get paid a portion of the fees generated from the exchange activity.
The best exchange the token currently trades on is Kucoin, with around $1 million in total daily volume.
3) Compound (COMP)
“Compound is an algorithmic money market protocol on Ethereum that lets users earn interest or borrow assets against collateral. Currently, there are Seven assets listed on the compound platform available for lending and borrowing, with direct competitors leading the race in terms of total value locked and the number of assets listed, Compound is in a crucial phase to speed up development and integrations.”– Diego Lara, Token Metrics Advisor
Finishing out the group of nominees is the DeFi project Compound. Launched in 2017, Compound was one of the first DeFi projects to gain mass attention in the current DeFi cycle. As a result, Compound’s native token COMP skyrocketed in value before correcting to its current levels.
Compound operates as a decentralized finance lending protocol built on Ethereum that enables users to borrow or lend from a pool of assets. With Compound, users can earn interest on their holdings, short assets they believe are overvalued, and obtain assets they need without purchasing them.
Surprisingly, Compound has recently passed MakerDAO in terms of assets with the recent DeFi surge as they have over $1.5 billion in committed assets.
The native token of Compound, COMP, functions as a governance token that allows holders to participate in protocol governance. Stakeholders who possess at least 1% of COMP tokens in circulation can submit governance proposals. In contrast, stakeholders with fewer coins can vote on proposals or delegate their votes to other community members.
The COMP token is crucial in maintaining the DeFi nature of the project as Compound is currently turning over development and control of the protocol to its users.
Honorable Mention: Uniswap
“Huge shoutout to one of the platforms leading the DeFi revolution. Uniswap can exchange ERC20 tokens without intermediaries. Anyone can add tokens to trade on the platform; therefore, coins are often listed on Uniswap before other exchanges.” – Sam Monac, Head of Research, Token Metrics
After being narrowly edged out by Compound, Uniswap has more than earned its spot on the list as an honorable mention. Interestingly enough, Uniswap has also received an honorable mention in our previous Moon Awards category of Best Decentralized Exchanges of 2020.
Uniswap launched in November of 2018 and was recently replaced by Uniswap Version 2 on May 18th of this year. Uniswap founder Hayden Adams described Uniswap Version 1 as a “proof-of-concept” with Uniswap Version 2 being a significant improvement.
The main headline of Uniswap Version 2 is that it comes with more token-swap pairs, an oracle service, and an added flash loan functionality.
Uniswap’s oracle service intends to flexibly deliver average prices over any length of time, which allows Uniswap to focus on its core directive as a price discovery mechanism.
Flash loans are a somewhat controversial addition as they have been used to attack various protocols, but at their heart, they enable flexibility and composability. An experienced trader could also watch the market to see where prices get out of sync and take advantage of the opportunity for immense profits via flash loans.
A flash loan permits a user to borrow any amount up to the total liquidity available if the whole sum returns in the same transaction.
Uniswap is a genuinely unique DEX, and with the recent release of Uniswap Version 2, it is one to look out for as an increasingly popular alternative in the DEX realm.
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