Since the decentralized finance (DeFi), sector, has been in the background since causing a frenzy from the summer of 2020 to the first quarter 2021. Investors are currently debating whether the crypto market is in a bullish or bear market. This means that it’s a good moment to review the current state of DeFi, and identify new protocols that might be setting new trends.
This article will provide a brief overview of the most popular DeFi protocols as well as a list of strategies that were used by their users.
Stablecoins form the basis of DeFi
The DeFi ecosystem is built around stablecoin-related DeFi protocols. Curve remains the most popular protocol for staking stalbecoins.
Top 5 Protocols by Total Value Locked. Source: Defi Llama
Data from Defi Llama reveals that four of the top five protocols for total value locked (TVL), are linked to the creation and administration of stablecoins.
Important to note is that these protocols are the best in TVL but the native tokens’ value has fallen from its 2021 peak.
The key takeaway here is that farming and staking in the DeFi market has yielded steady returns while also earning governance tokens. This helps to offset the decline in token values.
Stablecoins are an integral part of the overall health functioning of DeFi. This role continues to grow as new protocols like Frax Share, Neutrino and Neutrino rise the TVL ranks amid the growing number of interconnected Blockchain networks.
DeFi’s core value proposition is based on borrowing and lending
Lending platforms are another important component of the DeFi ecosystem. Investors can also interact with them even in bear markets. AAVE and Compound lead the market with respective TVLs of $12.09 billion, and $6.65 trillion.
AAVE and Compound, like other stablecoin protocols saw their native tokens reach their peak value in 2021. Both have experienced a prolonged decline for several months.
AAVE/USDT vs. COMP/USDT 1-day chart. Source: TradingView
AAVE’s TVL growth was greater than Compound’s largely because of its cross-chain integration with Polygon and Avalanche. This increased the number supported assets and helped users avoid high gas fees on Ethereum.
For those who are not risk-averse, long-term crypto hodlers can simply lend their tokens to earn a modest yield.
Aave vs. Yields of compound stablecoins Source: DeFi Prime
Related: Altcoin Roundup – DeFi gets a much-needed refresh with JunoSwap and Solidly.
Liquid stake adds additional utility to DeFi
Liquid staking is gaining popularity and adding value to decentralized finance. Liquid staking protocols such as Lido Finance were originally created to support Ethereum staking, but have since been extended to Terra (LUNA), Solana(SOL), Kusama [KSM] and Polygon (MATIC).
According to data from Defi Llama, the TVL on Lido reached a record high of $14.96 Billion on March 10, as new assets continue to add value to the protocol.
Lido has a total value of $2.5 billion Source: DeFi Llama.
Users can stake Ether or Solana on Lido and get stETH and stSOL. These can be used to secure AAVE loans and can then be used as collateral. These assets can be traded or used to yield farm, increasing the overall yield from the original staked asset.
Other notable liquid staking protocols are the Eth2 staking provider StakeWise and the Cosmos-based, pStake protocol.
You would like to learn more about investing and trading in the crypto markets?
Three reasons Lido DAO Token may be at the brink of breaking its downtrendpSTAKE Finance introduces liquid staking, and a new airdrop into the Cosmos ecosystemTerra injects 450M UST to Anchor reserve days prior to protocol depletionDeFi flashes early revival sign as institutional and retail inflows trickle InDoes DeFi’s future still belong to Ethereum blockchain? You should do your research before making any investment or trading decision.
Eileen Wilson –Technology and Energy
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