Decentralized finance, or DeFi, is widely considered to be one of the most revolutionary aspects of the advent of blockchain technology. Through it, people can utilize all of the functions offered by banks, from custody to taking out loans to passively earning by lending. And, this all comes without the need to have a bank account; all it takes is a crypto wallet and the will to learn. But already, developers and investors alike are seeking to address the issues cropping up around DeFi — and they’re doing it with DeFi 2.0 cryptos.
DeFi is great for helping the debanked to access the same structures available to others. Yet, there are things missing — and other things being exploited. For example, whales withdrawing the liquidity they provide or selling their tokens en masse can have devastating effects on a platform, knocking over the first domino and ultimately leading to mass panic-selling. It only takes one profit-taking whale to disrupt and drain the total value locked (TVL) on a protocol.
Moreover, DeFi 2.0 projects seek to address the fact that DeFi, while heavy on the finance side of things, is still quite lax on decentralization. Developers and project leads largely remain at the helms of their projects. As such, they still ultimately control all of the goings-on of their projects, whether it be veto power over community efforts or complete omnipotence over them.
So, what are some DeFi 2.0 cryptos to buy? And more importantly, what do these cryptos bring to the table to further along the DeFi 2.0 movement? Here are five cryptos shaking up the space:
- OlympusDAO (CCC:OHM-USD)
- Convex Finance (CCC:CVX-USD)
- Alchemix (CCC:ALCX-USD)
- Abracadabra (CCC:SPELL-USD)
- MakerDAO (CCC:MKR-USD)
DeFi 2.0 Cryptos to Buy: OlympusDAO (OHM-USD)
One of the biggest issues investors see with DeFi in its first iteration is in stablecoins. Most often, these coins have values pegged to match that of the U.S. dollar. They are the fuel that powers decentralized exchanges, allowing users to exchange fiat for other cryptocurrencies. However, as dollar-pegged coins, these cryptos are subject to the same woes of inflation as U.S. dollars themselves. To that end, OlympusDAO aims to offer something truly stable in value with its OHM crypto.
Olympus does things differently by not making its asset pegged to a dollar. Rather, it’s backed by dollar-pegged assets — more specifically, the Dai (CCC:DAI-USD) stablecoin. The OlympusDAO platform has its assets entirely backed by Dai in order to ensure liquidity.
Since it’s not pegged to a dollar, the price of OHM can soar high above $1. In fact, it has already done so. Right now, OHM trades at over $200 per token. However, being backed by Dai, the token is given a price for of $1; developers say the value of OHM is then equal to $1 plus whatever premium is decided by market conditions.
By backing its asset with a reserve, the network can forgo liquidity mining. Rather, it attracts users to its platform through bond buying. Users can buy OHM at discounted prices by trading in liquidity provisions. The OHM pays out over the course of about five days. The protocol then gets to pocket the liquidity and the happy user gets a token that they paid less than market price for.
Convex Finance (CVX-USD) Optimizes Curve’s User Experience for DeFi 2.0
Next up, Convex Finance is one of the best DeFi 2.0 cryptos to buy right now because it is closely associated with one of the largest protocols in the world by TVL, Curve (CCC:CRV-USD). Indeed, Convex is looking to streamline the Curve user experience into one sleek DeFi 2.0 protocol.
Convex seeks to help Curve liquidity providers earn passive income without having to lock any of their CRV into the protocol. It does this by pooling liquidity into one place. It also invites stakers on the Curve platform to stake on Convex for “boosted” CRV rewards.
Using Convex, one can use their CRV just as they would on Curve’s platform while also escaping the locking mechanism that Curve has on its platform. When one stakes on the platform, they reap a number of rewards. In addition to CVX rewards, stakers earn Curve trading fees and portions of Convex transaction fees. They also earn the cvxCRV token in a 1:1 ratio to their staked assets. By trading in this token, users can immediately retrieve their staking. Liquidity providers earn CVX and boosted CRV rewards, while also circumventing Curve’s fees entirely.
Convex is proving highly effective in providing what it wants to: a sleek, easy-to-use dashboard for those disenchanted by the downsides of Curve. The TVL of the platform is now surpassing $20 million.
DeFi 2.0 Cryptos to Buy: Alchemix (ALCX-USD)
One of the most popular ways in which investors utilize DeFi platforms is through crypto loans. The advent of DeFi has made it so one doesn’t need to have a credit score or a bank account in order to obtain a loan. There’s no putting on a suit and going to the bank to give a pitch. It’s as simple as supplying collateral, and oftentimes there’s a yield to be earned whilst this collateral is being held by the loaner. But what if there were no anxiety about paying these loans back? That’s the world Alchemix is looking to usher in.
Alchemix is a DeFi loan platform, but it takes things into DeFi 2.0 territory by offering loans which pay themselves off. It works quite simply as well; users looking for a loan will supply collateral in the form of DAI in exchange for a loan in alUSD. As the collateral sits in the protocol, it earns a passive yield. Users taking out loans will see their debt to the protocol decrease over time as it repossesses the yield earned by the collateral. Then, when the debt is erased, they can retrieve their collateral.
The model is quite intuitive and can be quite friendly to users. If one collateralizes more DAI, they can get a higher loan. They also can erase their debt faster by generating yield at a faster rate. Using transmuter pools, users can also stake their alUSD, which converts yield to the base asset they collateralized.
Abracadabra (SPELL-USD) Uses ‘Spells’ to Streamline Crypto Loans
Similar to Alchemix, the Abracadabra platform deals mainly in crypto loans. However, contrary to Alchemix, users of Abracadabra collateralize interest generating cryptos in exchange for the platform’s native dollar-pegged stablecoin, Magic Internet Money (CCC:MIM-USD).
After withdrawing their MIM, it can be exchanged for any other stablecoin. The effects of the protocol are twofold. For one, it gives users access to stablecoins through which they can generate passive yield elsewhere. It also allows one to earn passive income on their collateralized, interest-generating tokens. Of course, as a DeFi 2.0 protocol, Abracadabra does not force one to keep liquidity locked. All they must do is return their MIM to the protocol and retrieve their assets.
One interesting feature of the protocol which presents another way to generate wealth is its liquidations. When a user deposits a token as collateral, that collateral has a set liquidation figure. For example, if a liquidation price of 90 cents is set for a given token, the user that collateralizes that token is flagged if the asset drops to 90 cents. When the token falls below this liquidation figure, it means the collateral is not enough to cover one’s debt. They can pay the liquidation fees and reacquire the collateral, or other third parties can cover these fees and buy out the collateral, allowing them to capitalize on loans tied to more volatile assets.
DeFi 2.0 Cryptos to Buy: MakerDAO (MKR-USD)
When it comes to DeFi 2.0 cryptos to buy, MaketDAO’s MKR token is by far the largest. Currently the sixtieth-largest digital currency in the world according to CoinMarketCap, it boasts a $2.1 billion market capitalization and a whopping $16 billion in TVL. It’s also one of the oldest plays driving reinvigorated interest in Decentralized Autonomous Organizations (DAOs).
Maker exists on the Ethereum (CCC:ETH-USD) network as both a software platform protocol and as a DAO. It is best known for being the platform responsible for the management of the DAI stablecoin. Of course, DAI is a staple to most DeFi 2.0 protocols; most every DeFi 2.0 platform supports DAI in some way. For example, OlympusDAO uses the coin as liquidity insurance and Alchemix uses DAI as a means of collateral.
What makes the MKR crypto so interesting, however, isn’t that it generates incredible yields or backs self-paying loans. Rather, it fuels the decision-making process that dictates DAI’s functions as a coin. A DAO is an organization of users who use their holdings of a dedicated cryptocurrency to vote on initiatives for a blockchain. In the case of MakerDAO, holders of MKR are those who make decisions about the future of the DAI coin. Seeing as it fuels nearly every facet of DeFi 2.0, this certainly makes MKR one of the best DeFi 2.0 cryptos to buy.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.