- The Graph (GRT-USD) – The DeFi solution for indexing the blockchain
- Wrapped Bitcoin (WBTC-USD) – An original DeFi application that still has relevance
- Uniswap (UNI-USD) – Performs the role of an automated market maker
- Pancake Swap (CAKE-USD) – A decentralized exchange built on the Binance smart chain
- SushiSwap (SUSHI-USD) – A decentralized exchange that is proving to be highly resilient
- Terra (LUNA-USD) – Terra remains one of the most popular coins for DeFi projects
- Aave (AAVE-USD) – Invest in a decentralized lending system
DeFi, or decentralized finance, is one of the most investable trends in the crypto space. The idea behind DeFi crypto is simple enough. Think about everything you do with a traditional financial institution. Then find a way to handle the same transactions via the blockchain. Now these transactions are immutable and decentralized and done at lightning speed, 24 hours a day, 7 days a week.
Remember that you have multiple coins competing to develop the same type of projects. Then you start to understand why there are more thousands of altcoins and tokens that are competing for the attention of developers and the dollars of investors.
With that in mind, I wouldn’t call DeFi crypto the wild, wild west. However, you’re investing in a deregulated market with altcoins that don’t enjoy the institutional backing something like Bitcoin (CCC:BTC-USD). Furthermore, there is a steep learning curve in order to understand the software and strategies behind each coin.
Nevertheless, if you’re comfortable with the risk involved, here is a closer look at seven DeFi crypto projects that you may want to investigate further.
DeFi Crypto for Your Short List: The Graph (GRT)
The Graph does not directly handle financial transactions, but it does provide “an indexing protocol for indexing and querying data from blockchains.” The data is then “grouped into open APIs called subgraphs that anyone can query.”
A line from the company’s own literature crystallizes the use case. “The Graph Network decentralizes the API and query layer of the internet application stack. For the first time it will be possible to efficiently query blockchain data without relying on a centralized service provider.” And for this reason, The Graph’s connection to blockchain is seen as comparable as the relationship Google (NASDAQ:GOOGL, NASDAQ:GOOG) has to the internet.
GRT is the native token that powers The Graph. In the last 12 months, GRT has traded between 30 cents and $1.17. At the time of this writing, it’s trading near the bottom end of that range and ranks as #34 in popularity among altcoins.
Wrapped Bitcoin (WBTC)
The expected launch of Ethereum 2.0 will complete Ethereum’s migration to a proof-of-stake (PoS) protocol. That brings me to Wrapped Bitcoin which is an Ethereum token that acts as a representation of Bitcoin on the Ethereum blockchain.
The purpose of WBTC is to allow Bitcoin owners to participate in DeFi apps. It works as follows: Through a Wrapped Bitcoin partner, 1 BTC can be exchanged for 1 WBTC and vice-versa.
At the time of this writing, WBTC is trading for $41,229.36 which closely approximates Bitcoin. However, like Bitcoin at one point in 2021, a single WBTC was trading for over $69,000.
DeFi Crypto for Your Short List: Uniswap (UNI)
Another DeFi project that operates on the Ethereum blockchain is Uniswap. The purpose of Uniswap is to allow investors to trade crypto from anywhere in the world without needing an intermediary.
As its name suggest, traders can “swap” tokens on a peer-to-peer basis. This sets it apart from a centralized crypto exchange such as Coinbase (NASDAQ:COIN). With centralized exchanges, traders pay a fee for every trade. That’s not the case with Uniswap which does not use traditional order books.
Uniswap’s token the UNI is an incentive issued to participants to provide liquidity. This is how the exchange acts as an automated market maker (AMM).
Essentially as the dApps on the platform become more popular, UNI rises in value. This is reflected in the price of the UNI which currently ranks as #18 . Uniswap has a market cap of $9.9 billion with a circulating supply of 452.9 million UNI.
Like Uniswap, PancakeSwap is an investment in a decentralized exchange that has a diverse ecosystem. It performs a similar role to Uniswap, but it does so on the Binance Smart Chain.
PancakeSwap is also one DeFi crypto that allows investors to buy non-fungible tokens (NFTs). Because it is built on the Binance Smart Chain, Pancake Swap offers users distinct benefits including lower fees and higher liquidity than Uniswap which is built on the Ethereum blockchain.
A second benefit is in the CAKE token. This is not just a governance token. It offers more utility to investors because staking the token on Pancake Swap gives owners many options for high returns and they are not traditional liquidity pools.
PancakeSwap has a current market cap of $2.4 billion with a circulating supply of 283.9 million CAKE tokens.
DeFi Crypto for Your Short List: SushiSwap (SUSHI)
In order to keep this simple, SushiSwap is the third of a trilogy of DeFi crypto solutions that act as decentralized exchanges.
In this case, SushiSwap is a fork of the Uniswap exchange. Like Uniswap, SushiSwap gives investors access to liquidity pools for staking purposes. However, unlike Uniswap, SushiSwap can do this on multiple blockchains. This makes SUSHI a much more robust coin than UNI.
Traders have soured on SushiSwap in recent months. But the network is hoping to reclaim its mojo with the launch of Trident. SushisSwap launched Trident on beta on the Polygon (MATIC-USD) network. Trident will allow automated market makers (AMMs) to create a liquidity pool that has an imbalance of tokens. That would be different from Uniswap which requires a 50/50 split.
SushiSwap currently has a market cap of $430.7 million and a circulating supply of 127.2 million SUSHI.
Terra is a blockchain protocol that has a token, the LUNA, a stablecoin that power global payment systems. Users like the currency because of its low transaction fees, faster payments (transactions can be finalized in just six seconds) and its ability to be used as cross-border exchange capabilities. Terra also supports smart contracts.
LUNA is one of two cryptocurrencies supported by the Terra network. In the case of LUNA, it is designed to mint more Terra stablecoins. And when the price of a Terra stablecoin rises above the value of the underlying fiat currency, users are offered incentives to burn their LUNA for a profit. This reduces the overall number of coins in circulation which increases the price of the token.
It makes sense, then, that Terra is developing a variety of DeFi projects that will, in theory, increase the demand for Terra stablecoins. And so far, the strategy is working as it is one of the most popular altcoins on the market.
DeFi Crypto for Your Short List: Aave (AAVE)
One barrier to mainstream crypto adoption would be the idea of how to conduct decentralized lending. Aave is developing a DeFi crypto solution to this with a DeFi protocol that enables community members to lend and borrow crypto.
CoinMarketCap.com describes Aave as such, “Lenders earn interest by depositing digital assets into specially created liquidity pools. Borrowers can then use their crypto as collateral to take out a flash loan using this liquidity.” The loans would then be repaid within the same block of being purchased. And the loans require no collateral.
This is an extremely competitive sector, but Aave appears to be well-positioned to be a major player in DeFi crypto because of its proven utility.
On the date of publication, Chris Markoch held a LONG position in ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.