DeFi – The Good, The Bad, And The Ugly

Since decentralized finance (DeFi) exploded in popularity in 2020 and 2021, so many projects have popped up that there’s bound to be some winners – and losers.

Source: Vladimir Kazakov/Shutterstock.com

Today we’ll look at the DeFi crypto projects that are thriving…the ones that are struggling…and some potential gamechangers for the reigning DeFi heavyweights.

Polkadot Gets a “Super App”

Most of the DeFi apps we’ve seen are highly specialized. Yield products, for instance, are especially popular – typically paying way more than you’d get from traditional financial services (or “TradFi,” as it’s commonly nicknamed in the New Digital World). But there aren’t a lot of DeFi projects comparable to PayPal (NASDAQ:PYPL) or Block (NYSE:SQ), where you can do a lot with just one app…

Until now. One of the biggest DeFis on Polkadot (DOT-USD), Parallel Finance, is transforming its platform into a super app.

To that end, Parallel is launching six new products, “from wallets to staking, from crowdloans to cross-chain bridges, an automated market maker and yield farming to boot,” CoinDesk reported Friday.

If you’re willing to go with a centralized exchange, you can get a lot of these features… But when you can go with a DeFi and also get crowdfunding – and AMMs, which let you trade much more cheaply, plus get into yield farming – that could be a good way to poach users from Coinbase (NASDAQ:COIN) and its cohort.

Parallel Finance has ambitions to expand from Polkadot to the O.G., Ethereum (ETH-USD), and its big plans are backed by big capital – from Sequoia to Polychain Capital, Pantera, and Sam Bankman-Fried’s Alameda Research.

Can Aave and SushiSwap Bring DeFi Back in Style?

Without these elegant, all-in-one apps – and with a lot of intimidating jargon and fancy techniques to learn – DeFi has fallen out of fashion lately. Now, Blockworks asks, “Can New Launches from Aave and Sushi Usher in DeFi’s Comeback?”

SushiSwap (SUSHI-USD) was one of the hottest cryptos of “DeFi Summer” 2020 and 2021 – but it’s been mired in drama for months. Now this Uniswap (UNI-USD) clone is looking to reclaim its throne with a new release: Trident.

Trident, which just launched in beta on the Polygon (MATIC-USD) network, is a new framework for AMMs. “Trident allows anyone to create a liquidity pool, much like Uniswap does. Unlike Uniswap, the pools can have an imbalance of tokens rather than a 50-50 split — a feature of another rival decentralized exchange, Balancer,” writes Blockworks.

Meanwhile, Aave (AAVE-USD), which is also in the Polygon ecosystem, moved into its V3. Major new features include Portals, for seamless bridging across blockchains. And now, if you stick with one asset category, such as Bitcoin (BTC-USD) or stablecoins, Aave lets you “access higher borrowing power” (with High Efficiency Mode) and limit your risk exposure to new, unproven cryptos (with Isolation Mode).

All of this has been good for SUSHI and AAVE prices, which have been stuck in a downtrend since October. AAVE, in particular, is up about 35% in the past week.

Hacks Continue in DeFi Startups

DeFi has a lot of benefits, but the protocols often leave room for thieves to rush in, particularly on the smaller upstarts.

On Sunday, for instance, $600,000 worth of crypto was stolen from 29 wallets on Li Finance, Cointelegraph reports. Most of these wallets were quickly reimbursed from Li Finance’s treasury – and all of them had enabled its “infinite approval” feature.

“Infinite approvals allow users to swap coins at a decentralized exchange an unlimited amount of times without needing to approve any more transactions,” Cointelegraph explains.

Over on the Fantom (FTM-USD) network, hackers made off with $3 million in USD Coin (USDC-USD). This one occurred on Deus Finance and involved “flash loans, a form of uncollateralized lending using smart contracts,” CoinDesk reported Tuesday. What a great reminder for DeFi enthusiasts to approach these instant-gratification features with an abundance of caution!

It’s the Best of Times for THORChain and the Worst of Times for Anchor Protocol

Lately, some of the biggest moves – good and bad – among the reputable cryptos are happening in DeFi.

The Anchor Protocol (ANC-USD) community has been debating cutting that sweet, sweet 19.5% yield for users who park their TerraUSD (UST-USD) stablecoin in Anchor Protocol. As a result, ANC crypto is down about 26% this month – and it’s been cut in half from its sudden all-time high on March 4:

Source: CoinMarketCap

Anchor’s first yield-cutting proposal (which would have only affected large investors anyway) failed on Thursday. Now another one’s on the table. If Proposal 20 wins the vote on Wednesday, it would create a “semi-dynamic earn rate” where Anchor’s yield would go up and down alongside the yield reserves.

So, it’s all about making the yield more stable – which has been a rising criticism of Terra… But it’s hardly been welcomed in the ANC crypto price.

THORChain (RUNE-USD), on the other hand, is up over 150% in March! Last week alone, its “substantial 52.4% return” made it the biggest gainer in DeFi, Messari analysts noted.

Source: CoinMarketCap

Messari added that “RUNE’s rally can be attributed to the cross-chain liquidity protocol’s recent feature introductions which include the launch of synthetics, coupled with the current positive sentiment within investors towards Cosmos-based projects.”

Cosmos (ATOM-USD) is a favorite for our InvestorPlace Crypto Investor Network, as I’ve noted here in The New Digital World before. Their latest research report, The Third Wave of Tokenization Wealth, offers plenty more actionable insights. All of these reports for the Crypto Investor Network are completely free for members: Click here to learn more and get involved.

On the date of publication, Ashley Cassell did not have (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. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.

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