The decentralized finance (DeFi) market has experienced a massive growth over the last several months. Anyone following blockchain trends will likely know that ICOs are a thing of the past. Now, it is all about DeFi projects.
DeFi pulse statistics shows that the sector’s total value locked (TVL) is currently at $6.71 billion and grows by $500 million weekly. This is massive growth from the previous month with a TVL of about $2 billion.
According to recent published reports, the TVL dropped to $500 million in March 2020. However, this explosive growth stems from the yield farming ecosystem and the high lending interest of DeFi projects.
Just as expected in any market, this sector has its leaders. Currently, Maker, Aave, and Curve Finance are the leading projects.
Maker Dao is the current leading DeFi project, with more than $1.46 billion of the $6.71 billion locked within this single project. Maker outperforms other platforms in the DeFi world pretty much the same way Bitcoin tops the crypto industry.
Maker is the oldest and the most recognizable name and cryptocurrency on the list. It is a decentralized credit platform on Ethereum that supports DAI – a stable coin with a USD-pegged value.
You can open a vault with Maker, lock in collateral such as BAT or ETH, and generate DAI as a debt against that collateral. DAI debt induces a stability fee (a continuously accrued interest) paid upon repayment of borrowed DAI.
Also, Maker has a unique feature called DAI Savings Rate (DSR). The feature enables DAI holders to lock their DAI into Maker’s DSR contract and receive a variable interest rate in DAI, generated from stability fees.
Maker dominated the DeFi sector with 21.78% of the TVL.
Aave is an open-source, non-custodial protocol on Ethereum for borrowing and lending a vast range of cryptos using stable and variable interest rates. I should also mention that the platform is entirely decentralized.
Aave offers notable distinguishing features such as rate switching, flash loan, uncollateralized loans, and unique collateral types.
It also uses a native coin – LEND – as a bargaining chip to provide holders with discounted fees. LEND is also staked for governance and as the first line of defense for outstanding loans.
Also, Aave provides the broadest range of DeFi collateral of any lending protocol on the market and takes a large share of the DeFi lending market due to its strong liquidity and the chance to protect against smart contract risk.
Aave’s flash loan feature opens the doors for safe and secure arbitrage opportunities at virtually no cost to the user.
Unlike other lending platforms that tend to lock users into a variable or fixed interest rate, Aave’s rate-switching feature allows users to switch between two different markets and earn by arbitrage.
This enables users to get the best interest rate on their loans by choosing between “variable” and “stable” interest rates.
However, these stable rates are not fixed interest rates but a rather stable form of variable interest rate, which is constant and less susceptible to market fluctuations.
Though launched in May 2020, Aave is currently ranked second and locked at $1.26 billion.
3. Curve Finance
The Curve is also a decentralized exchange liquidity pool on Ethereum designed for stablecoin trades. It is ranked third with a TVL of $1.04 billion.
Since its launch in January 2020, Curve enables users to trade between various stablecoins with low slippage. Its small fee algorithm was explicitly designed for stablecoins and earning fees.
The Curve is also one of the few DeFi protocols to achieve exact product-market fit by fulfilling a specific purpose that market participants have come to value.
Also, Curve serves as an alternative to trading stablecoins on general-purpose DEXes such as Uniswap, whose algorithm is not optimized.
Curve also integrates with DeFi lending and borrowing platforms like Compound, dYdX, and Aave, which allows Curve users to earn interest on top of their trading fees.
Another interesting fact about Curve and other Ethereum-based DeFi protocols in its class is that they allow anyone to provide liquidity to the market.
Unlike traditional market makers that often use exchange-provided assets to provide liquidity to a market, Curve delivers to users with assets that support its market to provide liquidity.
Hopefully, the reign of DeFi will lead to a further deepening of the cryptocurrency market for the benefit of investors . There is no doubt that there is more to come in the days ahead.