DeFi tokens have hit the headlines in 2020. Every week there seems to be a new launch or token demanding users’ attention. But how do you know which ones are reputable? Which ones have the potential to go higher and what purpose the token serves within the DeFi ecosystem.
At DappRadar we are listing and ranking what we consider to be protocols with substance. Those dapps that show a solid structure, historical activity, and those gaining momentum in the industry. Whilst we do not ever intend to feed hype it is important for us to report on what is relevant in the sector and to users.
With DeFi tokens outperforming BTC in 2020, the ecosystem is quickly turning towards popular protocol tokens as a means of value capture. Therefore, it is important to understand the broad difference between these tokens in regards to how they derive value and how they are distributed to users.
In this article, we take a look at the top DeFi tokens, ranked by Total Value Locked as per DappRadar’s DeFi page. We will examine the utility of these DeFi tokens within the ecosystem, and understand what benefits they can bring.
Uniswap is the foremost decentralized exchange in DeFi. In September 2020, Uniswap airdropped 15% of its supply to past users through a DeFi token labeled UNI, or alternatively, it has been labeled as the Universal Basic Income token due to the fact that some historical users of the protocol awoke in Mid-september to find hundreds of dollars in their accounts.
Today, UNI can be earned by contributing liquidity to selected pools and will ultimately be used for governance as a more substantial portion of the supply is distributed.
Maker is the decentralized lending protocol responsible for the creation of DAI. MKR is used to vote on protocol decisions through the Maker voting dashboard and is burned using a portion of Stability Fees collected from outstanding loans.
DAI is a stablecoin, pegged to the US Dollar. It offers users the ability to save and earn interest in DAI, contribute to liquidity pools, and acts as a ‘safe’ store of value as the token price does not fluctuate erratically.
Curve acts as a liquidity aggregator for same-peg assets like stablecoins and Bitcoin wrappers. The native token – CRV – is staked via the Curve DAO giving users governance rights and liquidity multipliers in CRV liquidity mining. In the future, it’s been hinted that the Curve DAO will use protocol fees to purchase and burn CRV off the open market.
Wrapped Bitcoin (WBTC) is an ERC-20 token backed 1:1 by Bitcoin and held at BITGO Trust, and the underlying holdings are verifiable here. WBTC brings the liquidity of Bitcoin to the Ethereum ecosystem allowing users to wrap and unwrap BTC seamlessly.
Recently WBTC surpassed the $1 billion mark in total value locked. As per DappRadar’s DeFi page, WBTC is now the fourth largest DeFi token in terms of TVL. Currently representing 10% of the total TVL held by the DeFi ecosystem.
Aave is a leading lending protocol and recently announced a successful funding round to the tune of $25 million through Blockchain.com. Aave leverages its native AAVE token to secure the protocol and allow users to participate in governance.
Aave is currently undergoing its migration from LEND to AAVE at a rate of 100:1, which you can arrange through the Migration Portal. AAVE can be staked via the Safety Module for AAVE rewards.
The Compound protocol is a leading lending protocol with a native governance token – COMP. COMP is earned by users through lending or borrowing assets and also used to govern important protocol decisions that can be voted or assigned on the Compound Governance Dashboard.
COMP is designated to markets relative to the amount of interest accrued, suggesting assets that generate the most interest will earn the most COMP per day. Compound even provides a tool for users to know which assets are earning the most COMP on any given day.
Synthetix is a leading derivatives protocol backed by a native token SNX. In order to mint new derivatives – called Synths – users must stake at least 750% of the Synths value in SNX. Maintaining this ratio – referred to as a cRatio – allows users to earn native inflation along with a pro-rata portion of trading fees from the Synthetix Exchange.
Synthetix is the first DeFi protocol testing the idea of distributing a dividend and it will interesting to see whether it’s a move followed by others in the space.
SushiSwap is a protocol that seeks to excite the attention of users with incentives obtained with revenue-sharing. SushiSwap allows investment in different liquidity pools and allows users to receive earnings in Sushi tokens in return. Unlike other Uniswap projects, users will continue to earn a percentage of the protocol fees in Sushi, even after they stop actively participating in the supply of liquidity.
This aspect of the project is the main difference with Uniswap, where participants only receive benefits as long as they are providing liquidity. If they withdraw their capital from the pools, they will no longer receive these interest rates. First billed as a vampire protocol, designed to suck the liquidity out of Uniswap it has now become a serious contender in the growing DeFi sector.
Balancer is an automated asset management and liquidity protocol governed by the BAL native token. Since the launch of its Liquidity Mining program in June, Balancer has witnessed strong growth on all fronts. The BAL DeFi token is used to govern important protocol decisions like fees, support assets, and factors relative to how BAL is earned.
mStable is a liquidity aggregator for same-peg tokens called mASSETS like mUSD. The protocol is governed by a native token – MTA – which can be staked via the Earn feature for a claim on protocol fees and MTA inflation.
MTA made its initial entry with an Initial DEX offering but decided to use Mesa for fair price discovery to avoid bot front-running on the platform.