DeFi is essentially a collection of smart contracts used to execute financial tasks such as lending and selling bitcoin. Although, if we talk about Bitcoin, it can only transmit and receive data about how much Bitcoin has, Ethereum can store code, known as smart contracts, on its blockchain.
How to invest in DeFi
The most basic approach, which gives just broad exposure to DeFi, is to purchase Ether or another currency that employs DeFi technology. Purchasing a DeFi-powered coin gives you access to virtually the entire DeFi business and even Defi Loans.
You may deposit bitcoin directly with a DeFi lending facility to receive interest on your holdings. However, suppose you are prepared to deposit money for a more extended period. In that case, you may get more excellent interest rates, and the interest rate given on your deposit can be set or variable and fluctuate with the market.
Due to the strong demand for deposits on the different DeFi platforms, a practice is known as “yield farming” has developed. Yield farmers deposit money on whatever platform offers the most significant interest rate or other incentives. They keep a close eye on the current interest rates and incentives provided by other platforms. If another platform provides a greater incentive, the yield farmers optimize their earnings by transferring their money to the other platform. As incentives shift, yield farmers continue to shift their money from platform to platform.
If you want a say in developing DeFi protocols, you may purchase a token like Uniswap’s UNI. As a governance token, UNI grants you decision-making power over the future of the Uniswap protocol in proportion to your ownership. As a result, more individuals grow interested in the future of the service as more people engage in the decision-making process by buying UNI coins, and increasingly significant holdings of UNI are needed to maintain considerable decision-making power. This dynamic has the potential to raise the token’s price substantially.
5 Best DeFi Coins 2021
Uniswap (UNI)
Uniswap is a well-known decentralized exchange that presently rules the DeFi market. It uses an Automated Market Maker (AMM) mechanism to guarantee that the ERC20 tokens sold on its platform have enough liquidity. Furthermore, because of its crypto-asset solutions, the Uniswap protocol has a devoted following. It gives you complete control over your private keys, connects with other wallets, and enables you to trade at minimal costs.
The Uniswap protocol introduced the UNI token in September 2020 as a way to reward its users. The DeFi coin debuted on the market with a price of $2.94. Over a few months, the coin’s value has risen to $35.80. With a gain of over 1,100 percent in only eight months, the DeFi currency is undoubtedly one of the best-performing tokens in the market.
With a market value of more than $18 billion, it is also one of the finest DeFi coins in valuation. When you buy UNI, you’ll also get discounts and incentives for the Uniswap protocol. For example, depending on the amount of your UNI holdings, you will be able to vote on specific Uniswap ecosystem rules.
The Uniswap protocol has already devised a four-year strategy for allocating UNI tokens. Sixty percent of a total of one billion coins are allocated for Uniswap community members.
DAI (DAI)
For those who are unaware, the cryptocurrency and DeFi coin alternative financial sector is notoriously volatile. The DAI currency may be of interest to people who want to avoid price volatility. In a word, the DeFi cryptocurrency is based on the Ethereum blockchain and is linked to the US dollar.
DAI is, in fact, the first decentralized, collateral-backed cryptocurrency asset of its type. This DeFi currency was created using the open-source software MakerDAO Protocol, one of the finest DeFi platforms for building decentralized apps using smart contracts.
DAI has a market value of $4 billion at the moment, making it one of the most acceptable DeFi currencies in existence. Its exchange rate reflects the value of the US dollar relative to other fiat currencies. As you would expect, the primary benefit of staking DAI is that it reduces your exposure to the high volatility of the broader cryptocurrency markets.
Furthermore, utilizing DAI instead of fiat currencies may help you minimize transaction costs and delays while dealing in financial markets. Finally, DAI is one of the finest DeFi currencies of its type. Therefore we anticipate enormous things for the project in the following years.
Compound (COMP)
Compound is yet another prominent decentralized borrowing and lending platform that allows users to earn interest on their crypto assets. For this reason, the platform has created numerous Compound liquidity pools. You will be able to create cTokens after depositing your assets into one of these pools. Those unfamiliar with the cryptocurrency and DeFi coin alternative financial industry should be aware that it is famously volatile. People who wish to avoid price fluctuation may be interested in the DAI currency. In a nutshell, the DeFi cryptocurrency is built on the Ethereum blockchain and is pegged to the US dollar.
In reality, DAI is the first decentralized, collateral-backed cryptocurrency asset of its kind. This DeFi currency was developed using the open-source software MakerDAO Protocol, one of the best DeFi platforms for developing decentralized applications with smart contracts.
DAI now has a market value of $4 billion, making it one of the best DeFi currencies available. Its exchange rate indicates the US dollar’s worth of other fiat currencies. The main advantage of staking DAI is, as expected, that it lowers your exposure to the extreme volatility of the broader cryptocurrency markets.
Furthermore, using DAI rather than fiat currencies may assist you to reduce transaction costs and delays while dealing in financial markets. Finally, DAI is one of the best DeFi currencies of its kind. Therefore we expect big things from the project in the next few years.
These cTokens may be redeemed to get access to your assets. Notably, since the value of tokens rises with time, you will be able to earn interest on your investment. In addition, Compound will debut its native coin — COMP – in June 2020. Holders of this DeFi token will be able to vote on the Compound protocol.
The network has gained significant market momentum, and its DeFi currency just surpassed a market value of more than $3 billion. Compound began trading in 2021 with a price of $143.90. Since then, the value of the Defi coin has reached $638. This implies that after only four months of trading, the value of Compound has risen by more than 350%.
Synthetix (SNX)
Synthetix is one of the fastest-growing DeFi systems on the market today. It is the driving force behind a well-developed decentralized exchange that enables users to trade tokens on the platform. What is special about Synthetix, however, is that it allows users to create their synthetic assets known as “synths”. Synths are fundamental financial instruments that replicate the value of an underlying asset.
Synthetix, a decentralized exchange, lets you trade synths for cryptocurrencies, indices, and other real assets like gold. However, you need the native SNX Synthetix token in order to offer collateral against synths. As a result, your SNX tokens get trapped in a smart contract every time you trade synths.
In addition, the SNX token returns part of the fees earned to its holders, which allows it to generate passive income. Given the real utility of the platform, the demand for SNX tokens with a market value of more than $ 2 billion may continue to grow. The cryptocurrency has already established itself as one of the acceptable DeFi coins and the value of the SNX coin has risen by more than 120 percent in the last four months.
Yearn.finance (YFI)
Yearn. finance was established in early 2020 to offer significant returns for staking Ethereum, stablecoins, and other cryptocurrencies. This is made possible by the protocol’s ‘Vaults’ feature, which helps to reduce the high cost of Ethereum transactions.
Yearn. finance aims to demystify DeFi for novice investors, enabling them to maximize profits with minimum involvement. With the introduction of its YFI token, this DeFi platform has garnered further market interest. The DeFi currency has a market value of more than $1.5 billion.
However, the overall supply is restricted to 36,666 coins, which adds to the value of the Defi project. At the time of writing, the YFI coin is valued at more than $42,564, making it one of the most expensive in the market. This is a remarkable number, given that the currency was just launched in July 2020 — at the cost of $1,050.
