Last updated on July 5, 2022
One of the first things you notice when you venture into the DeFi sector is that there are multiple blockchain networks in use today. The market has grown considerably and today, there are more competitors and options for traders to consider than ever. All of this growth has led to a bit of confusion as new users may be thrown off by the new terms and features exclusive to the DeFi (Decentralized Finance) sector.
What is DeFi?
DeFi is a term that has been in the headlines as of late. The term refers to a movement that seeks to decentralize the sector. DeFi protocols eliminate the middlemen and banks from the financial equation. Instead, regular users conduct transactions directly with each other or through smart contracts.
Smart contracts are purpose-built protocols that initiate when certain criteria have been met. Smart contracts enable DeFi protocols to eliminate human intervention on the back end. These protocols operate as pure code which brings some major advantages including added efficiency.
Advantages of DeFi?
There are so many benefits DeFi brings to the market. For one, these protocols provide open access to users. Reports show that there are over 3 billion unbanked people in the world. You may think that these people are unbanked because they live in underdeveloped communities, and you would be half right. There is also a huge percentage of non-banked individuals living in industrialized nations like the US.
There are many reasons why a person would be unbanked in 2022. In industrialized nations, the reasons are usually that the person doesn’t meet the bank’s sign-up criteria. Opening a bank account would seem like a basic human right however, there are millions of people who are denied this right due to reasons such as lack of paperwork or financial history.
In many instances, they are unable to obtain this information because of outside factors. For example, a refugee may find it impossible to obtain their official records from their country if it’s in the midst of a war. Some people were born in remote areas that lack the paperwork necessary. In some instances, people just find the process too intrusive and confusing. Especially if they need to get more paperwork that requires multiple visits to government offices.
Opens the Door
DeFi opens the door to a global community with its approach to finance. Unlike banks, anyone can use DeFi protocols to secure wealth. These systems don’t require paperwork to sign up. Instead, you simply need to connect a network-approved wallet. This strategy enables anyone to gain access to basic financial services.
It also reduces future risks associated with data breaches. There are billions of dollars in stolen personal data available on the black market. Much of this information has come from large financial institutions that have been hacked. Sadly, banks appear to be much better at keeping your money safe versus your personal information.
The DeFi market is all about transparency. These developers believe that the centralized options are skewed. Think about it. How difficult is it to get inside information on your bank? How hard would it be to see how many loans and for what value your bank gave out today? At the very least, you would need to rely on the bank to provide this information. If it refused, there would be very little recourse.
Take the same scenario but this time use a P2P DeFi lending protocol. You can easily see the network’s actions using a free blockchain explorer. You don’t need to call a third party or trust any organization. All of the data is available in real-time using the explorer. This level of transparency is preferred by most people versus living in the shadows of the centralized systems.
Finding the Right DeFi Network
The DeFi market continues to expand in both protocols and users. Today, the market has around $80 billion in total locked value. This number is predicted to rise sharply over the next five years as the market continues to show signs of parabolic growth. Through all of the commotion here have been some platforms that managed to stick out from the crowd.
These networks operate as separate islands at this time. As such, it can be confusing for new investors in the market. Many utilize proprietary coding to offer unique features. As such, new investors can gain valuable insight by learning about the top DeFi blockchains currently in use. Each of the networks listed has made significant strides in terms of DeFi Dapp development as of late. Here are the top DeFi blockchains for 2021.
No DeFi list would be complete without the mention of Ethereum. Ethereum dominates the DeFi market and for good reasons. The network was the first to host DeFi protocols. Platforms such as the popular DEX, Uniswap, have served as a model for all following DEXs to duplicate and improve upon. Additionally, the blockchain has a huge selection of Dapps, DEXs, wallets, games, and more.
Part of the reason Ethereum is so prevalent in DeFi today is that the network pioneered the market. Remember, Ethereum introduced the world to smart contracts and more. As such, a large percentage of blockchain developers got their start on the network. These developers have mastered programming in Ethereum’s language Solidity and are well acquainted with the EVM (Ethereum Virtual Machine).
It makes sense to see the majority of DeFi platforms hosted on Ethereum since it’s the largest developer base of all blockchains. Also, Ethereum is the most widely used blockchain in terms of Dapp development. Much of this success comes from the fact that Ethereum was the first blockchain to provide a token standard to the market. The ERC-20 token standard enabled developers to create robust applications with high interoperability.
Today, Ethereum is still the top DeFi blockchain in terms of market cap. However, the market has more competition than years prior. These new blockchains seek to provide relief to many of the biggest problems faced by Ethereum users and developers. Consequently, Ethereum continues to lose market share to competitors.
META1 is a next-generation blockchain that operates as the backbone of the META1 Coin DeFi ecosystem. Unlike Ethereum, META1 was built from the start to support a vibrant DeFi community. The network includes a powerful DEX that offers peer-to-peer trading and more.
META1 is superior to the competition in that its developers created their DeFi ecosystem upon launch. The platform includes a variety of top-notch features including an interest-paying crypto savings account. This feature is nice because these accounts can pay out 10x the amount you get from your local bank account. Specifically, your bank pays you around .25% on your deposits. META1 can offer you over 10% on your stored crypto.
Additionally, META1 pushes the boundaries of the DeFi sector further with the introduction of their multi-asset-backed self-appreciating stablecoin. This token was designed to eliminate volatility in the market. As such, it’s secured by a reserve that includes gold assets, along with a combination of other above-ground and in-ground assets. Additionally, Surety Bonds of equal value to gold assignments are issued to ensure the assigned assets.
Impressively, the network also introduces a no-loss smart contract that prevents token holders from selling their META1 coins under the fair market value. It’s for these reasons, that many investors consider META1 to have the potential to one day overtake Ethereum in terms of popularity.
Developers also gain more flexibility when they build on top of META1. The protocol is Ethereum smart contract compatible. This designation has helped the network secure solid growth in the market since its launch. Today, the META1 ecosystem offers users a viable alternative in the market. It also serves a vital role in reducing centralization and providing Dapp developers with a more robust programmable network.
Binance Smart Chain (BSC)
The Binance Smart Chain (BSC) officially entered the market on September 1, 2020. The project was designed to provide a viable alternative to the Ethereum ecosystem. As such, it launched with much hype. Specifically, the network secured a $100 million developer seed fund to support its launch and expansion.
Notably, the BSC was designed as an independent blockchain to supplement the Binance Chain. Today, Binance operates a dual chain architecture that enables the network to provide secure and cost-efficient access to the top DeFi features in the market. This decision also increased the value and usability of the network’s utility token BNB.
Popular Since Launch
The BSC saw immediate success as it was launched during a time of heavy congestion on the Ethereum network. This congestion left developers and users in search of more cost-efficient alternatives. As such, the network’s user base grew sharply in a short time. According to Dappradar, there were 108,000 unique active wallets in February 2021. Notably, the network also secured transaction volumes of $745 billion in the same month.
There are a ton of benefits both BSC developers and users gain. For one, developers can create and operate Dapps at far less cost. The BSC features more scalability than Ethereum and lower smart contract execution fees. For example, Ethereum processes blocks of transactions every 12-13 seconds. The BSC features a 3-second blocktime that improves the network’s overall performance.
The BSC is also very flexible in terms of features and services. The blockchain was designed to support all DeFi features including farming, staking, p2p lending, cross-chain transactions, pegged stablecoins, and NFTs. Today, the network operates as the biggest competitor to Ethereum. However, the competition is heating up.
Avalanche is a DeFi ecosystem that continues to see growing adoption. The network owes much of its success to its technical structure. The ecosystem consists of three separate but interoperable blockchains. These three blockchains integrate a custom utility token called AVAX to improve performance, monitoring capabilities, and usability. Today, Avalanche functions as a DeFi hotspot and payment system.
One of the main draws to Avalanche is its flexibility. The network is EVM compatible so Ethereum developers can migrate their dapps over with little effort. Developers can utilize Avalanche’s unique layout to create application-specific blockchains and tokens. You can even run multiple versions of custom virtual machines simultaneously making it ideal for next-gen Dapps.
Avalanche is known for its scalability. The network has sub-second finality and can scale vertically to meet demands. Currently, the protocol supports 6,500 transactions per second making it one of the fastest networks on the list. In comparison, Ethereum, the top-performing competitor handles around 13 TPS.
Polkadot is an expansive DeFi community that incorporates subchains and high programmability. This network was founded by Ethereum co-developer Gavin Wood. Wood is best known for developing Solidity, the programming language used by Ethereum. Consequently, Polkadot has been a top-performing DeFi network since its launch. Wood made Polkadot specifically to eliminate some of the pain points found in Ethereum.
He wanted to make Polkadot more interoperable and expandable. Part of this strategy involved the integration of parachains and parathreads. Parachains are sovereign blockchains. They can have their tokens, governance, fee structure, and even consensus mechanism. Parathreads are smaller networks. They can be set up to operate on a pay-as-go model.
Polkadot incorporates advanced chain bridges to expand its operability to other networks. At the core of the concept is the DOT token. Users can stake this token to secure passive returns. DOT is a popular option among traders and can be found on many of the top CEXs (centralized exchanges) and DeFi networks today.