To learn more about the DeFi ecosystem, start by looking at some of the most popular DeFi protocols.
after reading this, you'll understand:
DeFi protocols consist of standards, codes, and procedures that govern decentralized financial applications.
SaucerSwap is the first decentralized exchange built on the Hedera network and offers single-sided crypto staking.
Other top protocols are 0x Protocol, UniSwap, Curve, Dydx, Maker, Oasis.app, Compound, Venus Protocol, and GMX.
The world of decentralized finance continues to evolve. Still, that doesn't mean there aren't growing pains. For example, near the end of 2022, the total value locked (TVL) across all DeFi protocols dropped below $40 billion for the first time since February 2021. That's down from a high of $183 billion in November 2021. The decline in value, developers must continue building and improving DeFi protocols for the ecosystem to thrive.
If you're interested in learning more about the DeFi ecosystem, it can be helpful to know more about the decentralized protocols people use to interact with it.
DeFi protocols consist of standards, codes, and procedures that govern decentralized financial applications. These protocols enable trading, lending, yield farming, and more. For a DeFi protocol to work correctly, it must abide by a specific set of rules that all wallets must follow when engaging with it.
Most DeFi protocols are autonomous programs that aim to improve upon the processes used in traditional finance. For example, DeFi aggregators like Zapper integrate with decentralized exchanges to consolidate trading and liquidity pools in a single place. These aggregators help to eliminate the struggles associated with finding the best yields and lowest prices.
Many of the best DeFi protocols take complicated concepts and make them accessible to the average DeFi user. MakerDAO, for example, lets users borrow and lend cryptocurrencies. The protocol allows users to generate DAI tokens by locking their own crypto assets. DAI is a stablecoin backed by the collateralized debt positions created when users lock cryptocurrency in the MakerDao smart contract. A series of smart contracts on the back end liquidate loans and sell the collateral to maintain DAI's peg. However, thanks to the protocol, users can engage in lending and borrowing without concerning themselves with the complicated backend procedures.
Rather than speak in the abstract, let's look at some of the most popular or hottest DeFi protocols to see what they offer and how they work.
SaucerSwap is the first decentralized exchange built on the Hedera network and offers single-sided crypto staking. SaucerSwap uses the popular automated market maker (AMM) protocol pioneered by DeFi applications like UniSwap. This protocol enables digital asset trading and incentivizes liquidity by offering staking rewards.
With Hedera's low, predictable fees, SaucerSwap is less prohibitive than DeFi platforms built on other DLTs.
The 0x Protocol is a popular method investors use to move assets from Ethereum to Polygon. This protocol lets users trade ERC20 tokens and has a front-end bridge tool that enables the transfer of assets from one chain to the other.
Bridges are often used to transfer assets from Ethereum to Polygon since the fees tend to be lower. Although the 0x Protocol is one of the most popular methods for bridging assets, there are other ways to achieve the same thing. For example, the Polygon POS Bridge enhances interoperability between the Polygon and Ethereum blockchain by enabling the transfer of assets between the two.
Uniswap is one of the longest-running Ethereum DEXs. It was one of the first to challenge centralized financial systems with the AMM model, letting users trade coins, earn rewards, and add their own tokens. The AMM model relies on users supplying tokens to a liquidity pool to enable frictionless trading. In exchange for providing liquidity, these market makers earn a fraction of the protocol fees as a reward.
Curve is a DEX and decentralized autonomous organization that optimizes the swapping of pegged assets with identical pegs. It began with stablecoins pegged to the U.S. dollar and expanded to include cryptocurrencies like wETH that are pegged to other digital assets.
The protocol's primary token, CRV, is used for governance and revenue sharing. The CRV token is used to vote on protocol changes and gets distributed to liquidity providers as a reward for enabling frictionless trades.
Dydx is a DEX with more than 30 cryptocurrency trading options. The dydx core exchange protocol is built on Ethereum smart contracts and STARK rollups powered by Starkware. The newest v4 dydx protocol is a community-controlled trading platform with various trading features such as spot, margin, and synthetic assets.
We've already covered the Maker Protocol, which allows users to lend and borrow cryptocurrencies. Oasis.app is the frontend program used to lock cryptocurrency assets and create DAI.
The Oasis protocol has features for users of all skill levels, such as basic swaps, fast token swaps, and vault-created leverage.
Similar to Maker, Compound is a protocol that aims to offer lending and borrowing without the centralized intermediaries needed by traditional financial institutions.
Compound is a decentralized marketplace enabling users to take loans and offer loans by locking crypto assets in the protocol. The supply and demand of each asset determine the interest rates, and rates are generated as new blocks are mined.
Venus is another lending-and-borrowing platform using blockchain technology to disrupt the traditional financial sector. This algorithm-based money market system is built on the BNB Chain and can be used by anyone with a compatible cryptocurrency wallet, such as MetaMask. Venus's native governance token, XVS, is used to govern the protocol and can be staked to earn rewards.
Venus aims to combine many of the features found in Compound and Maker Protocol. People can use Venus to mint synthetic stablecoins by over-collateralizing positions
GMX lets users trade cryptocurrencies from their wallets, such as BTC and ETH. This protocol offers many of the high-risk, high-reward trades found on centralized exchanges, such as perpetual futures with up to 50x leverage. Still, users retain custody of their assets throughout the trade, unlike trades made on centralized exchanges.
Decentralized finance has evolved over the years, partially thanks to many of the top DeFi protocols. These protocols enhance decentralized lending, asset management, yield farming, and nearly every other aspect of the DeFi market. The future of DeFi is reliant on the developers building the tools we all use daily. Thanks to them, anyone with an internet connection can interact with financial applications in a secure, trustless environment. Still, we have a long way to go before decentralized finance can compete with traditional financial systems.
Hedera makes it easy for developers to get started on DeFi projects. Hedera's gossip protocol enables developers to build with confidence, knowing their applications will have low, predictable fees. Devs can easily set up a Testnet account, and Hedera's SDKs are written in Java, JavaScript, Go, .NET, and other widely-used languages.