Are DeFi Tokens Worth Buying
Blockchain technology has allotted versatile rooms of sovereignty to the modern age. We are now putting up with the control of our assets into our hands rather than entrusting them with the third parties, this is possible with the power of Blockchain.
As time goes by, there have been innumerable platforms developed on the blockchain system, the likes of Ethereum, Binance Smart Chain, and so many others, this has led to the birth of DeFi (Decentralized Finance).
Without further fuss, we are going to talk about DeFi, the product, use cases, and if DeFi tokens are worth buying.
What is DeFi?
DeFi is the short form of Decentralized Finance pronounced as D-Fi. It’s the act of taking portions of a centralized finance platform and decentralizing it by eliminating intermediaries. The word DeFi was coined by Ethereum blockchain developers and entrepreneurs including Inje Yeo of Set Protocol, Blake Henderson of 0x, and Brendan Forster of Dharm in August 2018 during their dialogues on Telegram. Heretofore, DeFi has evolved into a multi-billion dollar industry. The TVL (Total Value Locked) in DeFi presently is more than $20B. The amount reflects how DeFi is breaking ground in the Crypto industry.
Where is DeFi Built?
There are bunches of DeFi projects serving different purposes. The two popular blockchains DeFi projects are being built on are Ethereum and Binance Smart Chain (BSC). Developers are majorly leveraging on these two blockchains to develop varieties of platforms that provide freedom to financial needs and easy access to your funds. One of the trends is DeFi, and it has become the talking point in the cryptosphere.
Ethereum blockchain is a decentralized and open-source platform offering a smart contract. It was formulated by a crypto/blockchain-genius, a well-known guy in the crypto space - Vitalik Buterin in the year 2013. Ethereum went live on the 30th of July, 2015, with 72 million pre-mined coins following successful crowdfunding in 2014. Ethereum has a series of founders. Initially, they were five(5) in numbers in the year 2013 and three(3) more founders were added in 2014.
Ethereum was created by a team of programmers (Ethereum Foundation) but was suggested by Vitalik in the whitepaper released in the year 2013.
Ethereum became more popular during the ICO crazy times in 2017. It is used for Decentralized Finance, it is the blockchain with the most used activity and the second-largest by market capitalization following Bitcoin. Ethereum Foundation is upgrading to Ethereum 2.0 which will offer more utilities like proof of stake and transaction fee improvement, although the concise mainnet launch date is still untold.
Binance Smart Chain mainnet went live on September 1, 2020, intending to offer smart contracts alternatively to Ethereum blockchain with fewer transaction fees compared to Ethereum fees. BSC was created to enable developers to develop jaw-dropping blockchain DeFi platforms to thrive. BSC is a parallel chain to the Binance chain.
BSC is compatible with Ethereum Virtual Machine (EVM) which allows developers to deploy blockchain applications (Dapps) originally built on Ethereum blockchain to Binance Smart Chain. BSC uses approximately 5 seconds block time and a Proof-of-Authority (PoA) consensus mechanism that allows high-speed transactions that only cost network participants a few cents.
You can make money by participating in DeFi platforms in different ways from buying and speculating the DeFi token, staking, providing liquidity pool, etc. I am going to highlight some well known DeFi platforms and what they offer;
Kingswap is a newly built and promising decentralized digital exchange that has a distinctive feature ahead of successful DeFi protocols like Uniswap and Suchiswap.
Kingswap was initially a UniSwap fork (a copy of Sushiswap), but Kingswap has since become a hybrid platform (a mix of decentralized finance “DeFi” and centralized finance “CeFi”).
Pancakeswap is a DeFi platform built on the Binance Smart Chain offering decentralized exchange, IFO (Initial Farm Offerings), NFTs, lottery, liquidity provider, and staking. IFO is the way of purchasing new tokens launched on a platform by committing the requested liquidity pool token during the sale.
Pancakeswap has the highest number of transactions volume on the Binance Smart Chain with a native token known as CAKE. Users earn passive income by staking the native token (CAKE) on the platform. Users stake CAKE to earn different tokens like TWT, PSG, REEF, etc. And the platform has the highest APY on staking rewards. On BSC, Pancakeswap has the highest number of daily active users and transactions according to dappradar.
Uniswap is a decentralized exchange that allows users to trade directly on a peer-to-peer protocol securely without a middleman. Uniswap allows users to provide a liquidity pool of supported digital currency and earn interest from the transaction fees. Uniswap became more popular after rewarding its existing users with an average of 400 Uniswap token Airdrop initially worth $1,400.
Uniswap has risen more than 2x and the 400 tokens are now worth $4000. Uniswap has the highest number of transactions of all DeFi platforms and it's the highest dex and liquidity provider.
DeFi Pulse is a platform that tracks popular DeFi platforms majorly on the Ethereum blockchain ranging from Dexes, Lending, Payments, Assets, and Derivatives. DeFi Pulse shows the total value locked in DeFi and market dominance.
As the name sounds, it’s an Ethereum block explorer and multipurpose analytics platform.
Binance Smart Chain scan is similar to Etherscan but instead of Ethereum, it’s used to scan and explore Binance Smart Chain addresses. Note that, Ethereum address is also the same as the Binance Smart Chain address which means the ETH address can also receive BSC tokens.
Maker (MKR) is a platform built on the Ethereum blockchain. MKR is a cryptocurrency and a governance token that’s used to vote crucial decisions in the Maker community like ceilings, stability fees, etc on the network. Maker is the token that backed DAI, a stabilized currency that’s pegged to 1 USD.
DAI is very popular as a stable currency, despite its stability, over four hundred apps and services have integrated it, which includes DeFi platforms, games, and many more. Maker allows you to create a stable currency using Maker Oasis.
Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.
Synthetix is a DeFi platform built on the Ethereum blockchain for the creation of Synth assets. Synthetic has a native currency SNX that fuels the Synthetix protocol, the token has risen closer to 2x since the 1st of January.
Synthetix enables the trading of synthetic assets on the Ethereum blockchain and brings exposure to non-blockchain-based assets like gold, U.S. Dollar, TESLA, and APPL in this way creating a more mature financial market. Synthetix was created as stablecoin project Haven and later rebranded its scope before launching on mainnet in February 2019.
Are DeFi Tokens Worth Buying?
I will simply not give you a direct boolean answer to this question because one of the rules of investments is to study, learn, and understand what you want to purchase or where you want to put in your hard-earned money before investing.
If you've performed comprehensive research and found out the team behind the project, check their partners and backers, and if the project offers a vital solution to a problem, you can reach in conclusion if it's worth your investment. In a simplified answer, a great DeFi token is worth investing in because we've seen tokens like SNX, UNI, CAKE, and SUSHI all thriving.
As DeFi is becoming a ubiquitous allure in the crypto space, it'll be very wise to do your critical research just so you do not fall victim to some bad doers. We've seen quite a few DeFi platforms that pretend to offer great benefits but eventually with thorough research you'll find out that they are scams.
With the details that have been extracted here on DeFi and projects we've reviewed, we can reach in conclusion that reputable DeFi tokens are worth our investment. I will simply advise you to learn thoroughly about the token you're purchasing because if you invest in a great DeFi project token, you could see 5x of your investment in a short interval.
PS: Every piece of information provided here is based on my research and experience, don't consider it as financial advice. Do your own research