The decentralized financial sector (DeFi) has been sitting in the back seat since it made waves in the summer of 2020 through the first quarter of 2021. Currently, investors are debating whether the crypto sector is in a bull or bear market, meaning it’s a good time to take a look at DeFi’s status and determine which protocols could set new trends.
Here is an overview of the top DeFi protocols and an overview of the strategies used by users of these protocols.
Stablecoins are the foundation of DeFi
Stablecoin-related DeFi protocols are the cornerstone of the DeFi ecosystem and Curve has become the go-to protocol when it comes to staking stablecoins.
Top 5 protocols locked by total value. Source: Defi Llama
Facts from Defi Llama shows that four of the top five protocols in terms of total value locked (TVL) are related to the creation and management of stablecoins.
It is important to note that while these protocols have come out on top when it comes to TVL, for the most part the value of their native tokens is significantly below their all-time highs in 2021.
Most importantly, entering into the stablecoin aspect of the DeFi market through staking and farming has yielded stable returns while also earning the governance tokens for these platforms as an added bonus to help the decline in token values Reduce.
As it stands, stablecoins play an integral role in the overall healthy functioning of DeFi, which continues to expand as newer protocols such as Frax Share and Neutrino climb the TVL rankings amid the increasing number of interconnected blockchain networks.
Lending and borrowing is at the heart of DeFi .’s value proposition
Lending platforms are another important part of the DeFi ecosystem and one of the key features that allows investors to interact even during a bear market. AAVE and Compound are the current leaders with TVLs of $12.09 billion and $6.65 billion, respectively.
Like other stablecoin protocols, AAVE and Compound saw the value of their native tokens peak in 2021 and both have been in a prolonged downturn for months.
AAVE/USDT vs. COMP/USDT 1-day chart. Source: TradingView
AAVE’s TVL growth outpaced Compound in large part thanks to the cross-chain integration of Polygon and Avalanche, which increased the number of assets supported and allowed users to avoid the high gas tariffs on the Ethereum network.
Long-term crypto hodlers who are risk averse can take advantage of simply lending their tokens for a modest return.
aave vs. compound stablecoin earnings. Source: DeFi Prime
Related: Altcoin Roundup: JunoSwap, Solidly and VVS Finance Give DeFi a Much-Needed Refresh
Liquid staking adds more usability to DeFi
The growing popularity of liquid staking also adds new utility to decentralized financing. Liquid staking protocols such as Lido Finance, which was originally launched as an Ethereum staking solution, but has since expanded support to Terra (LUNA), Solana (SOL), Kusama (KSM), and Polygon (MATIC).
Data from Defi Llama shows that the TVL on Lido hit a new all-time high of $14.96 billion on March 10, as the addition of new assets continues to draw more value to the protocol.
Total value locked on Lido. Source: DeFi Llama.
On Lido, users can wager Ether and Solana and receive stETH or stSOL, which can then be used as collateral on AAVE to borrow stablecoins. Those assets can then be used for trading or farming purposes, increasing the total return of the original deployed asset.
Other notable liquid staking protocols include the Eth2 staking provider StakeWise, the Cosmos-based pStake protocol, and Stader Labs.
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