Cryptos are back in the mainstream media once more. A renewed interest in the crypto space has driven a new wave of protocols and coins.
After a number of years of consolidation across the cryptomarket, new innovative protocols are drawing interest.
The interest has created a new crypto hype that is more than just reminiscent of the 2017 ICO boom.
As was the case back in 2017, there are a mass number of protocols hitting the crypto market.
This time around, the focus has shifted away from the CeFi space to DeFi. Decentralized Finance, better known as DeFi has become the buzz word of 2020.
Bitcoin and the broader crypto market delivered blockchain technology and decentralization. There was, however, an element of centralization in the CeFi space. Centralized finance became laden with governance and KYC/AML requirements and more in order to meet investor and government demands.
DeFi, by contrast, currently stands as truly decentralized. With an ethos of Permissionless and Trustless, there is no actual governance. And, there are no KYC/AML requirements. In fact, to access decentralized finance all a user needs is a wallet.
In concept alone, it is a mouthwatering prospect. True cryptocurrencies have yet to really make a dent in fiat money’s unwavering position as a primary payment source.
When considering the unbanked, the disgruntled, and the anonymous, however, DeFi may well give the banking sector a run for its money.
The Projects and the Returns
As entrepreneurs and scam artists enter the world of DeFi, a number of protocols have caught the eye amidst the mist…
While there are no guarantees that these protocols will be here tomorrow, there is the hope and with it the dream of incredible earnings potential.
Based on DeFi market caps from Coingecko, some of the more promising protocols that have enjoyed early success. These include:
Chainlink sits at the top of the DeFi coin charts at the time of writing. Not only is Chainlink at the top of the DeFi list, but Chainlink’s meteoric rise has also seen it join the crypto giants in the top 10 by market. CoinMarketCap has Chainlink currently sitting at number 8, impressively outgunning the likes of Litecoin…
Year-to-date return: 473.2% to the end of day 28th September 2020.
What’s the hype? With DeFi driven by smart contracts, Chainlink connects smart contracts to data sources. Additionally, users can send payments from a smart contract to bank accounts and payment networks.
Dai sits at number 3 on the DeFi market cap table and is ranked at number 25 on the CoinMarket Cap.
Year-to-date: Investors will have missed gains from elsewhere, however, with Dai up by just 2.02%.
Why the lowly return? Dai is decentralized and backed by collateral. In other words, Dai is a stablecoin and as such, looks to maintain a value of $1.00. The position by market cap, however, reflects the degree of adoption across the DeFi space.
Uniswap comes in at number 6 and number 42 on the CoinMarketCap ranking.
New to the market and launched on 17th September, founding investors have received a return of 1,318%.
The protocol allows investors to supply liquidity and to swap tokens.
Yearn.finance sits at number 4 on the DeFi market cap list and number 27 in the crypto CoinMarketCap ranking.
New to the market, with a launch date of July 2020, YFI has delivered genesis investors a since launch return of 2,623%.
What’s on the package?
Yearn.finance provides investors with an array of financial products. These are categorized under:
Earn: A yield aggregator that seeks out the best ROI from leading DApps.
ZAP: Allows investors to swap between assets, whilst saving on gas fees.
Vaults: Delivers returns from liquidity mining and higher yields from more aggressive investments.
Cover: Yinsure allows investors to get insurance. A key product in the world of decentralized finance.
And there are other worthy protocols worth mentioning including Synthetix, Ox, Oracle, Kava, Band, and Aava
In addition to viewing the DeFi rankings by market cap, DeFi Pulse provides a platform for protocols to list. Here, you are given a brief summary of what the protocol delivers and a direct link to the webpage.
The Road Ahead
While a number of these protocols will likely survive the early boom days, there are many that will fall by the wayside.
Investors only need to go back 3-years to the ICO boom of 2017 to get a glimpse of what likely lies ahead.
Just like back in 2017, however, talk of 1,000% returns are drawing investors back into the crypto world. For those, who entered the 2017 boom late, it may take a little longer, however.
At present, market leaders report the large existence of scammers and Ponzi schemes in the DeFi space. The current upward trend in DeFi’s market cap suggests that investors are willing to take another bite of the cherry.
Unlike investing in CeFi protocols, however, DeFi is a Trustless and Permissionless space. This means that there is little to no governance, testing, auditing, etc. It, therefore, means that some of the protocols drawing investor money could vanish in weeks, if not days.
For that very reason, investors are seeing exception returns. The protocols are drawing investors into the DeFi space, wooing them with double-digit returns from the least risky products on offer.
These include Yield Farming and Liquidity Pooling that puts the cherry on the top for investors today.
When considering the fact the DeFi is still niche, the rally may have some way to go. This is assuming, of course, that the victims of the 2017 crypto meltdown lick their wounds and return to the fray…
With platforms such as Binance setting up US$100m funds to seed new projects and fund development, the future of DeFi does look bright. It does not mean, however, that there will not be any cautionary tales.
With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.