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With the rapid growth of Blockchain businesses in the world, lots of people have opportunities to invest in this business ranging from crypto, Ethereum, and many others.
However, not everyone can go through the process of custodial or centralized finance and that is why DeFi is here to make lending options easy without intermediaries while you earn returns when liquidity pools are deposited or invested.
DeFi simply known as decentralized finance is more like an ecosystem of financial applications which are based on blockchain technology that operates without a traditional means or a centralized system. DeFi lending platform aims to offer crypto loans without intermediaries and allow these lenders or users to include their crypto coins on a lending platform.
DeFi loans enable applicants to lend their crypto to someone else and earn interest on the loan offered. This platform offers lenders the opportunity to loan their assets to others and generate interest on the loan given.
Before now, the marketplace has witnessed several valuable and innovative decentralized lending platforms. The future of finance and cryptocurrency can these days be accessible through lending platforms such as Defi platforms.
DeFi lending also permits lenders to give out loans or deposit fiat for interest through a distributed and decentralized application system. Lenders on this platform find it more attractive as they earn a relatively low-risk interest on existing holdings without having to involve a third party.
How Defi does operates?
The whole process is quite easy and vivid as you only need to choose any Decentralized Application (DApp) that grants a smart contract and borrowers. You need to decide the loan’s rate, put it in the app and the lending is set. Once a borrower is found, the smart contract would automate you, the lender, and a borrower agreement.
However, there are so many Defi lending platforms that you can choose to transact with, nonetheless, make your decision through appropriate research before choosing any.
Here are the top 10 Defi lending platforms that you may want to consider:
Compound protocol majorly focuses on the decentralization of financial services of crypto lending. It is a blockchain technology that is built on Ethereum.
This Defi lending platform is an application within the space of cryptocurrency which uses a money market approach, of varied pools of capital for each supported asset. Lenders can deposit given amounts into lending pools, continuously earning interest with no fixed loans duration. This is an amazing opportunity for investing especially in the crypto world.
The users of this platform earn without any form of collateral just bank services. Once a deposit is made in Compound, Compound awards a new cryptocurrency called cTokens to the lenders. Each cToken can be transferred or traded without restriction, but it is only redeemable for the cryptocurrency initially locked in the protocol.
Marker is a lending platform that doesn’t require permission and it is responsible for the creation of DAI, the first decentralized stablecoin, built on Ethereum. The platform allows any user to autonomously take out a loan by staking digital assets such as Ethereum as collateral. There are no KYC requirements necessary to get started. Then, all lending actions are performed by smart contracts, that is; no human is involved in the facilitation of any specific loan.
Marker leverages a native token, MKR, which is specifically used as a governance token to vote on new upgrades to the platform. DAI is pinned with the dollar for lending and borrowing once the smart contracts adhere, and of course, it is a stablecoin pegged to the US.
Instadapp is a reliable smart wallet for DeFi which lets its lenders seamlessly optimize, manage and position multiple DeFi applications to get the best returns across numerous protocols. It is a multi-purpose platform that manages digital assets pretty well.
InstaDApp offers several services such as lending, leverage, swap, and borrowing. Lenders manage their DeFi investments across different lending platforms and can switch to cheaper platforms with lower interest rates such as Marker or Compound seamlessly.
InstaDApp is currently in collaboration with MakerDAO (DAI), Compound Finance (COMP), and Uniswap (UNI). It has a straightforward UI that helps a lender in managing assets. Users of InstaDApp can lend, borrow, and swap DAI, COMP, and UNI via the InstaDApp dashboard.
Aave is an Ethereum-based and open-sourced DeFi lending platform with a total value locked (TVL) that’s over $18 billion. It is a decentralized liquidity platform just like any other DeFi lending platform that allows lenders to supply crypto assets while also earning a return on the assets they offer to the protocol.
It’s regarded as one of the best lending platforms as well as the most secure DeFi platforms, with multiple audits and tests conducted upon it by third parties. With its market size which is tremendously expanding, this platform’s lending choice is the leading position for lending transactions.
Aave protocols allow the largest range of collaterals for Defi and the liquidity that supports its large share.
Uniswap is an automated market platform that is believed to be the leading decentralized exchange. This platform is based on an Ethereum token exchange mechanism that employs liquidity pools instead of order books.
Uniswap rewards its lenders who lend their crypto. This is to have enough funds in its liquidity pools. It is considered a good investment platform as investors are looking for UNI to buy due to its impressive performance.
In Uniswap, traders can swap Ethereum tokens and Ethereum-based tokens and also lend crypto tokens to Uniswap’s liquidity pool and earn fees in exchange. Based on CoinGecko data, this platform has the highest 24-trading volume among all DeFi Exchanges and the highest market share of about 24.2 percent.
dYdX is a non-custodial decentralized exchange that allows users to leverage trade through Ethereum smart contracts. This gives lenders the ability to trade on margin while also benefitting from the security provided by Ethereum.
DYdX is backed by a16z, Polychain, Paradigm, and Three Arrows Capital, and has made a name for itself as one of the most consistent lending platforms in the DeFi space, because its gas demands are similar for both supplying and withdrawing liquidity for most of its assets.
In this platform, lenders automatically earn interest once a new block is mined. Any funds deposited on the platform will continuously earn interest at every block and can be withdrawn over time with no minimum requirements.
This Defi lending platform allows an investment (which is obviously what lenders are doing; investing their liquidity pool to receive interest) in different liquidity pools and receiving earnings in Sushi tokens in returns. Lenders will continue to earn a percentage of the protocol fees in Sushi, even after they choose to stop participating actively in the supply of liquidity.
Sushiswap has always been a popular Ethereum-based decentralized exchange that allows users to swap tokens that earn them some rewards. Like other DeFi lending platforms, it relies on smart contracts or codes that automate the processes and liquidity provided by other users to complete trades.
8. Dharma protocol:
This platform is a startup with backing from Coinbase and Polychain, which wants to use peer-to-peer to make crypto loans accessible to all. Here, lenders are matched peer-to-peer to set up crypto lending terms in a non-custodial fashion, governed by Dharma’s smart contracts.
Lenders can use Dharam to provide fix-term loans of up to 90 days and start earning interest only after they are matched with borrowers.
9. Curve Finance
This platform utilizes an automated market marker mechanism alongside liquidity pools. By focusing on assets that behave similarly, curve finance can offer low fees, a small amount of slippage, and a reduced risk of impermanent loss.
Curve offers lenders rewards when they provide liquidity to the exchange. Liquidity pools remove the need to match a buyer with a seller to complete an exchange. Instead the lender trade in and out of a pre-funded pool of tokens, which results in a more efficient transaction.
Curve finance works on the Ethereum network. For a lender to utilize Curve Finance, such a lender needs to create a web 3.0 Ethereum wallet, such as MetaMask, and connect it to the exchange.
Balancer is an automated market maker that relies on the interaction between liquidity providers who provide assets to liquidity pools that provide tokens for a decentralized exchange.
On Balancers, liquidity providers can deposit any combination of up to eight different tokens into a particular crypto liquidity pool, each of which mathematically maintains a fixed ratio of token values.
In the Balancer pool, the liquidity provider is rewarded for the service since they provide liquidity to the protocol. They earn fees while their index funds are continuously rebalanced for them.
NOTE: A liquidity pool (LP) is a collection of funds locked in a smart contract. It allows traders to trade tokens and coins, regardless of the buyer’s or seller’s presence. LP makes money by allowing traders to use their liquidity for making transactions.
Pros and Cons of DeFi Lending
Every business out there has its pros and cons and DeFi is no different. It is advisable to study the business before going into it.
PROS of DeFi Lending
- There is no intermediary between transactions
- Offers higher interest rate
- Offers more accessibility for loans and insurance without a credit score
CONS of DeFi Lending
- If you forget your password, you can lose your assets since there is no governing body
- Lack of consumer protection
- It has high volatility and risk
Henry John is a Stock Portfolio Manager that focuses on companies developing cutting-edge technologies.
Keeping track of cutting-edge techs, companies and stocks is what I do almost everyday. And I love it. Whether it’s artificial intelligence, 5g, or autonomous vehicles; I’m all in.
I’m a self-made millionaire who made most of his money investing in technology companies while working in finance.
Yes! I owe it all to tech and finance.