DeFi is becoming a bigger and bigger part of the crypto ecosystem, with decentralized financial applications exploding in popularity and TVL. In this article, we are going to look at 5 of the largest DeFi projects available today (in terms of their TVL) and what has led to their success.
Aave
Aave is an open source and non-custodial protocol that allows users to earn interest on deposited assets and borrow against their positions. It is a decentralized money market, paying variable interest rates to depositors depending on market demand. Depositors can earn a passive income, while borrows can borrow funds in an over-collateralized fashion. Aave tokens, which are paid as additional incentives to lenders and borrowers, can be staked to earn staking rewards and protocol fees.
Aave is currently operational on Ethereum, Polygon and Avalanche networks, and has over $21B in assets locked – making it the largest DeFi protocol by TVL.
Curve Finance
Curve has become a bluechip staple of the DeFi ecosystem. It is a decentralized exchange liquidity pool on Ethereum (and many other chains) designed for extremely efficient stablecoin trading. Curve recently released “v2” of their platform, enabling swaps for non-stablecoin pairs as well. Currently, Curve has about $18B in assets locked in their smart contracts, with $15B of this on Ethereum. Curve’s dApp is also available on Optimism, Avalanche, Harmony, Gnosis, Polygon, Arbitrum, and Fantom networks.
Curve’s economic model is a unique one. The project has a governance token – CRV – that is paid as an incentive for liquidity providers. CRV tokens can be locked for up to 4 years in exchange for veCRV which can be used for voting rights, receive boosted CRV rewards, and a profit share from trading fees. The community of veCRV holders vote on CRV reward allocations, creating a powerful natural demand for CRV which is then locked.
MakerDAO
Maker is the DAO that facilitates the DAI stablecoin – a coin pegged 1:1 to the US dollar. Maker DAO has a governance token – MKR – that is used to govern the protocol. MKR holders determine the DSR (Dai Savings Rate) on a weekly basis in order to properly align incentives so that DAI’s peg stays close to $1. MKR holders can also submit proposals to governance in order to improve the protocol, change risk parameters, add collateral types, allocate funds, and more.
Maker Dao operates on the Ethereum network, where it has $15.77B in funds locked at the time of writing.
Convex Finance
Convex is actually a protocol designed to be used in conjunction with Curve. It simplifies the Curve experience to maximize yields for liquidity providers. As stated for Curve, veCRV is locked CRV that leads to boosted CRV rewards. However, it often takes a lot of capital to receive the maximum boost. Also, veCRV is not transferable. Convex fixes both of these problems by locking CRV itself and distributing cvxCRV (representing veCRV) that is itself transferable – creating a “liquid staking” option of sorts for CRV, while also capturing the maximum boost benefit. Convex sells collected CRV to compound positions, while also paying out CVX rewards on top as an added incentive. CVX tokens can then be staked to earn a portion of platform revenue.
At the time of writing, Convex has $12.38B in assets locked on the Ethereum network.
Lido
Lido is a protocol designed to provide liquidity for staked assets. Lido’s protocol strengthens proof of stake networks by providing large amounts of capital, creating a strong security backbone. Lido lets users stake their assets for daily staking rewards, providing users with “staked” tokens on a 1:1 ratio with the original stake. These staked tokens can be used in other DeFi protocols to compound yield and receive “yield on yield”. Staked tokens can be used as collateral for lending, yield farming, and more.
Currently, Lido supports staking for Ethereum 2.0, Terra, and Solana. At the time of writing, Lido has over $8B of assets locked on its platform.
