3 established projects, 3 different use cases, that’s what I’d like to talk to you about today.
That’s why you can’t underestimate the contenders in this analysis.
I want to be clear, this is not a ranking. I want to bring you 3 of the most established cryptos for DeFi with interesting developments.
DeFi now = far west.
We have really seen everything these past years, from serious projects with innovation to shameless scams.
Let me spoiler what we’re going to see today and why I chose these very projects in the DeFi field:
Chainlink: is a decentralized network that uses a large collection of node operators to collectively power a wide range of decentralized Price Feed oracle networks live in-production. This huge number of independent node operators guarantee its decentralization.
Uniswap: an Automated Market Maker which runs on a decentralized peer-to-peer protocol that doesn’t use order books. It is permissionless and doesn’t run under a central authority.
Aave: a decentralized lending protocol that lets users lend or borrow cryptocurrency without going to a centralized intermediary.
After this little spoiler, I hope you’re ready to go deeper into these cryptos. Take your cup of coffee and let’s start!
Chainlink (LINK) is the first crypto I want to include today.
Chainlink’s technology claims to solve one of the biggest challenges for the practical implementation of smart contracts, connecting blockchains to real world data, such as price feeds or delivery confirmations, through so-called oracles blockchain connectivity.
Oracles are like “agents”, links between the blockchain and the real world, which have the only goal of passing information to smart contracts, at the exact moment in which some conditions of the real world occur. These agents are used to transmit data but are in effect centralized “entities” and therefore to be considered possible points of failure (due to tampering and more).
Chainlink is a network of nodes, which obtain data directly from the APIs (Application Programming Interfaces) of applications. The security of the data provided is guaranteed because Smart Contracts can choose which and how many nodes they can point to. Every node has a reputation, which serves to ensure that they are working properly.
Microsoft and IBM are a couple of names with which Chainlink has integrations.
To understand this project better, I invite you to my in-depth review where you will see many more concepts, including technical ones, explained better but still in a simple way.
E&S token review: Chainlink I - Chainlink II
Uniswap (UNI) is the second project under my “DeFi radar”.
Come on, who has never done a swap on Uniswap?
Uniswap is one of the easiest and fastest ways to swap coins in a decentralized way.
This coin ranks at the 17th position in CoinMarketCap’s ranking of the most capitalized coins. A very respectable achievement.
The Uniswap protocol, built on the Ethereum blockchain, allows users to easily exchange between any ERC-20 tokens in a completely decentralized manner. This means that users can choose to easily trade Ethereum-based tokens directly from their own personal wallets without having to give up their custody of funds throughout the process.
Uniswap has 2 main functions:
- Uniswap Swap enables users to exchange ETH currency for other ERC20 tokens.
- Uniswap liquidity pool allows users to make money by providing liquidity. Users make money by depositing tokens in the pool. In return, they receive pool tokens.
Uniswap removes the concept of order books in favor of an automated market maker. Rather than specifying what price to buy or sell at, users merely select an input and output token while Uniswap provides a market rate. Simply connect a web 3 wallet, select the asset you want to trade, the asset you wish to receive and taaac! Uniswap automatically processes the transaction and updates your wallet balance.
Why prefer Uniswap to other DEX and what are its advantages? You can find the answer here:
E&S token review: Uniswap I - Uniswap II
Aave (AAVE) is the third crypto of this article.
Third coin and third different use case, also very interesting, although it may seem more difficult for newcomers to the field to understand.
Aave is a decentralized non-custodial money market protocol where users can participate as depositors or borrowers.
- Depositors provide liquidity to the market to earn a passive income.
- Borrowers can borrow in an overcollateralized or undercollateralized fashion.
The protocol is open source, which means that anyone can view and propose changes to the source code. It is also non-custodial, tokens remain in the possession of the user.
One thing that many people do not understand is: why should I borrow if I must give collateral anyway?
In most cases speculators are the borrowers. Here is an example. Let’s say I think that ETH price will increase against USD. I can buy more ETH or I can borrow USD by pledging my ETH. If I’m right, I earn, if I am wrong, the value of my loan increases up to a moment where it is automatically closed, making me lose money. Easy.
Do you want to learn more about Aave and discover the curiosity of what its name means? You can find more information in the full review:
With these 3 different use cases, these 3 coins do not compete, but each one can be a winner for its own purposes.
I am more and more convinced that the more time passes, the more the market will aggressively skim all the meaningless projects to give room for growth more and more to projects with real underlying. The more aware the market becomes, the more sophisticated you will have to be to get into it.
Let me know if you have already included these projects in your portfolio.
Do you have other cryptos in DeFi under your radar?
Share them with me in a comment, I will gladly give you my opinion on them.