The Ethereum project has positioned itself as the hotbed for the decentralized finance services. Defi, as these services are commonly called, has become a cornerstone of the cryptocurrency market. The primary application of the many protocols that form the infrastructure of defi might be finance, but more broadly they also form the framework for Web 3.0 - the next generation of web that is free from censorship and provides greater security and privacy.
Ethereum and the many protocols can be thought of as an additional layer in the operations of the internet. The internet has physical, data transport, and communication layers that allow us to make web interaction possible. The Ethereum ecosystem will simply be another layer in this whole system, providing decentralized applications, communication, and security.
That’s why the big money is flowing into the defi space and there’s been such growth. The value of Ethereum lies in these services, which provide much better returns for investors, while simultaneously allowing.
Ethereum can be seen as the base layer for defi’s infrastructure, upon which everything else it built. On top of that, we have Maker and its MKR/DAI ecosystem. For a long time, Maker was at the top of the defi space, but even if market figures suggest a change, it is still the heart of the market, as DAI is used almost universally in other defi services.
On top of Maker, we have several protocols with high potential and proven results - Compound Finance, dYdX, Uniswap. A lot of this might be just in early development and far from mainstream adoption, but there’s a reason why there’s so much money and hype for defi. They show tangible results.
There are many interesting projects out there right now, but I’ve picked what are the most promising of them. In addition to the aforementioned protocols, I’ve also highlighted oracle providers and unique assets. The 7 projects and protocols that I have listed below are going to be the foundation for a truly decentralized financial future, which makes economic freedom a real possibility.
1. Maker
Ticker: MKR
Main purpose: Issuing Stablecoin DAI/Collateralized Debt Positions (CDPs)
Established: 2014
Website: https://makerdao.com/
Whitepaper: Link
Brief Background
Founded by Rune Christensen in 2014 with the goal of providing a fully decentralized stablecoin DAI backed by other assets such as Ether.
In turn, it expects its platform to encourage financial inclusion, combat market volatility and encourage innovation in defi through its offerings. Today Maker is governed by the community and is seen as the foundation of the whole DeFi system, right after the Ethereum as the ground layer.
How Maker Benefits DeFi
- Decentralized issuance of a stablecoins DAI/SAI (Read more)
- Introduces users to decentralized lending & borrowing (Read more)
- Provides passive income opportunities through the Dai Savings Rate (Read more)
- Acts as a foundation for other financial services (Read more)
- Operates a decentralized exchange (Read more)
- Works with several companies to build the ecosystem (Read more)
2. Loopring
Ticker: LRC
Main purpose: DEX Protocol/Instant Payments/No Fee Trades
Established: 2017
Website: loopring.io
Whitepaper: Link
Brief Background
Founded in 2017 by Daniel Wang and Jay Zhou, who respectively serve as the project’s CEO and CMO. The protocol leverages zk-Rollups to make transactions on Ethereum nearly feeless and with a high throughput of 2,025 transactions per second. Anyone can use the Loopring protocol to build high throughput and non-custodial decentralized exchanges.
How Loopring Benefits DeFi
- Provides a non-custodial exchange protocol (Read more)
- Introduces first zk-Rollup DEX with 0 Fees - Loopring.io
- Instant ERC-20 Token Payments via Loopring Pay
- Capable of handling 2025 transactions per second on Ethereum
3. Compound Finance
Ticker: COMP
Main purpose: Lending & Borrowing
Established: August 2017
Website: https://compound.finance/
Whitepaper: Link
Brief Background
Compound Finance is a decentralized algorithmic interest rate protocol that allows liquidity providers to earn interest against their assets, and also allows the borrowing of assets against collateral. It was founded by Robert Leshner and Geoffrey Hayes, who serves as the company’s CEO and CTO respectively. The recent launch of the COMP token in June 2020 saw it become the largest asset in the defi space by market cap.
How Compound Finance Benefits DeFi
- Floods DeFi with Liquidity
- Investors can earn interest by lending their assets (Read more)
- Introduced liquidity incentive in form of $COMP
- Its token holders can participate in a decentralized governance system that includes the approval of new assets, among other decisions (Read more)
- Dapps and DEXs can borrow Compound’s liquidity and use it for financial mechanisms such as leveraged trading or flash loans
4. Kyber Network
Ticker: KNC
Main purpose: DEX Protocol
Established: 2017
Website: https://kyber.network/
Whitepaper: Link
Brief Background
Kyber Network is an on-chain liquidity protocol that has been described as being the “liquidity infrastructure for decentralized finance.” The project was founded by Loi Luu, Victor Tran, and Yaron Velner in 2017. Luu serves as CEO. The protocol aggregates liquidity from different sources to provide investors with the best rates, as well as instant token swaps.
How Kyber Network benefits DeFi
- Pools liquidity from various sources to offer takers the best rates (Read more)
- Offers instant token swaps between ERC-20 tokens (Read more)
- Its instant swap service can be implemented into any defi service, such as wallets, explorers and relayers (Read more)
- Anyone can provide liquidity reserves (Read more)
- KNC token can be used in governance, as well as for payments and collateral on other platforms (Read more)
- Introduces decentralized governance model KyberDAO
5. Bancor Network
Ticker: BNT
Main purpose: DEX Protocol/Atomic Swaps
Established: August 2016
Website: https://www.bancor.network/
Whitepaper: Link
Brief Background
Bancor Network is a liquidity protocol that was founded by Eyal Hertzog, Guy Benartzi, Galia Benartzi and Yudi Levi in August 2016. On Bancor, users can swap any ERC-20 against its native token BNT, a representation of other assets on the network. With this, conversions do not require a buyer and seller to be matched.
How Bancor Network benefits DeFi
- Users can provide liquidity and earn a portion of the network fees (Read more)
- Provides non-custodial trades between ERC-20 assets (Read more)
- Makes Ethereum and EOS tokens instant swaps compatible (Read more)
- Developers can integrate the Bancor protocol to make cross-chain conversions possible on their dapps (Read more)
- Introduces Liquidity Providers to Single Token Exposure (Read more)
6. 0x Protocol
Ticker: ZRX
Main purpose: DEX Protocol
Established: October 2016
Website: https://0x.org/
Whitepaper: Link
Brief Background
0x is a decentralized exchange protocol that developers can use to build their own DEXs atop of it. The project was founded by Amir Bandeali and Will Warren, who have targeted the creation of a “tokenized world where all value can flow freely.” This includes traditional assets like equity, commodities and bonds, as well as items like video game items, collectibles and software licenses.
How 0x benefits DeFi
- Powers regular type of DEXs such as Radar Relay
- Supports custom smart contracts (Read more)
- Aggregates liquidity from all its relayers
- Allows decentralized margin trading
- Lets anyone leverage its liquidity
- The 0x API has utility in games and collectibles, prediction markets, loans and more (Read more)
- Users can stake the ZRX token to earn rewards for providing liquidity (Read more)
7. Ampleforth
Ticker: AMPL
Main purpose: Stablecoin/Reserve collateral/Synthetic commodity
Established: January 2017
Website: https://www.ampleforth.org/
Whitepaper: Link
Brief Background
Founded by Brandon Iles and Evan Kuo, Ampleforth is a synthetic commodity that is designed to tackle the volatility of the cryptocurrency market. It uses a unique price-supply equilibrium that alters its total supply depending on the market's demand. It is seen as adaptive money that can serve a wide range of use cases.
How Ampleforth benefits DeFi
- Uncollateralized $AMPL token that adapts its supply to the demand
- Economic design ensures immutable network ownership and reduces liquidation risk (Read more)
- Offers incentive program for liquidity providers at Uniswap, called Geyser (Read more)
- Economic design decouples $AMPL from Bitcoin, providing safety through diversification (Read more)
- As a “synthetic commodity money”, Ampleforth is said to be macroeconomically friendly as it offers price equilibrium (Read more)
There’s a lot of research and development in defi, with the aforementioned protocols and projects representing only some of the efforts that are being made to make the financial world more inclusive. But these are some of the promising protocols in the space and have already proven by demonstrating how defi can benefit investors from any part of the world. They have achieved enough to become integral parts of the Web 3.0 architecture.
