The outgoing difficult year will be remembered for the rise of the digital assets industry, the upgrade of the Ethereum blockchain project to version 2.0, and the "bull run" of decentralized finance (DeFi). By the end of the year, the Total Locked Value (TVL) had increased to over $15 billion.
The goal of decentralizing finance is to create an alternative to large banks and trading companies. In general, DeFi systems act as a financial institution that makes full use of blockchain technology in which token transactions are performed through a network of decentralized distributed ledgers such as Ethereum.
The DeFi industry offers a range of multilateral solutions that can be profitable for all types of investors. If you are still in doubt whether it is worth considering the field of decentralized finance as an investment option, let's take a closer look at the high-profile DeFi projects of 2020 with a good growth prospect in 2021.
The Uniswap platform was launched in November 2018, the project operates on the Ethereum blockchain and allows the use of tokens without the participation of traders who manage assets with the involvement of third parties.
Uniswap is currently working with Update V2 - a new and improved version of the exchange with ERC20 <> ERC20 token pools, its pricing oracle, and Flash Swap. In September, the platform launched its UNI service token, which is used to manage protocol changes. Users who joined the platform before September 1, 2020, were eligible to receive 400 UNI worth $1,200 on the day of the token launch.
Uniswap consistently ranks first in Ethereum in terms of gas consumed and network resource consumption on commissions in general. Users agree with the inflated cost of "fuel" for the sake of a quick exchange.
How does it work?
The service works like an automated market maker. The user does not specify the buy or sell price, just selects the deposit and withdrawal tokens, and Uniswap provides the market rate. For actions on the platform, you need to connect the Web 3 wallet (MetaMask, Trust Wallet, Mist, Argent, Coinbase Wallet, etc.), select the asset for trading (ETH), the asset you want to receive, and Uniswap will automatically process the transaction with updating the wallet balance.
Using an automated market maker, the exchange can quote prices to the final user according to a predefined set of rules. To mitigate the risk of getting ahead, Uniswap allows traders to quote a maximum price when placing an order.
To stimulate liquidity, the service charges a fee of 0.25% on every transaction.
Uniswap benefits for small traders:
- Lack of listing fees;
- Does not require its tokens;
- The lowest gas prices among all DEXs.
Uniswap is one of the most active DEXs to date and has quickly become a DeFi token exchange platform for trading.
Another interesting project in the DeFi infrastructure is Chainlink.
Chainlink is trying to solve one of the biggest challenges facing the entire blockchain project sector: how to transfer information to and from the blockchain. The service provides real-time data and information to smart contracts. Traditionally, oracle sensors are used for this purpose.
Oracles are designed to expand the use of blockchains. They provide a reliable way to start smart contracts while respecting external parameters. But they have one drawback - centralization, which makes the oracle the weakest point in the blockchain, and can put the entire network at risk.
How does it work?
The Chainlink platform has its own LINK service token serving the ChainLink network. For maintaining the network, node operators are rewarded in LINK. The token price at the time of this writing is about $10.36 and depends on the number of node operators. The more node operators there are, the higher the cost.
At the current stage of development, ChainLink can provide a network compatible with Bitcoin, Ethereum, and Hyperledger.
Essentially, Chainlink aims to build the world's first blockchain-based oracle network to ensure nodes are functioning properly and data transmitted is accurate.
When a user requests information on the blockchain, an event is generated leading to the creation of a Chainlink service level agreement (SLA) contract.
This contract launches three other contracts in the system:
About Chainlink’s reputation.
Oracle authentication, the code looks at the history of each oracle, the system verifies how accurate the oracle data is. After the assessment, the oracle is assigned a rank, then the system uses the best oracles.
Chainlink order approval.
The contract delivers the requesting contract to the Chainlink nodes. After receiving the request, the nodes begin to place bets on it. The system automatically adjusts the number and type of nodes required to complete the request.
Chainlink aggregation contract.
The purpose of the last contract is to identify the contract for the presence of inaccurate data. The verified data becomes available to the blockchain.
The use of smart contracts is at the top of its popularity. The idea of synchronizing smart contracts with real-world data has a great potential and is worth looking into in 2021.
You can get a high-interest rate from your DeFi deposit by becoming a member of Yearn Finance. The most profitable option for placing tokens is calculated on the network using protocols: Aave, Compound, Dydx.
Yearn Finance is a portal to various DeFi products that launched in early 2020 (February). It has shown good growth in recent months. At the time of this writing, the YFI platform token was trading at a little over $23,000. The most active market for it is Binance.
How does it work?
The main function of the Yearn.finance protocol is storage. Yearn charges a 5% commission for a certain portion of the withdrawal. YFI pays dividends only to holders who vote with their tokens under management. The user deposits cryptocurrency as a deposit and receives income. The strategy is based on maximizing profitability and minimizing all risks.
The platform supports work with the following stablecoins: DAI, USDT, TUSD, sUSD, and cryptocurrencies: BAI, ETH, ZRX, LINK, REP, KNC, SNX, WBTC. Most likely, these lists will change with the development of the project.
Yearn analyzes which of the generated pools provides the greatest profit and moves the available funds to the found pool using the protocols: Aave, Compound, Dydx.
Yearn converts the user's tokens to an equal number of yTokens (ex: ETH to yETH). And distributes the funds received between the pools with the highest profitability. Part of the funds remains in the platform pool, and only YFI owners have access to them.
The Yearn Finance project has huge potential for the development of the Decentralized Finance (DeFi) area. Its YFI token competes in price with BTC. And the project participants have already managed to assess the low degree of risk and see a long-term benefit in the platform's operation. Today it is one of the most promising protocols and tokens with a wide range of decentralized financial services. The service is managed entirely by token holders.
If you are looking for investments with high yields in 2021, you should pay attention to the DeFi projects presented in this article, as well as other projects that already exist, or those that will appear soon.