The decentralized finance (DeFi) market exploded in 2020 and has continued to grow in 2021, reaching a total market cap of over $100 billion. In this guide, you will learn about the top ten DeFi coins (by market capitalization) to keep an eye on in 2021.
What is DeFi?
The advantage of DeFi is that it eliminates intermediaries, replacing them with globally accessible, autonomous, smart contract-powered protocols. With central authorities out of the way, anyone with an Internet connection can access financial products and services anytime, from anywhere in the world.
Some of the financial services and products that DeFi users access include borrowing and lending, alternative savings products, decentralized trading, asset management, and financial derivatives.
Top DeFi Coins
The top DeFi coins by market capitalization are as follows, according to data on Coinmarketcap at the time of writing.
Uniswap’s UNI token is the leading DeFi coin by market capitalization, with a total market value of over $20 billion at the time of writing.
The Uniswap protocol allows users to swap Ethereum-based tokens and provide liquidity to earn an investment income. For instance, you can swap ETH to USDT or you can earn UNI tokens and trading fees by providing liquidity.
Hayden Adams launched Uniswap in November 2018.
Chainlink is a decentralized oracle network that enables blockchains to interact with real-world data. This allows complex smart contracts to operate efficiently. Chainlink has a market capitalization of slightly more than $20 billion at the time of writing.
Additionally, Chainlink provides price feeds to DeFi applications, including Aave, Synthetix, and yEarn.
Sergey Nazarov launched Chainlink in 2017. The ecosystem comprises data providers, blockchains, DApps, and node operators.
Wrapped Bitcoin (WBTC)
Wrapped Bitcoin is an ERC-20 token that represents bitcoin on a 1:1 ratio on the Ethereum blockchain.
WBTC increases liquidity on decentralized exchanges, lending platforms, prediction markets, and other DeFi applications on Ethereum while providing bitcoin holders access to Ethereum applications. The market capitalization of Wrapped Bitcoin is $9.8 billion at the time of writing.
WBTC is part of the Wrapped Tokens project, a joint effort by Ren, Kyber Network, and BitGo. Ren is an organization that allows cross-blockchain integration of digital assets and DeFi applications, while Kyber Network is an on-chain liquidity protocol. BitGo is an institutional digital asset custodian. They launched WBTC in January 2019.
Terra’s LUNA is another high-market cap DeFi coin with over $6.4 of total market value at the time of writing. The Terra project focuses on developing stablecoins for the DeFi and digital payments. The cryptocurrency LUNA stabilizes the prices of Terra’s stablecoins. The protocol aims to solve the problem of volatility that makes cryptocurrencies like bitcoin unsuitable for payments.
Terra’s stablecoins provide low fees, instant settlements, and seamless cross-border transfers. Examples of Terra stablecoins are TerraUSD (UST), Terra Korean Won, and TerraMNT pegged to the Mongolian Tögrög. The project’s stablecoins are available on Ethereum and Solana.
Daniel Shin and Do Kwon started the development of Terra in 2018 and officially launched its mainnet in April 2019.
PancakeSwap is an automated market maker and yield farm on Binance Smart Chain.
On PancakeSwap, users can earn investment income through yield farming and staking, swap BEP-20 tokens, acquire Pancake NFT collectibles, and play a virtual lottery. The total locked value on PancakeSwap is $10.2 billion at the time of writing.
CAKE is the protocol’s native token and is used for yield farming rewards and to interact with the platform’s different applications, like the lottery. The market cap of CAKE is $6.1 billion.
Anonymous developers launched PancakeSwap in September 2020.
Aave is a non-custodial DeFi protocol where users can lend and borrow funds.
AAVE is the governance token on the platform and provides discounts to platform users. The total locked value is $12.09 billion, according to Coinmarketcap, and the market cap is $5.7 billion at the time of writing.
Aave launched as ETHLend in November 2017, then rebranded to Aave in September 2018. Stani Kulechov established Aave to address the lack of decentralized lending on Ethereum at the time.
Maker’s MKR is the governance token of decentralized organization MakerDAO and lending platform, Maker Protocol. The Maker Protocol creates USD-backed stablecoin, DAI, through smart contracts known as Maker Vaults. These smart contracts are created on applications like Oasis Borrow where users put up their digital assets as collateral to generate DAI. MakerDAO and Maker Protocol are Ethereum-based.
MKR token holders have voting rights, but they do not receive dividends. The total locked value is $9.7 billion and MKR’s market cap is $5.1 billion at the time of writing.
Rune Christensen conceived the Maker Project in 2015 and launched it in December 2017. Maker was one of the earliest projects in the DeFi industry.
Avalanche is an open-source blockchain platform that allows users to launch decentralized applications, smart assets, and interoperable blockchains. Avalanche aims to offer a platform where people can create, transfer, and trade digital assets. The developers want to bring the fragmented “world of asset trading under one roof”, removing the barriers to access.
AVAX is the native token of the platform and is used to pay transaction fees on the network. At the time of writing, it has a market cap of $4.8 billion.
Ava Labs rolled out the Avalanche mainnet in September 2020. The co-founders of Avalanche are Emin Sirer, Kevin Sekniqi, and Maofan “Ted” Yin.
Dai is a stablecoin pegged to the US dollar that operates on the Ethereum blockchain. The issuance and development of Dai are governed by MakerDAO through the Maker Protocol.
DAI is collateralized by other digital assets that users deposit into smart contract vaults. The current version of the stablecoin is Multi-Collateral Dai, which came out in November 2019. The earlier version was Single-Collateral Dai which could only be collateralized by one digital asset.
The market cap of Dai is $4.3 billion.
THORChain is a decentralized liquidity protocol that allows users to deposit native assets and earn yields. Users can swap digital assets across several “networks without losing full custody of their assets.” THORChain uses the automated market maker model, and its native token RUNE is used to govern the platform while keeping it secure.
THORChain’s team is anonymous, and Gitlab is responsible for organizing further development of the protocol. The platform raised funding through an initial DEX offering launched through Binance decentralized exchange in July 2019.
The platform solves the impermanent loss that liquidity providers experience with a slip-based fee. Moreover, it uses several technologies such as the TSS protocol to enable cross-chain digital asset swaps.
RUNE is available on Ethereum and Binance Smart Chain. The total locked value is $689.2 million, and RUNE’s market cap is $4.2 billion.
High Risk, (Potentially) High Returns
DeFi coins & tokens may be worth a look as a way to broaden your crypto portfolio and potentially capitalize on the success of their platforms, provided their issuing protocols are able to establish themselves as legitimate alternatives to traditional financial services providers.
However, you should be aware of the risks involved in investing in DeFi tokens, like bugs in smart contracts, the potential for “rug-pulls,” and extreme volatility. Some of these DeFi protocols are relatively new and might not be bug-free, so the chance of your DeFi token losing value because of an exploited vulnerability.
Therefore, it is always wise to conduct thorough research before participating on any DeFi platform or investing in a DeFi coin. And never invest more than you can afford to lose.
The information in this article is for informational and educational purposes only and should not be considered financial or investment advice. Investing in ICOs, IEO’s, cryptocurrencies, or tokens is highly speculative, and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.