DeFi Protocols to look out for and (maybe invest) in 2024?
DeFi has real world utility offering the innovation of Blockchain. But which one's seem poised for a breakout year?
From the time of its inception, the best real world use case of Blockchain technology has been in the realm of decentralised finance or DeFi. But for years it failed to gain traction due to three key things
Non inclination of financial institutions and governments towards tokenisation of real world assets
Very high annual percentage yields which made it seem like a game of blackjack than an actual stable investment option
Lack of institutional interest and integration into real world financial systems
This happens. Every new technology undergoes this curve of adaptation and 2023 was mostly a year for DeFi to shore back and consolidate after the scams and scandals of yesteryears.
But with meaningful and sustainable changes like Real Yield over APY, increasing interest in tokenisation of real assets, and more institutional interest in using the innovation offered by DeFI over blockchain for real world financial systems, the tide is starting to slowly re-shape.
2024 can turn out to be the surprise year for DeFi if it continues on this path of real world integration. But which DeFi protocols do we start looking at, given there are so many?
To keep it simple for a first draft of research, I used TVL (total value locked) as a standard metric to understand volume or transaction in US dollars for each. For me, the amount of $USD locked in the protocol was the first signal to gauge relevancy and trust for each
Here are a few that I am going to watch out for in 2024 and the reasons why.
Aave (AAVE)
Aave is a DeFi lending platform that started in 2017. It operates on various blockchains, including Ethereum, Polygon, Avalanche, Arbitrum, Optimism, Base, Metis, Fantom, and Harmony. It’s functionality across so many different blockchains testify to its popularity across on chain protocols. With a TVL of around $4.5 billion, Aave allows users to lend and borrow a wide range of cryptocurrencies, from stablecoins to altcoins, offering both stable and variable interest rates. Aave's lending model allows users to earn interest on deposits, and it utilises a native governance token, AAVE, which can be staked for rewards and fees.
To keep it simple , it’s like an online savings and loan bank. You can deposit your digital currency and earn interest on it. Alternatively, you can borrow digital currency, using your existing assets as a guarantee. Aave manages all this through automated contracts on the blockchain. The cool thing is you can borrow and earn interest at the same time which almost never happens in real world loan systems. Mathematically you can even pay off your loan from the interest you earn!
Lido (LDO)
Launched in 2020, Lido is a liquid staking solution for Ethereum and other Proof of Stake chains. It has a TVL of $16.36 billion and provides non-custodial staking services. This means that users can stake any amount of ETH without needing staking infrastructure or creating a validation node which is complex and risky. It allows users to stake less the general 32 tokens that are used for ETH staking in a protocol. On top of that users get rewards (interests) for staking their ethereum. This expands the market pool of ETH risers who can stake, given its price thereby making it attractive for its scale.
It is a bit like a savings account, but for a specific kind of cryptocurrency called Ethereum. You deposit your Ethereum, and instead of locking it up, Lido lets you earn additional rewards while still keeping your investment flexible
Uniswap (UNI)
Uniswap is a decentralised exchange protocol on the Ethereum network, established in 2018. It has a TVL of $3.31 billion and enables users to trade ERC20 tokens autonomously. Uniswap operates through an algorithm matching trades in liquidity pools, eliminating intermediaries. It boasts a large user base and offers token exchange and lending services.
Think of it as an online marketplace where you can exchange one type of cryptocurrency for another. It's like a currency exchange at the airport, but for digital currencies. You don't have to negotiate prices; Uniswap does that automatically.
Maker (MKR)
Maker, an Ethereum-based protocol, was launched in 2018 and supports the stablecoin DAI. With a TVL of $4.95 billion, it operates as a Collateralised Debt Position platform where users can lock up Ethereum assets as collateral to receive DAI. The MKR token is used for interest payments and governance.
To simplify it, Maker uses a stablecoin DAI which is pegged to the dollar and thereby far less volatile with real world financial value. This feature immediately makes it more attractive for institutional and retail investors. Users can provide digital or crypto assets in collateral and in return, they can get a loan in DAI which they can use for various purposes. Since it’s pegged to the dollar the loan is far less volatile and it allows you the novelty of using crypto assets as collateral for a loan on a stablecoin.It also does not need any traditional bank or credit check thereby providing a very novel way to access liquidity without selling assets.
PancakeSwap (CAKE)
This decentralised exchange is based on the Binance Chain and started in 2020. With a TVL of $1.1 billion, it offers token trading, staking, and yield farming. It is particularly popular among Binance ecosystem users.It also offers additional features like liquidity pools, farming, and staking, enabling users to earn rewards. PancakeSwap uses an automated market maker (AMM) model where liquidity pools are used instead of traditional market order books, allowing for direct, wallet-to-wallet trading
It is like a digital trading post where you can swap different types of cryptocurrencies and also get offered ways to earn rewards through games and activities called “yield farming.”
Curve Finance (CRV)
Established in 2020, Curve Finance is a decentralised exchange protocol with a focus on stablecoin trading. It has a TVL of $2.4 billion and operates on the Ethereum blockchain. It is designed for the exchange of stablecoins—cryptocurrencies that are pegged to stable assets like the US dollar.
This specialisation allows Curve to offer more efficient trading for these types of assets compared to other exchanges. This is because Stablecoins, due to their stable nature, allow Curve to maintain prices close to the 1:1 peg, resulting in very low slippage. This, combined with low trading fees, makes Curve an attractive platform for users looking to swap stablecoins.
Users can also earn passive income on their stablecoin holdings by facilitating trades in the Curve Liquidity pools which means their holdings and net worth can grow without doing anything, kind of like normal stocks.
JustLend (JST)
Launched in 2020, JustLend is the first official lending platform on the TRON blockchain. It has a TVL of $5.79 billion and enables users to borrow and lend TRON assets, determining interest rates based on supply and demand.
It enables users to lend and borrow TRON, TRC-20 tokens, and TRON stablecoins like USDT, facilitating transactions without traditional centralised financial systems. JustLend supports borrowing at both fixed and variable interest rates and allows for earning interest by providing cryptocurrency to liquidity pools. The platform's native token, JST, is used for governance, enabling holders to participate in decision-making processes on the platform.
InstaDapp (INST)
InstaDApp is a decentralised application (DApp) that acts as a bridge across multiple decentralised finance (DeFi) protocols. With a TVL of $2.4 billion It integrates these different protocols into a single, unified interface, making it easier for users to manage their DeFi assets and activities.
Users can perform transactions across different protocols within InstaDApp's platform. This includes activities like swapping assets, providing liquidity, borrowing, and lending, all from a single interface. Users also get a comprehensive dashboard that provides a consolidated view of their assets across different DeFi protocols. This feature allows for more efficient management and monitoring of investments and liabilities.
PS: TVL represents the sum of all the cryptocurrency, tokens, or other assets that are staked, deposited, or locked in a DeFi protocol. This can include assets in liquidity pools, staking contracts, lending platforms, and other types of financial smart contracts. A higher TVL often indicates that a DeFi platform is popular and trusted by users. It suggests that a significant amount of assets are being used in that protocol, which can be a sign of its reliability and utility.
PPS: Nothing I have written here should be taken as investment advice. I am not a financial advisor. For investment advice contact licensed and experienced investment advisors.