in Decentralized Finance (DeFi)
DeFi stands for Decentralized Finance, a new financial system built on blockchain. DeFi started on Ethereum and all of the most popular DeFi projects are still on Ethereum. However, smart contract platforms like Polkadot and Tezos also have some popular DeFi projects.
DeFi projects offer all sorts of different services, including,
- Decentralized lending
- Collateralized borrowing
- Yield bearing interest accounts
- Decentralized exchanges
- Tokens that track the price of stocks and commodities
- Stablecoins that track the price of currencies like USD & EUR
All of these projects and their native DeFi coins are built on top of the blockchain so they’re accessible to anyone in the world. There is no registration process or paperwork to fill out. Furthermore, transactions clear in minutes instead of days.
How DeFi Works?
No matter how fancy they look, DeFi projects are really just smart contracts built on top of the blockchain. What’s cool about these smart contracts is that they can interact with each other. In DeFi this is known as money legos.
For example, many of the top DeFi projects connect to Uniswap in some way. Various DeFi projects use Uniwap to exchange tokens and the user might not even know that the project is connected to Uniswap.
Principles for Acquiring DeFi Projects?
Before you invest in DeFi it’s important to understand the risks. DeFi is the wild west of the crypto ecosystem and it’s possible to lose a lot of money. Smart contracts are a relatively new technology and developers are still making a lot of mistakes in their DeFi projects.
For example, the Iron Bank was recently hacked for $37 million. This was a promising project with a great team. They even had a security audit by two different firms and the security analysts didn’t identify an exploit. The hackers did though…
Since DeFi is so risky you can earn a lot of money by picking a successful project. Or you can lose everything by investing in an unsuccessful project. Before you invest you should consider your risk tolerance and how much you’re willing to lose.
Also, do your research so that you understand what you’re buying, and don’t take anyone’s word for it, even ours! If you buy some DeFi coins you should know why the coins have value. Why will they increase in value? What is the long term potential of this DeFi project?
Top 5 New DeFi Projects
The following are some of the newest and most exciting DeFi projects. Most of these projects are being built on Ethereum, but Polkadot is also an up-and-coming DeFi platform that’s worth paying attention to.
1) Pickle Finance
Yield farming is a popular DeFi activity. Investors lock up tokens and stablecoins in DeFi protocols and earn money for doing so. It’s like keeping your money in a bank account, except that yield farming pays a good return, often as high as 8% to 10% per year, or even higher if you farm alt coins, which present more risk.
The problem is how to pick the platform that’s offering the best ROI? Rates constantly change and moving money around to capture the best deal can become a full-time hobby. Enter Pickle Finance.
Pickle Finance is a popular yield aggregator. Instead of locking up their coins on an individual platform, investors can stake their coins with Pickle. All of these user funds are pooled and then Pickle Finance stakes them in the platform that’s currently offering the highest ROI. Since Pickle automatically moves funds from platform to platform, Pickle users are always getting the best return on their investment.
One of the most basic elements of any financial system is that the longer you lock up your money, the higher the ROI. For example, as of March 2021, the 10 year US treasury is trading at 1.62% while the 30 year treasury is trading at 2.38%.
Unfortunately, there isn’t really a similar financial mechanism available in DeFi. Investors get the same rate of return whether they lock up their money for two days or two years. That’s where SyncBond comes in.
SyncBond leverages the NFT (ERC-721) token standard to create DeFi bonds. Investors can lock up DeFi coins (like the Uniswap liquidity token) for a set duration. The funds remain locked but the claim on the funds (the NFT bond token) can be traded on a secondary market. It’s an ingenious solution and could be revolutionary if it catches on.
Former Goldman Sachs Executive Raoul Pal likes to say that there has to be a yield curve for crypto to be a real asset class. Whether or not SyncBond is the project that ultimately provides that yield curve remains to be seen, but the protocol definitely has a lot of potential.
3) Ark Gallery
Ark Gallery is a cool new DeFi project that’s offering a couple of services. Ark Gallery is known for wrapping Crypto Punks into the ERC-721 Token standard. Crypto Punks were the first NFTs to exist on Ethereum but they were coded using an older standard that made them unusable in DeFi protocols.
By wrapping the punks, Ark Gallery enables a Crypto Punk to be easily traded on a NFT marketplace like OpenSea.
Ark Gallery has also created a platform that allows investors to come together and crowdfund the purchase of expensive NFTs. Multiple investors can pool their money together. Once this group of investors has enough money, Ark Gallery takes the funds and buys the designated NFT.
All of the investors in the project receive a token that represents their share of the NFT. These fractional shares can be held or resold on a secondary market. If a majority of the investors want to sell the NFT, the NFT is sold and all of the money from the sale is distributed to the token holders.
Ark Gallery is a really cool DeFi project since it allows investors to purchase a small fraction of an expensive item.
DAOVentures is an interesting new DeFi project with a very specific goal in mind: to make it as simple as possible for new people to invest in DeFi. Here’s how they’re accomplishing that goal.
If you look at a protocol like Pickle Finance, that type of DeFi project will only appeal to a certain type of investor. Typically someone who is younger and understands Ethereum and blockchain technology. Pickle Finance doesn’t appeal to a sixty-year-old fund manager who wants to diversify part of his portfolio into crypto.
Enter DAOVentures. This is a DeFi project that mimics traditional finance. If you look at the DAOVentures dashboard, it’s very similar to financial products like Fidelity or Schwab. DAOVentures puts a professional appearance on DeFi, which should help it appeal to a wider range of investors.
On the back end, DAOVentures takes money from investors and puts the funds into many of the same protocols as Pickle Finance. However, DAOVentures does also have a strong focus on security and not investing in risky projects.
Unlike the other DeFi projects we’ve mentioned so far, Polkastarter is built on top of the Polkadot blockchain. Polkadot’s biggest advantage is that it promotes blockchain interoperability, and Polkastarter takes advantage of that.
Polkastarter’s key feature is that it allows new DeFi projects to raise money on a decentralized platform without doing an ICO. Even though Polkastarter is built on Polkadot, new projects can raise capital from other platforms like Ethereum. This is possible because Polkastarter has a built-in Dex (decentralized exchange) which can swap cross-chain assets.
As is to be expected from one of 2021’s top DeFi projects, listing on Polkastarter is permissionless. Any project can create a capital pool that investors can contribute to. Users who want to get involved with Polkastarter can check out some of the projects listed on their platform. New projects are getting listed all the time and there are some really exciting investment opportunities coming up in 2021.
More information about Polkastarter, and the Polkastarter DeFi coins, is available here.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.